Daschle, Murkowski side with oil companies on gas-line tax break

Posted: Wednesday, June 26, 2002

FAIRBANKS - Sens. Tom Daschle and Frank Murkowski are promoting a new oil company-sponsored analysis that endorses tax credits for a natural gas line from Alaska to the Lower 48.

Murkowski, R-Alaska, and Daschle, the Democratic majority leader from South Dakota, issued a joint news release Tuesday touting the findings of the study, conducted for Phillips Petroleum Inc.

The study was released two days before House and Senate negotiators begin crafting a compromise energy bill. The Senate version of the bill contains the tax credit for the gas line, as well as a construction loan guarantee. The House version contains neither.

Charles River Associates wrote the report for Phillips, said Don Duncan, the oil company's vice president of government relations in Washington. He said the report was prompted by lobbying in Canada by Arctic Resources Corp., which wants to build a line on an alternative "northern" route that would be prohibited under both the House and Senate bills.

"Arctic Resources has been levying charges and got the Canadians excited that the financial mechanism that passed the Senate would create market distortions in the United States and would do the same at the Alberta hub," Duncan said. "We knew that wasn't the case," he said, but the company wanted an independent analysis to confirm it.

The Canadians, however, haven't been convinced. Pam Chappell, spokeswoman for the Canadian embassy in Washington, said the subsidy is bad news for Canada and the United States.

The credit "will distort natural gas markets, undermine their efficiency and slow development and production in the rest of the United States and Canada," she said. "This would reduce U.S. energy security, counter to the purpose of the act."

Alaska Gov. Tony Knowles and Murkowski have said Canada doesn't have much room to complain, since it has provided subsidies to some major energy projects over the past decade.

Chappell said those subsidies went to oil projects that weren't large enough to affect the market. Duncan, though, said the Alaska gas line would only supply 5 percent of the total North American market and that it would have an eight- to-10-year development period.

The Charles River report predicted that the proposed tax credits would benefit all consumers by making possible a line that will lower energy prices.

At the same time, the credits would likely cost the government nothing, it said. That's because the authors figure prices will stay high enough to prevent the tax credit from kicking in. The tax credit would start whenever gas prices at the Alberta hub fall below $3.25 per million British thermal units. The money saved must be paid back whenever prices rise above about $4.90.

"Since June 2001, the 35-month futures contract has indicated a price range of $3.50 to $3.75," the report said. "This signals a market expectation that over the long-term, natural gas prices will be considerably higher than they were expected to be before 1999."

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