Dunleavy announces plan to incentivize Cook Inlet gas producers

the view of a mountain range across an inlet
The view across Cook Inlet from Nikiski. (Riley Board/KDLL)

Alaska Gov. Mike Dunleavy announced a plan Thursday to reduce the royalty rate Cook Inlet natural gas producers would pay the state, amid looming shortages for heating homes and generating electricity.

That follows an announcement earlier this month that the state will offer incentives for producers to bid in an upcoming Cook Inlet lease sale. The plan involves switching out royalties in favor of a net profit share system, where producers wouldn’t pay the state until they’re already profitable.

Department of Natural Resources Commissioner John Boyle explained the proposal at a news conference Thursday.

“In essence, what we’re looking at with the legislation is looking at reducing the state’s royalty take on new gas that’s produced in the inlet,” Boyle said.

Current royalty rates in Cook Inlet are typically 12.5%. In response to questions about what royalty rate the Dunleavy administration will propose in its forthcoming legislation, Boyle said that is still to be determined.

Last year, Cook Inlet gas producer Hilcorp told utilities it would not be able to fill gas contracts beyond 2027, setting off alarms about energy security in the Railbelt region, from Homer to Fairbanks.

Boyle and Dunleavy emphasized that they believe the shortage is an issue of economics, not geology.

“We firmly believe that by creating a more competitive economic environment in the Cook Inlet, that we will see economic activity increase, we will see more exploration, we’ll see more development, and ultimately we’ll see more production, which will trickle out to more energy security for the Railbelt and for Alaska at large,” Boyle said.

Dunleavy said he would expect increased production in two or three years if the state Legislature passes the as-yet unwritten bill.

Few companies have bid to explore for natural gas in Cook Inlet in recent years. Boyle blamed the federal government.

“I think what we’re seeing from the federal government is an elevation of climate change and other sort of ideological considerations over an acknowledgement of the need for energy security and affordability in Alaska,” he said.

Dunleavy plans to introduce his bill on the first day of the next legislative session, which begins Jan. 16.

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