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Alaska legislators want action on gas pipeline Lawmakers want to do something this session to encourage decision Larry Persily Petroleum News Government Affairs Editor
There’s no question that Alaska legislators want to see something happen this session to get started on building a pipeline to carry North Slope natural gas to market — any market.
The questions are which project to support, whether the state should own a piece of the line, and whether the state should push the issue through risk-sharing with pipeline developers or by threatening action if North Slope producers take no action.
“The caucus is adamantly supporting movement on the gas line this year,” said House Speaker Pete Kott, speaking for his 28-member Republican-led majority caucus.
Kott, in his 12th year representing Eagle River, said he wants to introduce legislation by the end of February to enable the state to provide some type of price-support mechanism to share in the risk if gas prices drop too low. He doesn’t know if that would be credits against production taxes or lower tax rates, but he believes some form of price-risk sharing is needed if the state is to convince companies to spend $20 billion on a pipeline from Alaska to mid-America.
Congressional negotiators drafting a federal energy policy bill in November rejected efforts to include a price-risk provision in the measure, though the bill — currently stuck in the Senate — includes accelerated depreciation and a federal loan guarantee for the project. Failure by Congress to help cover periods of low gas prices with federal tax credits started speculation that perhaps the state would step in with a similar mechanism.
The producers have never strayed from their interest in the project, but at least two of the North Slope majors say the line is too risky a venture without some government involvement. They worry that construction delays and overruns or low market prices when the gas starts flowing in the next decade could cost billions of dollars. State risk would have to be affordable “I think people are ready to take that leap of faith forward,” Kott said of possible state assistance during times of low prices, though he cautioned any financial risk to the state would have to be minimal — meaning affordable. And any state assistance would require assurances that the pipeline will be built, he said.
Although the state would be risking less revenue in years of low gas prices, it would clearly come out ahead with jobs, economic development and billions of dollars of tax and royalty revenues over the life of the project, Kott said.
A natural gas pipeline is the state’s “best shot at real money” in the next eight or nine years, he said. Alaskans are frustrated at seeing state revenues shrink while gas worth billions of dollars sits underground, waiting for a pipeline to turn the resource into cash, Kott said.
The Department of Revenue estimates the state’s production tax and royalty take from a gas line could be as much as $600 million a year, assuming the gas sells for $4 per thousand cubic feet and there is a pipeline tariff of $2.40 per mcf.
Kott rejects ideas that instead of sharing the price risk or offering other tax incentives, the state should push for a new tax on the gas if producers fail to develop a pipeline project. “There are a few of my colleagues who believe that’s how we get them to react,” but Kott said he sees fewer than 10 votes in the 40-member House for such a bill. Upside potential needed, too Rep. Eric Croft said he, too, might be willing to accept some form of state sharing in the risk of low prices, but not if it’s one-sided. “I will not simply absorb the low side,” the four-term Anchorage Democrat said. “I am willing to take some of the downside risk if I get some of the upside potential.”
But unlike the House speaker, Croft wants to consider legislation that would hold the possibility of a costly reserves tax over the producers. The tax, Croft said, would take effect only if the companies don’t build a gas line project while also refusing “an otherwise qualified offer” to sell their gas to another pipeline developer.
Croft said he plans to introduce a reserves tax bill this session, similar to unsuccessful efforts he supported in 2000 and 2001.
Whether it’s a reserves tax on gas not being produced, or using the state’s other lease and regulatory tools to force a decision by the producers, Croft said it’s simply a matter of lawmakers summoning the political will to make a move.
He dismissed as unworkable suggestions by some that the state should look into taking back North Slope oil and gas leases if the companies decide for another year not to commit to a gas line project. “That’s a freakin’ 10-year lawsuit,” he said of any legal battle over trying to take back the leases. Croft prefers non-producer-owned line While Kott said he prefers to work with producers on their proposal for a pipeline to mid-America, Croft also wants the pipeline but without BP, ConocoPhillips and ExxonMobil as the owners. “I am of the opinion that we don’t want a producer-owned pipeline,” he said.
A non-producer owned project would be better for the smaller companies that are looking for gas in Alaska and competing against the majors, Croft said, and would avoid what he believes have been problems with the majors owning the oil production and the only oil pipeline out of the state.
Croft said his preference would be a gas line owned by “some combination” of pipeline companies and the state, with room for individual Alaskans to buy shares.
Voters established the Alaska Natural Gas Development Authority in November 2002 to determine if a wholly state-owned project is economically feasible to pipe North Slope gas to Valdez, where it would be liquefied and loaded on tankers for Pacific Rim buyers. The authority has spent all of its $350,000 for this fiscal year and is asking legislators for an additional $2.15 million this session. Kott says highway line best opportunity Kott said he expects the authority will get some but not all of its money. Working toward a producer-financed and owned project is preferable to the state getting into the business, he said. And, he said, he believes the marketing opportunities are stronger for a pipeline feeding the large mid-America market than trying to compete with an abundance of LNG supplies in highly competitive Pacific markets.
“I think for the most part getting gas to market following the highway route is going to be the most effective,” he said.
But if the producers don’t want to build the highway line, perhaps the state could buy the gas and then re-sell it to a third party that would operate the pipeline, Kott said, without the state having to own and operate the project.
The speaker is hoping for a different attitude among some of his colleagues toward gas line incentives this year as opposed to 2002, when he tried to move a bill granting a state and municipal property tax break for the project of several hundred million dollars. Opponents blocked the measure from coming to the full House for a vote, led by Republican Rep. Jim Whitaker of Fairbanks, who objected that the tax incentive was too broad and lacked a sufficient payback provision.
Whitaker left the Legislature late last year for his new job as mayor of the Fairbanks North Star Borough. Speaker believes colleagues willing to help Noting the change in several House seats the past two years, Kott said the new members are more willing to provide incentives for the project.
The speaker said he expects the House Finance Committee will hold hearings in early February, “putting the industry’s feet to the ground,” and asking them what it will take to get the project off the drawing boards and into concrete and steel.
He also planned to meet this month with Dan Fauske, executive director of the Alaska Housing Finance Corp., to talk about what the state could do to possibly help with bonding for the project. “He’s always been my go-to guy for putting together bonding packages.”
Though AHFC’s mission in state law is to provide housing loans and administer the state’s low-income housing programs, lawmakers have in the past turned to the corporation to assist with non-housing bond issues.
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