A tale of two bills

Can Alaska's LNG project survive without SB21?

Editor’s note: This is the first in a series of articles that will run through Sunday, Aug. 17, on Senate Bill 21, which voters will decide whether or not to repeal during the Aug. 19 election.

 

Will repealing Alaska’s newest oil tax system squelch the state’s chances of developing a natural gas pipeline and liquefaction plant? The answer is yes, no and maybe, depending on who you ask.

More than a year before Senate Bill 138 was passed by the Legislature and signed into law, enabling the state to move forward with pre-engineering work for a trans-Alaska natural gas pipeline, there was Senate Bill 21, Gov. Sean Parnell’s hallmark oil tax reform legislation.

Supporters of SB21 say that if Ballot Measure 1 passes on Aug. 19 and it is repealed, the future of Alaska’s LNG project will die with it.

Even though one bill deals with oil moving through the Trans-Alaska Pipeline System and the other is about getting Alaska’s natural gas reserves into a pipeline, the two pieces of legislation may be dependent on one another for survival.

As for as Parnell’s office is concerned, a gas pipeline needs a stable oil industry, and that means keeping SB21 firmly in place.

“Without a healthy oil industry, it’s hard to picture a scenario where a gasline is built,” Parnell spokeswoman Sharon Leighow told the Empire in an email. “Fundamentally, LNG is about long-term commercial agreements; where a country commits to Alaska to provide a portion of its energy supply.”

Leighow added that repealing SB21 would send the wrong message to businesses.

“Instability tells the international market that Alaska’s actions may not be trusted in the long term, which could hinder our ability to compete in a global market.”

It’s no secret from the tens of millions spent on ads that oil companies want to see SB21 remain. They prefer its flat 35 percent tax rate over the progressive tax scale of ACES, where rates change depending on oil prices.

When asked if Alaska’s gas pipeline depends on SB21 staying in place, oil companies said they are taking a wait-and-see approach.

“ConocoPhillips is doing what it said it would do if there were positive tax reform, and we believe MAPA will continue to lead to more investment and oil production,” wrote ConocoPhillips spokeswoman Natalie Lowman in an email. “Should Ballot Measure 1 pass in the August 2014 election and the state reverts back to ACES, ConocoPhillips will re-evaluate its investment plans for the North Slope.”

Because of the pipeline’s “size and complexity,” Lowman continued, the company believes Alaska needs a “healthy base oil business” to support it — and that means keeping SB21.

A spokesperson for BP said the company will conduct business as usual if Ballot Measure 1 succeeds, which would include reevaluating all its “projects enabled under SB21.”

“That’s the practical thing to do,” said BP spokeswoman Dawn Patience. “You have to behave as a business, and you have to look at what has been enabled and the economics of those projects. Right now, it’s premature before the vote.”

A representative for ExxonMobil declined to comment until after the Aug. 19 vote. A phone call to pipeline builder TransCanada, one of the partners in building the 800-mile pipeline, was not returned as of press time.

Independent candidate for governor Bill Walker, who has spent three decades working on oil and gas issues, believes SB21 is being used as a bargaining chip by oil companies to get the tax regime most favorable to them. Whether SB21 is repealed or not, he said bringing Alaska’s natural gas to market makes enough financial sense that Big Oil will either proceed or not regardless of the outcome.

“They’re being noncommittal because they can’t say that one is tied to the other,” Walker said. “They can’t say that kind of stuff.

“I have documentation and (market information) and it is hugely economic without any association with SB21,” he continued.

The only thing Alaska needs right now, Walker said, is leadership willing to stand up to oil companies and not allow them to use the prospect of an LNG line as leverage.

“For them to raise the threat of that issue is unjustified and 1,000 percent incorrect,” he said. “I can’t tell you how angry that makes me. We need a separation of oil and state. Every time we want to do something with oil and gas, they hold something over us.”

• Charles L. Westmoreland is managing editor of the Juneau Empire and can be reached at charles.westmoreland@juneauempire.com.

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