Tag Archives: alaska natural gas

Will historic Russia-China gas deal impact Alaska LNG project?

On Wednesday it was announced that Russia has signed a deal with China to supply the country with natural gas for 30 years. Russian gas company Gazprom CEO Alexei Miller said that the contract is worth about $400 billion. The gas will be shipped from Russia to China via a network of pipelines.

The deal has the potential to significantly impact Europe’s relationship with Russia and changes the power-dynamics between the United States and both Russia and China. Closer to home, people are questioning what, if any, impact that deal will have on getting Alaska gas to market.

Alaska is currently working on a plan with the big three producers—ExxonMobil, BP and ConocoPhillips—to build an 800-mile pipeline to carry gas from the North Slope to tidewater in Southcentral Alaska, where it would be liquefied and put on tankers headed to Asia markets. All told, the project is expected to cost up to $65 billion.

Larry Persily, the federal coordinator of Alaska gas pipeline projects, and a go-to gas analyst, doesn’t think that the Russia-China deal will have much of an effect on the project. “It’s not a death knell for Alaska LNG” he said.

For one, the focus has been on selling Alaska LNG to Japan and Korea. Secondly, China will still need gas, he said. But more than anything, price will dictate the viability of any LNG project. He said that the price envisioned for Alaska’s LNG will be competitive with what Russia is offering China.

It is, however, a reminder that we’re not the only ones selling gas, Persily said.

Interesting note: Gazprom’s Alexei Miller traveled to Alaska in October, 2008 to talk about Alaska’s gas. While in Alaska, Miller and his entourage met with ConocoPhillips executives, and with DNR Commissioner Tom Irwin and Deputy Commissioner Marty Rutherford. During the meeting, Miller predicted that a pipeline would never be built. He said that gas would eventually be put on tankers that, with the help of ice cutters, would carry gas through the Northeast passage.

Then-Gov. Sarah Palin didn’t make the meeting. She was on the presidential campaign trail.

Contact Amanda Coyne at amandamcoyne@yahoo.com

Bye bye oil taxes. Hello gas taxes.

Most of us have been enjoying the glorious summer and trying to forget the last two oily legislative sessions. Trying to forget the endless committee hearings, the excruciating testimony from oil executives. Progressivity. Hyperbolic curves. Internal rates of return. Capital expenditures. New producer areas, etc …

While we have been catching fish and amnesia, ExxonMobil is rumored to be hard at work trying to convince Gov. Sean Parnell to call a special session this fall to create a statutory framework to establish and provide authorization to negotiate issues related to gas commercialization.

In other words, just when you thought it was all over, now gas taxes are going to again rear their gaseous heads.

Currently, gas is taxed at an effective rate of 35 percent prior to credits, roughly the same rate as oil. But it’s much less valuable.

According to sources, Parnell isn’t going for the special session idea. He’s upset, they say, that Exxon hasn’t committed enough resources this summer to advance the fabled, up to $65 billion large diameter natural gas pipeline.

In a press release sent last month, Parnell said that although there was progress being made, the companies aren’t “moving as quickly as Alaskans expect.”

Still, Exxon, the North Slope’s biggest gas lease holder, continues to push, and is trying to convince the other major producers — BP and Conoco Phillips – – to push with them.

The Department of Natural Resources has engaged a contractor to model various tax regimes. Acting Commissioner Joe Balash and Department of Revenue’s Mike Pawlowski are said to be working with the contractors and meeting with the producers.

It’s unclear if Exxon’s push has to do with the large diameter line, the one that has been dreamed about for more than 30 years. Or if the push is about the bullet line that’s supposed to bring natural gas to Alaskans if the big line doesn’t.

Or if has to do with the 200 million barrels of liquid condensates at Point Thomson. By 2016, Exxon expects to be producing 10,000 barrels of condensates per day at the Point Thomson site. Condensates are kind of a liquid gas. As it stands, when they are produces they will be treated like gas for royalty purposes but will be taxed like oil.

Perhaps it’s all of the above. One thing’s for sure: if it there isn’t a special session to deal with gas taxes they will be dealt with in the next session. And the committee hearings again will be endless and excruciating.

Contact Amanda Coyne at amandamcoyne@yahoo.com

This is the way the oil tax debate ends: not with a bang but a whimper

The session that finally put an end to the current chapter of the decades-long tax debate, the one that has seen political careers ruined, millions of dollars spent, a state fractured. The one that’s pitted Alaskans against Alaskans, party member against one another. The one that began when former Gov. Sarah Palin took the help and helped her rise to the national stage. The one that since, has stoked fear in the hearts of some Alaskans, and the one that made long time Alaskans who were here before oil wonder what had happened to their state.

The one that will now give billions of dollars back to some of the largest companies in the world in hopes that they will stay in the state and produce more oil and continue to nearly completely fund state government.

That very debate officially ended when both chambers gaveled out at midnight Monday morning—the first time since 2010 that it wrapped up in time–to relatively little fanfare. All told, the legislature passed 71 bills, including a controversial 737-mile in-state gasline that had been debated for years. (Read more on that here).

But the real story of the session was the oil tax bill, which for all intents and purposes ended when it passed the in the wee hours of Sunday morning.

In prior years on a night like that, as politicians grandstanded in the chamber, as amendments were offered and killed, hallways would be chalked full of lobbyists and citizens showing up for the spectacle. Pizza boxes would have piled up. Soda cans tipped. Harried aides would have been flitting about carrying stacks of paper to harried legislators.

This time it was different. As Saturday night turned into Sunday morning, there were only a few scattered observers in the hall outside of the chamber. As the last business was wrapping up at 2 a.m., the only person left was the security guard roaming a long empty hall.

The lack of excitement was due to many things, the first being that the votes were locked in early. This, in part, was thanks to Senate President Charlie Huggins, House Speaker Mike Chenault and House Finance Chair Bill Stoltze, all three of whom herded the cats and kept trouble, real trouble at bay. (Gov. Sean Parnell, it should be noted, kept his distance, which is one way of putting it. Others in the Capitol building weren’t nearly as kind when referring to his absence.)

It was also probably due to an electorate that chose to usher in Republicans in both chambers. The Republican Senate Majority’s motto is “Time to Act,” and act they did. Sen. Fred Dyson probably said it best when he said, “What a difference an election makes.”

Mostly everybody just seemed wary from the battle. On the surface, and when the cameras were on them, it looked like the Dems and others opposed to the tax bill were fighting vigilantly. Off camera, they looked defeated. They knew the score, and they knew that it was not in their favor.

Some of them who have lived this battle session after session, year after year, knew that you can only fight so hard against that which you have allowed yourself to become so dependent.

That’s not to say that the oil companies, the majors at least, got what they wanted. (The independents got all they wanted and more. More on that later.) The tax break will cost the state, at current projected prices and at current production, somewhere between $650 million to more than $1 billion a year. During committee testimony, the companies said that it was too little of a tax break to really stem production declines.

They all said the flat 35 percent tax is too high, the $5 per barrel exempted for all produced oil too low, and the tax credit for new oil not generous enough. In fact, there was talk that at least one of the major hated the bill and wanted to kill it through amendments offered in House Resources, chaired by Rep. Eric Feige but controlled by Rep. Mike Hawker. Among other things, the amendments offered in Resources by Hawker lowered the base rate, and significantly decreased state accounting oversight.

Had those amendments survived the bill would not have passed the Senate. (Rep. Bill Stoltze, who knew that, stripped out the amendments in Finance and kept the capital budget in committee until he was assured that those amendments wouldn’t make their way back into the bill.)

You could heat Juneau with the paper that was printed this year alone devoted to charts and graphs and powerpoints. Citizen legislators worked extraordinarily hard to figure it all out. And still nobody really knows—in this state at least– what the tax break does or how it’s going to work.

But what is clear is that since the state raised oil company taxes in 2007, Alaska has been used by the majors as a cautionary tale around the world of what happens when an oil province dares to take on an industry that feeds it, literally. Raise our taxes and we’ll decrease production, the majors said. We’ll starve you out, they warned. Just look at Alaska, they said.

It may be true. It may not be true. The oil is indeed running out, as it was bound to. Prudhoe Bay—the largest oil field in North America– began pumping from its vast reservoir in 1977. Most of the easy oil from that field is gone. New technology is supposedly available to squeeze more oil out of the ground, but that could only happen if the tax rates were lower, oil companies argued. And argued, and argued. And they did that here in the state with enough Chinese-water torture type insistency that the citizens here said enough.

Now eyes, both here and around the world, are going to be on the industry, to see if those companies will make good after such a large tax break. The testimony that it wasn’t likely big enough to stem decline will be lost on most. All the public will remember is that Alaska reached out its hand. If they don’t take it, then they’ll likely be punished, again, as they were in 2007 after Palin took over.

And it will happen sooner or later. The pendulum will swing back. And forth. Again and again, as it has been swinging since Prudhoe was discovered in 1968. Whole legislative sessions will be devoted to oil taxes. The best minds in the state will be busy working on it. Bumper stickers will be plastered on cars and slogans will be used to further careers, and the state, as it has been, will be consumed. We will all be consumed with oil taxes as our schools continue to be some of the worst performing in the country, as our sexual and domestic violence rates are some of the highest in the country, as our citizens continue to be divided. We will all be consumed with oil taxes as the oil steadily runs out, and we will be consumed with oil taxes as we don’t try other things, don’t try to get our money elsewhere, as we don’t plan for what happens when that day comes.

Indeed, even before the Senate concurred with the House changes to SB 21 on Sunday afternoon, there was already talk about plans being made by the majors to come back next year to get some additions and changes that they were hoping for. That will likely be another fight. It will likely last for years.

Contact Amanda Coyne at amandamcoyne@yahoo.com

The session that dismantled Palin’s legacy

It took awhile to purge Gov. Sarah Palin. It took longer than people expected. After all, what could one governor do to a state in less than two years? Ask those who are busy in Juneau dismantling her two big initiatives, ones that she ran on as a vice presidential candidate: oil taxes and her attempt to incentivizing the building of a large natural gas pipeline.

Palin, for better or for worse, was an active governor at a time when the public was ready for action. As most know, she swooped in on the heels of what appeared at the time to be an Alaska-sized corruption scandal. She swooped in on the heels of a split in the Republican Party between the more urban chamber of commerce Republicans and their more ideological brethren. She swooped in during record high oil prices. She swooped in as the first female governor. And swooped with the public firmly on her side.

That gave her a lot of leverage to do big things, for what at the time seemed to many like really good reasons. She pounded the oil industry with a huge tax increase, and she passed law to get a large diameter natural pipeline built by sidestepping the industry. Now Palin in the rear-view mirror, oil production on the decline, and a large diameter pipe dream once again sound asleep within the arms of the industry–those so-called good ideas don’t seem so great anymore.

None of the alternatives are perfect — any policy in reaction to another piece of policy won’t be — particularly ones that’s been leveraged on the state. More specifically, the oil tax revamp probably gives too much away to the big producers — ConocoPhillips, BP and Exxon. It will likely result in budget deficits before production increases, if production does indeed increase. And it has, once again, showed how weak the state has become by allowing itself to be nearly completely dependent on oil revenue. (It should be noted that if oil prices drop, which many predict, this bill gives the state more protection than current law.)

And then there’s House Bill 4 which will facilitate the development of a small diameter pipeline running from the North Slope to Southcentral Alaska. The bill provides funding to bring the project to open season, at which time the economics will dictate if it makes sense, or at least tell us what kind of state dollar infusion it will need. In other words, it’s not a done deal yet, but it’s a big statement that the big dream of a big pipeline is all but dead, as is Palin’s big pipeline plan, AGIA.

HB 4 too is less than perfect and it only passed in tandem with, SB 23, the LNG trucking bill, which has its own problems. The plan to truck LNG to Fairbanks is just a band aid. Everyone knows that, and an expensive one at that. There are likely cheaper, more efficient ways to help solve Fairbanks’ energy crisis. But state leadership is so weak, ideas have been put off for so long, it’s the only short-term, politically palatable solution left.

In any case, no matter the flaws in the bills, this legislative session put the last nail in the Palin-regime coffin. And she’ll never again be able to point to what she did in Alaska to further any political aspirations she has left.

Contact Amanda Coyne at amandamcoyne@yahoo.com

Juneau gets gassy

Up until recently, almost every pundit and seasoned political observer in Juneau would tell you that Gov. Sean Parnell’s oil tax bill, SB 21, was the legislation that was driving the mechanisms of the legislature.

How things change.

Now, the 800 pound gorilla is two bills, both related to gas. Speaker of the House Mike Chenault and Rep. Mike Hawker’s HB 4 by which would facilitate the development of a small diameter in-state pipeline running from the North Slope to Southcentral Alaska, and SB 23, which would truck LNG from the North Slope to Fairbanks. (Read more about the details of both here and here).

Both bills are in House Finance and both sound like relatively simple, albeit expensive, solutions to both areas’ natural gas shortage. (But if things were simple, then the citizens of the state with the largest energy fields in North America wouldn’t be chopping wood to stay warm or buying generators in preparation for energy blackouts.)

That is to say, everything seems simple until politics comes into play. So, here’s some of the scuttlebutt: The Fairbanks delegation is ready to take a sword for its trucking plan, and Chenault and Hawker and other Southcentral legislators are ready to fall on their swords for theirs.

They both need the approval of one another. But not all of the Fairbanks folk are crazy about the small line. Some want to hold out for the dream of the big line. Some think the small line is too expensive and the agency that will be in charge will be too powerful. Some of the Southcentral legislators see trucking as a waste of money and believe that the small line would solve their natural gas shortage.

Then there’s Valdez, which has appropriated $500,000 of public money to oppose pay for ads opposing the instate line and promote the big one, not to mention the myriad wants and needs of legislators in other parts of the state.

Parnell, as is his wont, doesn’t appear to be providing anything like strong leadership on this issue, but he does seem to support trucking while leery of the small line, for whatever that’s worth.

In any case, the oil tax bill might be used as leverage by all in order to pass either or both of these bills.

HB 4, the small line, is in House Finance and a committee substitute of it is expected to move as early as tomorrow, with trucking close to follow. Both bills will move to Rules where HB 4 will likely be quickly calendared for floor action. And trucking, or SB 23, will be held pending Senate action on HB 4.

In other words, mine is better than yours and I’ll move yours when you move mine.

Updates to come.

Contact Amanda Coyne at amandamcoyne@yahoo.com