Pipeline incentives clear first legislative hurdle

Includes loan guarantee if proposed $20 billion project isn't completed

Posted: Thursday, November 20, 2003

The federal energy bill passed this week in the U.S. House includes incentives toward the construction of a proposed $20 billion natural gas pipeline. Gov. Frank Murkowski and one of the gas companies involved are optimistic the project will proceed to the next engineering phase.

The bill still must clear the Senate. It carries three financial incentives: a loan guarantee that would kick in if the project isn't completed, accelerated depreciation and a tax credit for the natural gas conditioning plant that would be built on the North Slope to prepare gas for shipment.

The loan guarantee will cover up to 80 percent of the cost of a gas line, up to $18 billion, protecting financers against risks if gas prices fall. The bill also would allow developers to depreciate the pipeline for tax purposes over seven years instead of the 15 years allowed under current law. The tax credit included in the bill is purported to save producers about $400 million, according to Republican U.S. Sen. Lisa Murkowski's office.

The bill does not include an incentive provision that had been discussed earlier this year: a federal income tax credit for gas producers that would kick in if the field price of gas were to dip below $1.35 per million British thermal units.

The omission of that incentive from the bill won't be a big problem, according to Mike Menge, Gov. Murkowski's energy adviser.

"It's just an additional challenge. The bill has a lot of provisions that are going to facilitate construction. It's by no means the end of the game," Menge said.

The pipeline has been a topic of discussion for years. The route being discussed would run parallel to the trans-Alaska oil pipeline from Prudhoe Bay to Fairbanks, and then veer off to follow the Alaska Highway through Alberta, ending in Chicago.

The federal bill prohibits a separate route, known as the over-the-top route, which would have gone from Prudhoe Bay east through the Beaufort Sea to the McKenzie Delta in Canada. The state Legislature also prohibited that route during the last session, citing environmental and engineering concerns.

BP Spokesman Dave MacDowell said the incentive package in the energy bill was a meaningful step in the process.

"We're (also) looking for continued progress toward an efficient regulatory framework in Canada, a clear and durable fiscal contract with the state of Alaska, and technology-led cost reductions," MacDowell said.

He said the next phase of the project, involving engineering and permitting, will cost about $1 billion.

"We need the things I mentioned in order to feel confident moving toward that very significant spend," he said.

BP is partnering with Conoco-Phillips and Exxon in the project. Spokesmen for the other two companies did not return calls for comment.

MacDowell said the three companies are working with the state for a contract.

Environmental groups have not opposed the pipeline and the executive director of the Alaska Center for the Environment, Randy Virgin, has called the plan a "viable alternative for Alaska."

• Masha Herbst can be reached at masha.herbst@juneauempire.com.

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