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Time to act Governor asks Alaska producers and others for gas line application Larry Persily Petroleum News Juneau Correspondent
Alaska Gov. Frank Murkowski wants legislative approval next year on a contract for payments in lieu of taxes for a natural gas pipeline, and he is calling on North Slope producers or any other qualified project developers to submit an application to start formal contract negotiations.
“We anticipate we will have a response,” he said.
Murkowski held a press conference Thursday, Dec. 4, in Anchorage, to publicize his call for applications under Alaska’s Stranded Gas Development Act. The 1998 law, amended by legislators in 2003, allows the administration to negotiate a contract of regular payments from pipeline owners in lieu of state and municipal taxes.
The intent of the law is to provide investors with the fiscal certainty of contractual payments for the proposed multibillion-dollar project instead of risking changes in myriad state and municipal taxes.
The state had expected an application this year from the major North Slope producers, and a team from the departments of Revenue, Natural Resources and Law has been meeting with the companies to discuss what’s needed in an application. But nothing has come in, and the governor has decided it’s time to publicly call for an application from any company or companies willing to proceed with the project. Time is running short “We want to have this done prior to the Legislature getting out so we can act upon it,” Murkowski said. “I don’t want to lose a year.”
The Stranded Gas Act requires at least a 30-day public comment period after the administration negotiates a contract and before the governor can submit the deal to the Legislature for its approval. Lawmakers may not amend the contract — their only option is to approve or reject the deal.
The Legislature starts its 121-day session Jan. 12, and the administration is worried it could run out of time for the public comment period and legislative debate unless it receives an application and completes contract negotiations early in the year.
The press conference “is a notice that we’re going out and soliciting all those that meet the qualifications” for an application, the governor said. Just one or two producers could apply Under the law, all three North Slope producers could submit a joint Stranded Gas Act application, or just one or two of the companies could start the negotiations. Or, a pipeline company or a consortium of pipeline companies with a contract to purchase gas from the producers could submit an application.
“It will be interesting to see the level of response,” the governor said.
Many in the industry had assumed the producers were waiting for Congress to take final action on the energy bill before going ahead with an application under the Stranded Gas Act. The energy bill, stalled in the Senate until sometime next year, includes several major financial and permitting incentives to encourage development of the proposed $20 billion gas pipeline from the North Slope to mid-America.
In addition to federal legislation, the companies have also said they need fiscal certainty from the state before deciding to proceed with the project. A contract under the Stranded Gas Act is the most likely option to meet that need.
“I don’t see any particular advantage now of waiting,” Murkowski said. “We want to pursue this as a consequence of the energy bill being stalled for the time being.” Contract could cover all taxes The contract for payments in lieu of taxes can cover state production taxes, corporate income taxes, state and municipal property taxes, municipal sales taxes, and any other state or municipal taxes or assessments. The contract cannot amend the state royalty rate on gas production, although the law does allow negotiation of the timing of state decisions whether to take its royalty gas in-kind or in-value and negotiation of a valuation method for royalty gas.
Qualified applicants under the Stranded Gas Act include companies that own an equity interest in the proposed project, or commit gas to the project, or hold permits to construct and operate the project. A qualified contract is not limited to a pipeline to mid-America and also could include a line to tidewater for shipping liquefied natural gas out of Alaska.
Applicants are limited to companies or a group of companies owning at least a 10 percent working interest in a qualified project, or holding the right to market or purchase at least 10 percent of the gas to flow through the line, having a net worth equal to at least 10 percent of the estimated project cost or an unused line of credit equal to at least 15 percent of the project cost.
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