With the state Legislature back in session in Juneau, political pressures are building on Gov. Frank Murkowski and North Slope gas producers to conclude negotiations on a $20 billion gas pipeline deal that have been underway for about a year.
Murkowski is anxious to conclude the deal and has invited senior executives with BP Exploration (Alaska) Inc., ConocoPhillips Alaska Inc. and Exxon Mobil Corp. to meet with him in Juneau in late January, hopefully to sign a final agreement.
ConocoPhillips has signed onto the deal, and BP is reported to be close to agreement. Exxon Mobil is said to be still holding out.
What Murkowski has proposed, and the companies have accepted in principle, is Alaska investing $4 billion to own 20 percent of a $20 billion project, taking its royalty and tax interests in the form of gas, shipping the gas through its share of the pipe and marketing the gas itself.
The governor has asked the Legislature to appropriate $400 million this year from a projected $1.2 billion budget surplus as a down payment on the state's $4 billion share of the deal.
For their part, the companies have asked the state to sign a pledge not to raise taxes on the giant project, and in recent rounds of talks, have asked that the deal also include in the pledge a provision to not raise taxes on crude oil as well as natural gas.
The general consensus in Alaska is that Murkowski needs the pipeline deal to shore up his popularity if he wants to run for re-election in the 2006 elections. The governor hasn't yet said whether he will run, and a host of contenders are already crowding the field.
State legislators, meanwhile, were in a surly mood over the pipeline as they convened their annual session in Juneau Jan. 9. One lawmaker, state Rep. Eric Croft, D-Anchorage, has turned in voter signatures on petitions for a voter initiative that would enact a 3 percent state property tax on natural gas reserves. Under the initiative, the tax would kick in if the producers don't commit to building the pipeline soon.
Croft and his supporters gathered 46,772 signatures on petitions over a four-month period. Lt. Gov. Loren Leman must certify that the signatures are by qualified Alaskan voters. Under state law, about 32,000 valid signatures are needed representing 7 percent of qualified voters in 30 of the 40 state House districts.
If Leman certifies the petitions, the initiative will appear on the November state election ballot, although the Legislature can enact a similar tax this spring and nullify the initiative.
Croft's initiative has turned up the heat on the North Slope producers. If no deal is made this spring, the initiative is considered a sure-fire winner in the state elections in November.
Other legislators want to hike the oil and gas production tax, citing the North Slope producers' windfall profits on crude oil production. The Economic Limit Factor, an incentive formula in the state oil tax law, effectively reduces the production tax to zero on much of the North Slope production.
State Sen. Hollis French and Rep. Les Gara argue that all production should pay at least a minimum tax. Though Hollis and Gara are Democrats in a Legislature controlled by Republicans, their views are increasingly shared by GOP lawmakers frustrated by the glacial pace of the pipeline talks.
Industry players that are exploring on the North Slope, particularly new companies like Pioneer Natural Resources, are nervous over this talk. Pioneer worries that that any change in taxes could make marginal projects it hopes to develop uneconomic.
Pioneer and Eni, an Italian oil company, hope to begin construction this spring on Oooguruk, a small offshore oil field.
If the pipeline talks drag on through the spring, the Legislature's mood is likely to turn ugly. It's possible legislators may vote in favor of a rival proposal for a liquefied natural gas project, even though most people knowledgeable with gas markets say the LNG deal isn't viable.
Through all of this, a feisty municipal group is pushing for its LNG project as an alternative to the producers' all-land pipeline. The Alaska Gasline Port Authority, formed in 1999 by the city of Valdez, the Fairbanks North Star Borough and the North Slope Borough, has been running television and newspaper advertisements criticizing the governor's negotiations, and recently filed an antitrust suit against the Exxon Mobil and BP.
The port authority is acting as a spoiler in hopes the current initiative will crater, leaving it as the only option on the table for commercializing North Slope gas.
If Murkowski concludes the pipeline deal the Legislature must approve it, and that won't be a piece of cake. Backbone II, a citizen group led by former governor and Interior Secretary Walter Hickel, who favors the LNG project, is poised to lobby against the deal, as are labor unions who want a project labor agreement that would guarantee all jobs on the project go to union workers.
The most controversial part of the gas contract, if it is concluded, is a clause that would limit state taxes on gas and possible oil production, as well as municipal property and sales taxes on the pipeline. Even if legislators approve it, the proposal is sure to face legal challenges from groups like Backbone II.
Knowing that in advance, the producers acknowledge they are building a year into their timetable for the lawsuits to wind through the Alaska courts to the state Supreme Court.
Tim Bradner can be reached at tim.bradner@alaskajournal.com.
