Proposed Alaska Ballot Measure Would Tax Producers Until Pipeline is Built

Several Alaska lawmakers and labor leaders are backing a new proposed ballot measure that would place a tax on the booked Alaska natural gas reserves of producers until they place into service a natural gas pipeline to the Lower 48 states.

The proposed ballot measure is based on a tactic the state used in 1975 to get an oil pipeline built. It is designed to spur construction of the $20 billion Alaska Gas Pipeline Project, which would lead to the development of more than 35 Tcf of conventional natural gas resources in the state.

The Alaska Gasline Now Act, which is sponsored by Reps. Eric Croft, Harry Crawford and Dave Guttenberg as well as former Governors Walter Hickel and Jay Hammond, would tax the producers 3 cents/Mcf of reserves, or about $1 billion a year, according to some estimates. If they go into affect in 2006, the taxes could be levied for nearly 10 years until the pipeline enters service based on current construction estimates.

Supporters filed the proposed measure last Wednesday with the Alaska Division of Elections. If it receives legal clearance from the lieutenant governor, the measure's sponsors will be allowed to circulate petitions to try to get it on the November 2006 ballot. They must gather signatures of 31,451 registered voters to qualify the measure for the ballot.

"Alaska owns that natural gas, not the producers," said Hickel. "It is our job to make sure it gets to market and is available for the state's needs."

The measure is a rewrite of an initiative announced in May. The new version increases the reserves tax from 2 cents/Mcf to 3 cents and calls for an escrow account for the proceeds in case the oil companies file a lawsuit to challenge the tax. The funds collected would be returned to the producers in the form of a credit against future severance taxes as soon as the pipeline is built.

The proposal drew an angry reaction from producers. "It's a very bad idea," said BP spokesman Daren J. Beaudo, adding that it would add to production costs in the state and would lead to lower production and less revenue for the state.

Beaudo called an "expression of frustration" with the lengthy negotiation process that has been taking place between producers and the governor's office. "We've been in negotiations for the bulk of this year with the governors office to come up with fiscal terms on a gas pipeline project," he said. "That process has been moving along. It's a complex process because this is a complex and risky venture. It's a $20 billion pipeline project that would make it the largest ever of its kind in the United States and it needs to be done the right way."

He noted the governor hopes to complete a contract this fall. "We are working as hard as we can to meet his objectives." The basic issue in the negotiation process is the tax-royalty framework that would provide the producers with certainty on future returns from the project.

Beaudo said this ballot measure probably won't negatively impact the negotiations, but it also certainly won't help spur the project into construction. "I don't know of any project that has been taxed into commercial viability," he said.

"The marketplace and business conditions are a great motivator. The North American natural gas market is the world's biggest and is growing. It needs gas and it needs Alaska gas. The market is the only spur we need."

Copyright 2005 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.

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