Concerns about gas pipeline should be addressed

July 14, 2006

SPECTRUM/Les Gara

Alaska is at an important crossroads. We can negotiate a strong gas pipeline deal that benefits Alaskans for generations. Or we can accept what Gov. Murkowski, Exxon Mobil, BP and ConocoPhillips are pushing.

That proposal: 1- doesn't require anyone to actually build a pipeline; and 2- gives away more than $10 billion in lost future state revenues to the three oil giants if they ever exercise their option to build a pipeline.

No other company submitting a pipeline proposal has demanded this magnitude of concessions. Those independent companies don't produce North Slope oil and gas, and have no profit motivation to demand gas tax concessions.

The senior officials who resigned from Gov. Murkowski's Department of Natural Resources protested his concessions and decision to stop negotiations with others who proposed building a gasline. Former Commissioner Tom Irwin has called Gov. Murkowski's gas royalty proposal &#8220an absolute mistake.” Legislative adviser Daniel Johnston, a world-renowned oil and gas expert, has called Gov. Murkowski's concessions &#8220lame.”

We should fix things by completing negotiations with others who've proposed a gasline, and letting the Legislature choose the deal that serves us best.

The proposal on the table gives away too much:

€ $5.5 billion in tax reductions: The Legislature's experts made a strong case that a pipeline would be very profitable for anyone who builds it, and that tax concessions beyond those in our already loophole-ridden tax laws aren't needed. They warn the new tax rate proposed by the governor will generate $5.5 billion less in state revenue than current tax rules (in 2005 dollars);

€ $13 billion in subsidies: The governor wants to change the law to allow them. $3.6 billion of that is a gift in the governor's proposed oil tax bill. It lets oil companies offset 40 percent of the $9 billion cost of building gas facilities from future oil tax payments.

Gas producers will make generous profits once a gasline is built. Exxon currently has a legal duty to develop its Point Thomson gas field without state subsidies. Alaskans should not pay $3.6 billion to build gas facilities for private petroleum companies who'd build these profit-making facilities without state handouts.

Current law lets Alaska charge a production tax and royalty to gas producers. The governor proposes that we take our gas &#8220in kind.” That is, we'd take the gas and sell it ourselves. The governor wants us to take all our gas in kind and waive our right to royalties and production taxes. The oil companies love the idea. Here's why:

Taking ownership brings an obligation to pay for transporting it through the pipeline. Under current law, if the cost of conditioning and transporting gas exceeds the gas sales price, we simply get no tax or royalties. By taking it &#8220in kind” we can now lose money.

That will occur when the transportation and conditioning costs exceed the price of gas. If gas falls to its historical average of $3.00/mcf, and shipping and conditioning costs exceed $3.00/mcf, we'll sell our gas for less than we pay to ship and condition it.

Additionally, the governor concedes, and our experts say, the state will never sell our gas for the price our more experienced oil and gas companies, who have a long history of trading in the gas market, sell it for. Rutherford warns this will result in a loss of about $1.5 billion in future revenues.

There are other problems with his draft contract. It says &#8220no party is required to sell gas to an Alaska purchaser.” We should require gas sales in Alaska to power our communities and economy.

And independent companies fear Exxon, BP and Conoco will deter future gas development by making it difficult for them to ship their gas in this pipeline. Then there's the question whether the state should be a 20 percent minority pipeline owner.

The governor's heard these and more concerns. It's not too late to heed them.

Rep. Les Gara is a Democrat from Anchorage.