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TAPS: a brighter future than critics say

Posted: February 12, 2012 - 1:12am

Alaska legislators and others who want to roll back oil taxes have been saying the trans-Alaska oil pipeline is at risk of shutting down in less than a dozen years.

That frightening scenario was invoked repeatedly by supporters of Gov. Sean Parnell’s oil tax reduction proposal last year, and helped them win approval of cuts estimated at $2 billion a year in the House of Representatives.

However, neither the Alyeska Pipeline Service Co., which operates the pipeline, nor the big oil companies that own it, are directly making that claim themselves.

Parnell has suggested the pipeline will shut down, and legislators have stated it as fact, claiming without tax reductions, the pipeline would stop flowing in as soon as 10 years.

“We are facing the specter of having the trans-Alaska pipeline system close down, shut down, stop flowing,” said Rep. Mike Hawker, R-Anchorage, an influential voice on oil tax issues.

The imminent shutdown claim, frequently using the 10-year period, was heard often in the House of Representatives last year as the body voted 22-16 for House Bill 110, Parnell’s oil tax bill. Hawker’s statements were made on the House floor during bill debate.

When the bill got to the Senate, however, skeptical senators said they could find no justification for the shutdown claims.

Senators concerned about the TAPS closure statements confronted Revenue Commissioner Bryan Butcher, Parnell’s point man on the oil tax cut, when he appeared before them this year.

Sen. Bert Stedman, R-Sitka, said he believed the TAPS shutdown claims were “intentionally delivered as misinformation … to the public.”

Butcher denied having any role in that. He said he had heard the shutdown comments, but they hadn’t come from him or his department.

“I know there have been many folks who have talked about the pipeline and the potential for it to shut down or not shut down, that’s never been the Department of Revenue,” he said.

“The department has never been in a position of talking about shutting down in 10 years or 20 years,” Butcher said.

Others have, however, including Resources Committee Co-chairman Eric Feige, R-Chickaloon, during House Bill 110 debate before his committee last year.

“If no action is taken now, there is a good possibility that in less than 10 years the oil flow will be too low to operate the trans-Alaska pipeline system,” Feige, said, according to legislative committee minutes.

He’s reluctant this year to say that was in error but acknowledged that pipeline engineers would be able to keep TAPS flowing for many years.

“We have great engineers in this country,” he said. “I’m sure they can come up with a solution that will make oil move down that line.”

Feige maintains that TAPS is still in danger without a tax cut.

“At some point we are going to get to a point where TAPS will just not be economically tenable,” he said.

He said Alaska needs the revenue the pipeline provides, and the state must find ways to boost revenue before it ever comes to finding out what that tenable point is.

“I fly airplanes for a living, I don’t ever run right up against the gnarly edge of something,” Feige said.

Feige also said more is known now than last year about how long the pipeline will last. That’s in part because of a court case in which it was revealed the companies that own the line expect it to continue producing until 2060 or further.

In a recent court case, however, expert testimony suggested TAPS would be economical to operate through at least 2049 or as long as 2075, depending on oil prices.

The numbers are difficult to pin down, because the owners provide lower life expectancy numbers to the state assessor than they do to Wall Street and others.

Those estimates mean TAPS is not going to go anywhere, said attorney John Brena, who presented them to the Legislature.

Brena told legislators the suggestion that TAPS is in imminent danger of closure is “so unrealistic so as to be laughable.”

The companies that own most of TAPS, including ConocoPhillips, BP and Exxon Mobil Corp., are not going to let it close down lose the profits they make from it, he said.

That hasn’t kept Parnell from using the claims of a shutdown to win support for the oil tax reductions, including saying declining production threatens “the very existence of our pipeline.” He did without providing a date.

Rep. Cathy Muñoz, R-Juneau, joined the shutdown chorus last year when she defended her committee vote in favor of tax reductions against criticism at a Native Issues Forum.

“The pipeline now carries only a third of what it once was, and the pipeline may not longer be viable in 10 years,” she said then.

Those statements, she says now, were based on information that Alyeska Pipeline Service Co. presented to the Legislature.

Alyeska hasn’t said the pipeline would close down, but told the Legislature last year that operation of the pipeline would be “problematic” when flow reached 300,000 barrels per day.

“The implication was the pipeline operationally was in jeopardy when it reached a certain level,” she said.

Internal BP documents revealed in the court case show the company thinks adding heaters will keep production going to about 100,000 barrels a day, although other estimates go lower.

Muñoz said the fact state officials and the companies that own TAPS expect it to be in operation for many decades was “never communicated in any of the testimony” legislators heard.

Despite the court cases and other data, Butcher was reluctant to acknowledge to Stedman the pipeline was not in imminent danger of closure without passage of the governor’s tax reductions.

“We’re optimistic that the state will make decisions that will make our future even better than it looks today,” Butcher said.

Brena said decisions about that future shouldn’t be driven by fears of TAPS closure because of the billions of dollars the owner companies make from it.

“There’s no way on God’s green earth they’re not going to figure out how to operate TAPS below 300,000 barrels per day and strand $338 billion worth of oil,” he said.

• Contact reporter Pat Forgey at 523-2250 or at patrick.forgey@juneauempire.com.

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