Walker’s special session comes with a surprise

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Lawmakers have been expecting a special session on the state’s mammoth, $55-billion proposed project to build a natural gas pipeline from the North Slope to Nikiski.

But when Gov. Bill Walker called for the special session on Thursday (Sept. 24), it came with a surprise – a proposed tax on the natural gas reserves held by the very companies the state is trying to partner with.

Walker started his press conference on Friday (Sept. 25) with a history lesson:  “Governor Hickel – a bold move – he threatened the producers on the North Slope: you drill or we will,” Walker said. “They drilled. We have Prudhoe Bay today.”

The moral of the story? Sometimes, getting Alaska’s oil and gas out of the ground requires a governor willing to carry a big stick.

At least, that seems to be what Walker is thinking as he proposes a natural gas reserves tax. Walker has been clear that he doesn’t think the state’s partners in the massive Alaska LNG pipeline project are moving fast enough. Those partners include ExxonMobil, BP and ConocoPhillips — all with major natural gas reserves on the North Slope. A reserves tax would hit undeveloped natural gas, as an incentive not to leave it in the ground.

“This isn’t about trying to penalize anybody, put a gun to anybody’s head,” Walker said. “We have a gun to our own head, on our fiscal situation. It’s time to monetize our resources.”

It’s not entirely clear how the reserves tax would accomplish that, in part because the bill itself hasn’t been released yet. The governor said the legislation has to be reviewed by the Departments of Law and Revenue.

But in a report on the project that the governor also released Thursday, he made it clear that he isn’t satisfied with progress on the project so far. One major issue, the report says, is that Alaska, with its massive budget deficit, needs the project more than its partners — and so it needs more leverage at the negotiating table.

The natural gas reserves tax would give the state that leverage, Walker said.

ExxonMobil and BP both issued statements opposing the idea of a gas reserves tax. In an emailed statement, ConocoPhillips wrote, “We haven’t seen any legislation on a gas reserves tax so we will have a more specific response when that happens.”

And judging from the reaction of key lawmakers, the proposal will have a tough time in the legislature. Senator Cathy Giessel, the Anchorage Republican who chairs the Senate Natural Resources Committee, said she is looking forward to seeing the bill. But her immediate response isn’t positive.

“I don’t believe you can tax a project into existence,” she said.

Giessel added that she was caught off guard by the proposal. She said it didn’t come up during two briefings in recent months or at a meeting with the governor on Monday.

Walker also wants lawmakers to consider buying out a fourth partner, pipeline builder TransCanada. Giessel said that item will be contentious enough.

But on one point, at least, she agrees with the governor: with the price of oil so low and so little of it flowing through the Trans-Alaska Pipeline, Alaska needs the gas line.

“Financially our state is at a place that we need new income, we need new development of our resources,” Giessel said. “That’s what we’re attempting to achieve here, we are striving to work with the governor, but it does require communication, coordination, collaboration.”

And for the moment, at least, the project seems short on all three.