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Possible gas line tax credit payback Stevens working on payback as compromise to win support Larry Persily Petroleum News Juneau Correspondent
Alaska’s senior U.S. senator says he is working on adding a payback provision to the federal tax credits for an Alaska natural gas pipeline project in the hope it might win over some opponents of federal price supports for the project.
Sen. Ted Stevens is not giving out details of the proposal.
He announced the latest move to win congressional and White House support for the gas line tax credits during a meeting with reporters Oct. 2 in Washington, D.C. Stevens prefaced his comments about a possible payback provision by restating the obstacles facing supporters of the $20 billion gas pipeline from the North Slope to mid-America.
“ConocoPhillips and BP have made it very plain to us that they will not start the pipeline” without federal tax incentives to protect them from the risk of low prices for their gas, Stevens said.
However, he reminded reporters, the White House does not like the tax credit provision backed by the two producers, the state and its congressional delegation.
“We’ve changed that now, we made it so it is totally repayable,” he said. Drafters working on language The senator’s “we” referred to he and the Senate Finance Committee, which is drafting the tax provisions of the federal energy bill, said Melanie Alvord, Stevens’ spokeswoman. A House-Senate conference committee is working out details of the energy bill, but is waiting for the Senate Finance Committee and House Ways and Means Committee to draft language for tax provisions in the legislation.
Congress is scheduled to return to work Oct. 14, after its Columbus Day holiday recess. Members are scheduled to adjourn for the year in November, and although there is hope the conference committee can finish its work on the energy bill early in November, skeptics fear it could drag on closer to Thanksgiving.
Alaska’s congressional delegation is pushing for a tax credit provision that would guarantee North Slope producers a federal subsidy of up to 52 cents per thousand cubic feet whenever the wellhead value of their gas drops below $1.35 per mcf. The tax credit would start at 1 cent if gas prices hit $1.34, and would grow to 52 cents if prices fell lower. But the maximum credit would be 52 cents, no matter how low prices fell.
Payback provision not new Offering a payback provision to win over opponents is nothing new, said John Katz, head of the state’s lobbying office in Washington. “It’s a provision that has received a fair amount of attention on and off for the past year or so.
“The recapture provision at the high end would assure members of Congress that the companies would not receive a windfall at the high end.”
A payback provision is coming into play again as people look for a compromise, Katz said.
In addition to White House opposition to the tax credits, resistance is coming from Lower 48 natural gas producers and Canadian producers that fear they would lose market share and revenues from competing with price-guaranteed Alaska gas.
Alaska senators threaten ‘no’ vote While continuing to work for the gas tax credits — and also congressional approval to open the Arctic National Wildlife Refuge to oil and gas exploration — Alaska’s two U.S. senators have threatened to withhold their votes from final passage of the energy bill if it does not include either ANWR or gas line credits.
“Lisa Murkowski and I have made it plain,” Stevens told reporters. “We will not vote for the bill unless it contains one or the other or both.”
Stevens, with 35 years in the Senate, has more seniority than any of his Republican colleagues. Murkowski is in her first year as a senator.
A Murkowski spokesman confirmed the senator’s pact with Stevens to vote against the energy bill unless Alaska gets at least one of its big-ticket wishes.
In her continuing effort to assure opponents that the gas line tax credits will not skew the market or hurt other producers, Murkowski issued a press release quoting a recent report from Cambridge Energy Research Associates that the Alaska gas project will not knock down market prices as much as some had feared.
CERA says market could handle gas “The impact of the Alaska pipeline on North American prices is much more muted than might have been expected,” CERA said in its Oct. 3 report on natural gas markets. “The analysis shows a short — two-year — moderate dampening of prices when Alaska comes on-stream.
“Demand growth, declining domestic production and supply flexibility owing to LNG flexibility, allows Alaska natural gas to be incorporated readily into the market,” CERA said.
The statement is a turnaround from CERA reports in December 2002 and spring 2003, in which the international energy consulting firm issued stronger warnings about the effect of Alaska gas on market prices.
Just this past spring, CERA reported: “These volumes would immediately depress market prices once Alaska gas reached market.”
Even if Alaska’s 4.5 bcf per day of new supply knocked down North America gas prices just a dime for two years, the loss to producers or gas marketers could total more than $4.5 billion.
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