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Gas pipeline incentives back in federal energy bill Lisa Murkowski, Ted Stevens win Senate Finance approval; tax break based on gas wellhead price below $1.35 per million Btus Kristen Nelson Petroleum News Editor-in-chief
Gasline incentives are back on track in Washington, D.C.
In March 31 address to the Alaska Legislature, U.S. Sen. Ted Stevens, R-Alaska, said gasline tax incentives were not in the Senate energy bill because what had been proposed had too high a revenue impact.
Stevens returned to Washington, and on April 2, he and Sen. Lisa Murkowski, R-Alaska, reported they had won Senate Finance Committee approval for a major financial package to help ensure construction of an Alaska natural gas pipeline to bring Alaska gas to market in the Lower 48.
Stevens credited Murkowski: “As a member of the Energy Committee, Senator Murkowski has taken the lead and done an outstanding job in securing important provisions to enable the Alaska Natural Gas Pipeline to move forward,” he said.
The financial incentive package includes: a marginal well credit granting a federal income tax credit to Alaska gas produced if the wellhead price goes below $1.35 per million Btus; accelerated depreciation for the pipeline; and expanded tax credits for development of heavy oil and coalbed methane and hydrates.
Senate Finance Committee Chairman Sen. Charles Grassley, R-Iowa, included the delegation’s financial incentive package in his tax proposal for a major energy bill. Murkowski and Stevens said the measure is slated to be added to major energy legislation being developed by the Senate Energy and Natural Resources Committee and debated in the Senate between late April and mid-May. Aid to offset risks Murkowski said the package will “provide fair and reasonable safeguards to the North Slope gas producers to help offset the financial risks inherent given the long lead times, the high costs and the volatility of natural gas prices when financing such a huge project.” The senator also said that this package “accomplishes that without affecting the prices for natural gas elsewhere in the nation.”
Last year’s bill set a price floor of $3.25 per million Btu for Alaska gas produced after 2010, and required that any tax aid be repaid if the price of gas rose above $4.89 per million Btu.
The senators described the proposed marginal-well credit as a fiscal risk-sharing mechanism. The credit would phase in and would be capped at 52 cents per million Btu. They said the credit “is consistent with existing aid that the government provides for non-conventional fuel production under Section 29 of the existing tax code and will be similar to the other production credits proposed in the energy tax bill.”
Moving on two fronts The state of Alaska was already moving on the gas line. (See page 8 story)
Commenting on the Senate action, Alaska Gov. Frank Murkowski told reporters April 2 that the financial incentive package, added to the bill by Grassley in what the governor described as an amendment to the chairman’s mark, includes a differential production tax credit of as much as 52 cents per million Btu for wellhead gas prices below $1.35, a seven-year depreciation on the pipeline and a $3 a barrel credit for heavy oil. The governor said he spent time on the phone with members of the Finance Committee promoting the incentives.
This package, he said, is neutral on the revenue issue: no one expects natural gas to go below $1.35 per million Btus at the wellhead. The depreciation is accelerated to seven years, instead of 15.
Important first step BP Exploration (Alaska) Inc. spokesman Dave MacDowell told Petroleum News April 3 that the tax credits and accelerated depreciation provisions are not everything, but are very important.
“The action yesterday in the Senate Finance committee was a very important first step regarding an Alaska gas project,” MacDowell said, “but it’s still early days. The legislation has a long ways to go before it becomes law. More is needed for a project o move ahead but two of the most important provisions we need are included in the committee language and we are very pleased about that.”
He said the Alaska delegation and the governor played an important role.
“We think those positive actions in the Senate Finance Committee resulted from — in part — strong leadership from the Alaska’s delegations Senator Lisa Murkowski and Senator Ted Stevens, along with a tremendous level of support from Governor Murkowski.”
Heavy oil credits The governor drew attention to the heavy oil credit in the incentives package.
It “could have a significant impact and an immediate impact” on production and “could be a substantial revenue enhancer” for the state.
The governor said “this $3 a barrel could make a big difference in the economics of lifting Prudhoe Bay’s heavy oil. The infrastructure’s already there, it’s a matter of the price as well as the technology…”
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