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Gas reserves tax unlikely from legislators Tax last-ditch strategy, but Alaskans frustrated with lack of a natural gas project Larry Persily Petroleum News Juneau Correspondent
Alaska legislators are unlikely to adopt a natural gas reserves tax to punish North Slope producers for their hesitancy to build a gas pipeline across the state, but that doesn’t mean lawmakers — and the public — aren’t frustrated with the lack of a project.
Neither Sen. Scott Ogan, R-Palmer, a strong supporter of the oil and gas industry, nor Rep. Eric Croft, D-Anchorage, a vocal critic of the industry’s reluctance to build an Alaska natural gas project, expect legislators will go along with a citizens group proposal for a reserves tax.
“A gas reserves tax is probably a last-ditch strategy,” said Ogan, chair of the Senate Resources Committee. “You have to be mindful of the law of unintended consequences.”
Such a punitive tax would be viewed by the industry as adversarial, especially at a time when Alaska wants to attract more oil and gas investment to the state, he said. Governor says tax a bad idea The governor also sees a reserves tax as the wrong way to get the multibillion-dollar project built, said his spokesman John Manly. People need to understand the long and costly legal battle that would ensue, Manly said, adding that the companies’ response likely would be, “We’ll see you in court and for many years to come.”
But Alaskans are growing tired after waiting 25 years for a gas pipeline, Croft said. If a project makes economic sense, and if the three major North Slope producers decline to move ahead, the public should be and would be furious, he said.
The unanswered question, the legislators said, is whether a gas pipeline is a smart financial investment. And separate from the private-sector project — but with the same financial question — is the proposed state-owned project to pipe natural gas to Valdez, where it would be liquefied and shipped out on tankers to California or the Far East. Tax proposal supports LNG project Backbone II, a successor to the citizens group Backbone that battled against BP’s takeover of ARCO Alaska’s assets in 1999-2000, believes the companies are choosing to develop other gas resources around the world instead of bringing their Alaska gas to market. The group’s full-page proposal says the companies could escape the reserves tax if they agreed to sell at least 1 billion cubic feet of gas per day to an Alaska LNG project, such as the state-owned project.
Anchorage attorney Bill Walker, who signed the late-September Backbone II ads in the Anchorage Daily News and Fairbanks Daily News-Miner, said the group has met three times since then but has no more campaign plans to report at this time.
Walker, a member of the original Backbone group, serves under contract as city attorney to Valdez, which has long pushed for an LNG project and terminal in the community. He said the city is not part of the reserves tax campaign. Conoco writes to all 60 legislators The industry’s strongest opposition against Backbone II’s newspaper ads came from Kevin Meyers, president of ConocoPhillips Alaska Inc., who sent a letter to all 60 legislators criticizing the proposed tax.
“The state cannot tax this or any other project into economic existence,” Meyers said. “We urge you to reject any effort to tax a project into existence.”
ConocoPhillips and others have spent millions of dollars studying the economics of an Alaska LNG project, and concluded a pipeline from the North Slope to the Lower 48 is a far better option, he said. The biggest strike against an LNG project is that it cannot compete against the oversupply of less expensive projects throughout the world, Meyers said in his letter.
Those other projects do not need an 800-mile pipeline through the arctic to get gas to tidewater, nor do they need expensive U.S.-built and U.S.-crewed LNG tankers, he said. State gas authority also sends letter Meyers’ letter prompted a response from the Alaska Natural Gas Development Authority, which is working toward its own project for a state-owned pipeline to bring North Slope gas to tidewater. The authority’s plan is to liquefy the gas and ship it aboard tankers to California or the Far East.
The authority said in its letter to all legislators that a reserves tax would hurt its effort to build a “commercial relationship” with the major North Slope producers. The state project would need to buy gas from the producers and also would like to share the costs of a gas treatment plant on the slope and the pipeline as far as it goes before the LNG project and Lower 48 line split off in their separate directions.
Harold Heinze, the authority’s chief executive officer, signed the letter.
“The authority feels we have to do business with the companies,” Heinze said Oct. 27, two weeks after sending the letter. Heinze said he didn’t want the producers to get the wrong idea that the authority is involved in the gas reserves tax.
State authority believes it has the answer In fact, Heinze said in his letter, the authority’s own analysis confirms “an Alaska LNG project would not be competitive for ConocoPhillips.” However, he said, the authority believes its tax-exempt benefits as a public corporation reduce the costs and make the project a good investment for the state.
Heinze said he took Meyers’ letter as an opportunity to tell legislators “there is an honest difference of opinion” as to what the state authority can do. The authority believes a producer-sponsored pipeline through Alaska and Canada and a state-owned line and LNG project at Valdez “are compatible and complimentary.”
ConocoPhillips said in its letter it worries that talk of a gas reserves tax and accusations in the Backbone II newspaper ad could hurt the producers’ effort in Congress to obtain federal tax credits for their $20 billion pipeline project to the Lower 48.
Alaska waits on Congress Ogan believes the companies will lose credibility with the public if Congress approves the tax incentives as part of the energy bill but the producers later balk at a fast decision to go ahead with the project. Although he is hesitant to start spending serious state money on the gas authority’s LNG proposal, he acknowledged the idea of a state-owned project “is looking better and better.”
That’s okay with Heinze, who observed that the voters’ wide margin of approval in the November 2002 statewide election to set up the authority “reflects a lot of Alaskans’ frustration in the process.” The state-owned project, he said, “may be the best solution to that frustration.”
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