If no pipeline, initiative would tax Big Oil

Three main candidates for governor oppose the ballot measure

Posted: Thursday, October 19, 2006

ANCHORAGE - With North Slope oil production on the wane, Alaskans are waging a tug-of-war over the financial terms of siphoning its vast natural gas reserves out of the ground and into the market.

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A ballot measure to go before voters in November illustrates a schism among the state's politicians over how to make sure oil giants, including BP, ConocoPhillips and Exxon Mobil, get around to building a pipeline, which would ferry natural gas from the slope to North American consumers.

The proposal would impose a $1 billion tax on oil companies for each year a gas pipeline is not built.

The tax initiative is headed by Democratic Reps. Eric Croft and Harry Crawford of Anchorage, and David Guttenberg of Fairbanks. Some or all of the tax would be refunded once the gas starts flowing, depending on the price of natural gas and the year the line is built.

On Wednesday, Croft pointed to the support he has from former governors Wally Hickel and Jay Hammond, arguably the state's most popular governor, who died last year.

"This project has been viable for a long time, but we've never had the political will to fight for it," Croft told the public policy group Commonwealth North.

Crawford on Wednesday said the only reason a serious gas pipeline discussion is under way now is because of the threat of the reserves tax.

Alaska depends on oil company investment and infrastructure for the project and, beyond that, for running the huge North Slope pipeline complex that generates more than three quarters of the state's general fund.

The tax would not be imposed on new gas finds outside the established North Slope fields of Prudhoe Bay and Point Thomson, sponsors said, although new finds within those fields would be subject to the tax.

The three main candidates for governor have said they all oppose the tax, saying it is bad public policy that would discourage oil companies from taking on the project.

Democrat Tony Knowles said the reserves tax would likely lock the state into a legal battle with oil producers.

"There is no reason for us to put an additional barrier to the market incentives for people who are willing to invest in Alaska or to tie it up in litigation," Knowles said last month.

Republican contender Sarah Palin has said she opposes the proposal because it imposes a tax on income that hasn't been earned.

The pipeline - at an estimated cost of $19 billion to Canada or $27 billion to Chicago - would be North America's largest ever construction project.

"This gas pipeline is considered the highest risk pipeline in the world," said Judy Brady of the Alaska Oil and Gas Association. "The pipeline will be financed only if market analysts and lenders are convinced the project is economic."

The gas reserves tax, ballot measure 2, will be on the general election ballot on Nov. 7.

John Shively of the Resource Development Council for Alaska believes the measure is misguided, but said he thinks it will pass.

"We all want the same thing," Shively said. "We just have different ideas of how to get it."

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