Knowles report counters Canadian objection to gasline incentives

Petroleum News Alaska Staff

Alaska Gov. Tony Knowles has responded to Canadian criticism of proposed incentives for an Alaska gas pipeline with an analysis identifying incentives in use in Canada.

“Governmental incentives for the domestic oil industry are a common part of the landscape in Canada,” says the analysis, prepared by the governor’s Washington, D.C., office in conjunction with energy consultants and released June 5.

Knowles supports the potential tax credit for Alaska natural gas in the U.S. Senate’s Alaska Gas Pipeline Act of 2002, a credit available if natural gas prices fall below predicted levels. The credit would be repaid if prices exceed a ceiling in the legislation.

The report said that while some Canadian interests have characterized the proposed credit as a subsidy unfair to Canadian gas companies that will produce a misallocation of resources in the North American natural gas market, “Governmental incentives for the domestic oil industry are a common part of the landscape in Canada.”

“In their eagerness to advance their own interests, they have ignored the reality that both the national government of Canada and the governments of other Canadian provinces provide special economic support to both developing and established oil interests, including protection against swings in commodity prices,” said the report.

The report said both Canadian federal and provincial governments have provided incentives for more than two decades to develop and exploit oil sands, incentives expected to total $820 million from 1986 to 2030.

And the Hibernia project in Newfoundland received a $1 billion grant and a $1.66 billion loan guarantee from the Canadian government in 1988, when low oil prices put the project in jeopardy.

“The criticisms of the credit are not well taken,” the report said. The critics have ignored the likelihood of lower natural gas prices to consumers in both the United States and Canada, and “also ignore the fact that incentives for development of new resources are widely used in Canada, the U.S. and throughout the world.”