Lawmakers in the Alaska House rolled out a new draft of Gov. Mike Dunleavy’s proposal cutting taxes for the Alaska LNG project on Monday.
The House Resources Committee’s version of House Bill 381 would raise more money for the state and local communities than Dunleavy’s proposal but far less than the draft under consideration in the state Senate.
All three would replace the existing 2% annual statewide property tax on oil and gas infrastructure with a tax on the amount of gas running through the project.
It’s an effort to make the proposed 800-mile pipeline, export facility and gas treatment plant competitive in a global market for liquefied natural gas. But legislators and local officials say they’re concerned that too much tax relief or a poorly structured bill could lead local property and sales taxpayers to subsidize the $46 billion project.
Committee co-chair Rep. Robyn Niayuq Frier, a Democrat from Utqiagvik, said Wednesday the new version was a work in progress. She said she’s trying to find common ground.
“We're still trying to work with, not only the majority members and priorities, as well as the minority members, and making sure that we can get something across the finish line that is workable, and hopefully we don't end up in a special session.”
The House Resources Committee’s draft would impose a total tax of 20 cents per 1,000 cubic feet of gas for export, about three times more than the tax Dunleavy proposed.
That tax would be split among the various facilities that make up the project: five cents for each 1,000 cubic feet of throughput at the North Slope treatment plant that removes impurities, another five cents as the gas passes through the pipeline and 10 cents for each unit processed for export at the proposed liquefaction facility on the Kenai Peninsula. The revenue would be split between the state and municipalities.
The committee’s tax proposal would cut the price of gas by about 20 cents when compared to the existing property tax, according to a preliminary analysis by the Legislature’s oil and gas consultant, Nick Fulford of GaffneyCline. The governor’s tax proposal would cut the price of delivered gas by about 40 cents.
The bill would also make the tax relief conditional on a number of things, notably the construction of a spur pipeline to Fairbanks.
The spur line is estimated to cost $150 million to $200 million, and including it in the cost of the overall project would add only about two cents to the cost of gas from the project, the Legislature’s oil and gas consultant said at a hearing Wednesday. It’s unclear whether a spur line would pencil out if it’s not included in the overall project.
“That's a lower order of magnitude difference to what we're talking about, for example, with the (volumetric tax) or property tax or any of these other things we've been debating,” Fulford told the committee.
Still, a difference of a few cents can be huge in the global market for natural gas, he said.
The tax relief would also be conditioned on the pipeline developer negotiating “community benefit agreements” with communities within 50 miles of the pipeline corridor, and creating a fund to compensate localities for costs associated with construction.
The bill would also give the North Slope Borough and the Kenai Peninsula Borough, which would host the gas treatment plant and export facility, the option to buy equity in the project instead of receiving tax revenue.
Officials with the state agency that owns 25% of the project, the Alaska Gasline Development Corp., said the new version represented real progress towards a workable bill. But AGDC President Frank Richards said the higher tax rate presented a “challenge” to the economics of the project.
Dunleavy’s communications director, Jeff Turner, said in a statement that the administration and the House committee were “working productively on streamlining the bill.” But he said “weighing down” the project with conditions and higher taxes made construction of the pipeline less likely.
“The benefits of the LNG pipeline will ripple throughout the Alaska economy. Alaskans could save $1,450 per household on energy bills, so if lawmakers want low-cost energy for Alaskans, they should fix the tax,” Turner said. “There are only three weeks left for lawmakers to pass a clean, straightforward LNG volumetric tax bill that incentivizes the project’s finances.”
A spokesperson for pipeline developer Glenfarne, which owns 75% of the project, said in a statement that the company would continue to work with lawmakers on a way forward, but that the company preferred the governor’s lower tax proposal.
The gas line would lower Alaskans’ energy costs and provide a stable source of gas, Glenfarne spokesperson Tim Fitzpatrick said. “The original version (of) HB 381 remains the best solution to accomplish these goals.”
Rep. Julie Coulombe, an Anchorage Republican, said there’s still work to be done, but she sounded a note of optimism.
“I think I see a light at the end of the tunnel with this version, and that makes me very excited,” she said.
