Northern Gas Pipelines, (Alaska Gas Pipeline, Denali - The Alaska Gas Pipeline, Mackenzie Valley Gas Pipeline, Alaska Highway Gas Pipeline, Northern Route Gas Pipeline, Arctic Gas, LNG, GTL) is your public service, objective, unbiased 1-stop-shop for Arctic gas pipeline projects and people, informal and rich with new information, updated 30 times weekly and best Northern Oil & Gas Industry Links on the Internet. Find AAGPC, AAGSC, ANGTL, ANNGTC, ANGDA, ANS, APG, APWG, ANGTA, ANGTS, AGPPT, ANWR, ARC, CARC, CAGPL, CAGSL, FPC, FERC, GTL, IAEE, LNG, NEB, NPA, TAGS, TAPS, NARUC, IOGCC, CONSUMER ENERGY ALLIANCE, AOGA,AOGCC, RCA and more...
2009 LINKS: FERC Reports to Congress, 1, 2, 3, 4, 5, 6, 7....; USGS Arctic Gas Estimates; MMS hearings: RDC, Our NGP, AJOC, DH, ADN, KTUU; Enstar Bullet Line: Map and News Links; ANGDA; Alaska Energy Forum; Prosperity Alaska
2008 LINKS: Shell Alaska OCS Study; Mackenzie Gas Project EIS; Join the Alaska Gas Pipeline Blog Discussion; Governor Sarah Palin's AGIA Links; 2007 ACES tax bill links; Department of Revenue 2007 ACES tax documents; 2007 ACES tax Presentations; 2007 ACES tax news; Alaska Gas Pipeline Training and Jobs; Gas Pipeline and Economic Development; Andrew Halcro;Bjørn Lomborg; FERC's Natural Gas Website Links
WASHINGTON: Alaska Natural Gas Pipeline Act; History of H.R. 4; DOE Energy Bill Position, 6-02; Daschle-Bingaman Energy Bill (Alaska, Sec. 1236 & tax credit, Sec. 2503 & H.R. 4 Conferees), Tax Credit; See amendments, "Energy Policy Act of 2002"; "Alaska Natural Gas Pipeline Act of 2001 (Draft)" & Background Paper, 8-9-01;Alaska Legislature Joint Committee position; Governor's position; Governor's 10-Point Plan; Anadarko Analysis; U.S. Senate Energy Committee Testimony, 10-2-01 - text version; U.S. Senate Energy Committee Testimony, 9-14-00; Report on the Alaska Natural Gas Transportation Act of 1971, prepared by staff of the Federal Energy Regulatory Commission, 1-18-01
ALASKA: 1-23-03, Governor Frank Murkowski's State of the State Speech; 2002 DRAFT Recommendations to 2003 Legislature; '02 Alaska Legislation; Alaska Highway Natural Gas Pipeline Policy Council; Joint Legislative Gas Pipeline Committee; 9-01 Alaska Models: Canadian Routes, LNG, GTL; HR 4 Story; Cook Inlet Supply-Demand Report: AEDC; Commonwealth North Investigation & Our Article; Report: Backbone; Legislature Contacts; State Gas Pipeline Financing Study; 5-02 Alaska Producer Update; Kenai: "Oil & Gas Industry Issues and Activities Report, 11-02"; Alaska Oil & Gas Tax Structure; 2-27-02 Royalty Sale Background; Alaska Gas Pipeline Office opens, 7-01, and closes, 5-02; Betty Galbraith's 1997-1998 Chronology. Our copy.
CANADA: 1-10-03, "Arctic Gas Pipeline Construction Impacts On Northern Transp."-Transport Canada-PROLOG Canada Inc.-The Van Horne Institute;Hill Times Reports, 8-30-02; 9-30-02, Cons. Info. Requirements; CBC Archives, Berger Commission; GNWT Economic Impact Study, 5-13-02; GNWT-Purvin & Gertz Study, 5-8-02; Alberta-Alaska MOU 6-02; Draft Pan- Northern Protocol for Oil and Gas Development; Yukon Government Economic Effects: 4-02 & PPT; Gas Pipeline Cooperation Plan Draft & Mackenzie Valley Environmental Impact Review Board; Mackenzie Valley Pipeline MOU Draft, 6-01; FirstEnergy Analysis: 10-19-01; Integrated Delta Studies; National Post on Mackenzie Pipeline, 1-02;Northern Pipeline Act; Haida Nation v. British Columbia; Indian Claims Commission; Skeena Cellulose decision -- aboriginal consultations required, 12-02; Misc. Pipeline Studies '02
COMPANIES: Alaska Gas Producers Pipeline Team Newsletter, 7-27-01; APG Newsletter: 5-02, 7-02 & 9-02; ArctiGas NEB PIP Filing Background; NRGPC Newsletter: Fall-02; 4-02 ArctiGas Reduces Field Work; BP's Natural Gas Page; Enbridge Perspective; Foothills Perspective; Williams Perspective; YPC Perspective, 7-02
MEDIA REFERENCE: Alaska Journal of Commerce; Alaska Inc. Magazine; Anchorage Daily News; Canadian Broadcasting Corporation; Fairbanks Daily News Miner, Juneau Empire; Northern News Services; Oil & Gas Reporter; Petroleum News Alaska; Whitehorse Star, etc.
EXTENDED CONFERENCE NEWS: Alaska Support Industry Alliance, Anchorage Chamber of Commerce, Canadian Institute, Insight Information, Inuvik Petroleum Shows, International Association of Energy Economists, Resource Development Council for Alaska, Ziff Energy Group
Northern Gas Pipelines: Extended News/Photos, International Association for Energy Economics (IAEE-Alaska Chapter), Economists, Economic & Revenue References...2002 Archives, Alaska's Fiscal Crisis.
Go to left column 'Up' button for 2001 News; Other Fiscal Crisis Opinion Here
11-27-02. Today, Alaska Revenue Commissioner Wilson Condon issued the Fall 2002 Revenue Forecast. Northern Gas Pipelines asked if the department could project state income from an Alaska Highway gas project based on market trends. Condon said state royalties, severance tax, property tax and income tax attributed to such a project could range from $200 million to $1 billion annually. This projection assumed transmission of 4.5Bcf/d and a $20 billion project cost. He added that if gas prices continue to rise above $5Mmbtu, state income could be at the higher end of the range.
Due to higher oil prices than a year ago, the department this year projects higher state revenues for the foreseeable future. With state budgets averaging $2-2.5 billion and OPEC oil holding in the $22-25 range, Alaska would continue spending more than it takes in but its Constitutional Budget Reserve account could make up the difference until Mid-2005, at which time a real annual deficit of about $1 billion/year would materialize.
Condon introduced state oil and gas economist, Chuck Logsdon (NGP Photo) who explained why this year's forecast is more optimistic than a year ago. "Over the last four years," Logsdon said, "the price has remained uncharacteristically high and one may say there has been a fundamental change in pricing, owing to OPEC's success."
With some our readers' concerns about the effects of potential Canadian acquiescence to the Kyoto Protocol, we asked Logsdon for his opinion. "If the Kyoto Protocol goes through, OPEC faces incredible losses in revenue." He might also have said that Alaska and Canada would face such losses as well.
Logsdon also suggested that the Iraq issue would affect world oil prices. Iraq presently exports less than 2MBbs/d. Post-conflict, exports could well rise to over $3MBbs/d, he said. Logsdon added that an Iraq war scenario could produce temporary price spikes to $32Bbl and in a "no war scenario" prices could slide over the next several months.
A reporter asked Deputy Revenue Commissioner Larry Persily for account balances. The current balance of the Constitutional Budget Reserve is $2.074 billion and current balance of the Alaska Permanent Fund is over $23 billion. (NGP Photo-Traci Kempert, KIMO Television) (Link to Revenue Department Statement here.)
11-5-02. U.S. Senate election results will profoundly affect gas pipeline and ANWR direction. Meanwhile, this week's biggest Alaska gas pipeline news will flow from today's local election results and the outcome of Ballot Proposition #3. Here is our commentary.
10-27-02. Anchorage Daily News-
10-17-02. PLEASE SEE OUR REPORT ON THE IAEE BALLOT PROPOSITION #3 FORUM BELOW. CLICK HERE FOR EARLIER PROP #3 FORUM REPORTS FROM CHAMBER AND ALLIANCE MEETINGS (Obtain downloads of Prop #3 language and associated bill/statute). AFTER MUCH STUDY AND HAVING EXPERIENCED SEVERAL FORUMS ON THE MATTER, WE FEEL QUALIFIED TO OFFER OUR READERS EDITORIAL JUDGMENT. WE SHALL EDITORIALIZE IN SEVERAL INSTALLMENTS AS WE BELIEVE THIS TO BE THE MOST CRITICAL ALASKAN OIL AND GAS ISSUE CURRENTLY IN PLAY. OUR FIRST COMMENTARIES APPEARED IN THE LAST EDITIONS OF THE ANCHORAGE CHRONICLE AND CANADA'S FAR NORTH OIL & GAS REVIEW (Note: written when oil prices and Alaska's projected deficit were higher). Here is our election day comment. Our readers will find the question and answer period below, especially instructive. Please see the event photo gallery here.
Tuesday (10-15-02) in Anchorage, the International Association for Energy Economists presented an outstanding forum on Ballot Proposition #3, the “All-Alaska Gasline Initiative”. Roger Marks, Department of Revenue economist (NGP Photo-right), introduced the program, moderated by Rose Ragsdale (NGP Photo-left), Anchorage Chronicle. Speakers included Scott Heyworth (NGP Photo-left, middle), proposition sponsor; Rep. Jim Whitaker (NGP Photo-right, middle), Fairbanks; Larry Persily (NGP Photo-left, below), Alaska Department of Revenue; and, George Findling (NGP Photo-right, below), ConocoPhillips. (See earlier Prop. #3 reports, Alliance and Chamber). (Also, see ADN story by Wesley Loy).
Marks introduced IAEE, its programs and mission to a packed audience of about 75, noting that for many ballot measures, sponsors provide a draft bill that becomes law if the measure passes. He added that even if the legislation associated with Proposition #3 passes, the legislature is not obligated to fund the special Authority that would be created. Marks then introduced Ragsdale who indicated she had still not decided how to vote on Ballot Proposition #3. "I hope the forum will shed sufficient light on the issue that we will have the information necessary to decide," she said.
Ragsdale introduced Heyworth, primary sponsor of the voter's initiative resulting in appearance of Proposition #3 on the upcoming November ballot. In an emotional presentation including a number of statistics, Heyworth promoted approval of the Prop. #. "I am tired of hearing the word NO," Heyworth said. "How many NO’S to anything good for Alaska? NO to a Canadian Highway route from Exxon and BP. NO to ANWR. NO to moving the Legislature to Southcentral.. NO to a Permanent fund dividend next year. NO to more resource development. NO to mining.. NO to Fish. NO to timber.. NO to roads. NO to education.. NO to Public Safety. NO to everything about Alaska. Would any of you like to hear the word YES just once?? Ballot Measure 3 represents a YES for all Alaska." Heyworth said the Alaska Constitution protects state funds from the authority to be created and will initially cost only a few million in contrast to state Department of Revenue projections. He said a gas pipeline from the North Slope to Prince William Sound with allied LNG and shipment facilities along the lines of the TAGS project suggested by Yukon Pacific Corp. is economic. A new petrochemical industry in Alaska would be, "...the most exciting part of the project," he said. Heyworth said the Alaska Highway Gas Pipeline Project is failing to attract Congressional support and that the oil industry has failed to properly market North Slope gas. "Frankly put," he said, "if the oil companies won’t do anything to develop the gas, then the people of Alaska will do it." Please find Heyworth's complete presentation here.
Moderator Ragsdale introduced Persily who earlier this year coordinated a study on state ownership of an Alaska gas pipeline. Persily said the Authority's goal of a 100% debt financed gas project was infeasible. "If the state built the project," he said, "it would be looking to borrow billions from the same investors, the same bondholders and shareholders that have been reluctant to invest in the project if built by the producers or pipeline companies. We do not make the project instantly more attractive to investors simply by having the state take over ownership, unless the state is willing to underwrite the billions of dollars of risk — and I don’t believe the state can afford to do that." Persily said should the new state authority not obtain 100% financing, there are no ready sources its equity contribution to the project. "The standard for such projects appears to be at least 30% equity from the owners (that’s what the oil and gas producers were required to put up in the late 1990s to finance the $2.5 billion Alliance gasline from Alberta to Chicago)," he said. "Assuming that the Alaska gasline could be built for $12 billion, and assuming the state authority could find investors to finance 70% of the cost, where would the authority come up with its 30% equity ($3.6 billion)? The Constitutional Budget Reserve likely will be empty by then, and the Permanent Fund earnings reserve is half a billion dollars below water today and will be fortunate enough to recover in value just to pay dividends and inflation proofing the next couple of years. The state just isn’t sitting on $3.6 billion." Please find Persily's complete presentation here.
Findling said that his company favors a pipeline project to the Lower 48 rather than an LNG project. He pointed to Phillips Petroleum Company's pioneering Alaska LNG project on the Kenai Peninsula, active for 30 years. He referred to a Sponsor Group study which failed to identify a feasible Alaska North Slope LNG project. He said "60-75 million tons of LNG supply/year in the Pacific Rim area, "...are chasing 20-40 million tons/year of demand." He said the imbalance of supply and demand has created a downturn in LNG prices: buyers are agreeing to shorter term contracts at lower prices. He said that Alaska LNG would be approximately twice as expensive as competing tidewater sources which avoid the liability of having to build an 800 mile pipeline to access gas reservoirs. On the other hand, Findling pointed to rising demand and a more favorable competitive situation in the Lower 48, saying, "Alaska gas would only constitute 10% of new U.S. supplies by 2010 and...would be consistent with the country's goal of achieving greater energy independence."
Whitaker said he was, "tempted to take the gloves off and say, 'nonsense', 'nonsense', 'nonsense' to some of the things I have heard today, but I won't...for now." He expressed a general position favoring Prop. #3 and assured the audience of economists and guests that risk was minimal. "Nothing gets built without solid numbers," he said, "and nothing gets built without commitments." He spoke of the tax advantage accruing to the cost of a state-run projects--no Federal taxes--saying that provision alone could reduce project costs by $.5 billion/year. Expressing dissatisfaction with gas producer progress, he said the state remains the owner of the gas, that each producer has a different perspective based on company self interests, that industry has different interests than the state and that passage of Prop. #3 is evidence that the state is pursuing its own interests.
A spirited Q & A period followed.
Your author pointed out that the law which would be approved by passage of the proposition gave power to the authority of eminent domain. "In your opinion, would that power enable the state to take back the gas from producers and market it independently of the producers?" Heyworth said he believed that if the authority had the power of eminent domain, "...we might have to use it." Alliance president, Jack Laasch (NGP Photo, center w/tie), from the audience observed that, "Just including eminent domain...doesn't indicate to me much incentive for attracting new investors to Alaska." Whitaker said, "I can't think of a better incentive for new investors than having access to an Alaskan gas pipeline. But in the end, it has to work for all parties."
Ragsdale questioned state ownership. Heyworth said project work would be "bid out to the private sector."
Ragsdale asked about petrochemical industry viability. Persily referred to the Williams study done last year (results inconclusive), saying he isn't aware of an economically feasible petrochemical project, "...at this time. Unfortunately," Persily said, "Alaska is far from the markets." He said petrochemical products can be made more cheaply in Alberta than Alaska. Findling added that, "distance to the market and lack of infrastructure worked against a petrochemical industry in Alaska."
Asked what Alaska could do to support a project, Whitaker said, "Alaska could probably not make a better investment than a gas pipeline. The revenue associated with such a project is significant. My conclusion is that we could not make a better investment."
Heyworth questioned Findling on a proposal by Netricity to establish a large 'server farm' on the North Slope powered by natural gas. "Why didn't ConocoPhillips and other gas producers negotiate in good faith with Netricity to establish a wellhead price leading to a North Slope project?" Findling suggested his and other companies were still open to continuing discussions with Netricity.
Alliance member Maynard Tapp (NGP Photo), asked Heyworth how the 'authority' would obtain equity should the financing package require such commitment. Heyworth repeated that an authority owned and operated gas pipeline could be 100% debt financed and needs no equity component. "If you did need equity," he said, "what about Alaska Native corporations? What about Asian countries?"
Fairbanks Mayor Rhonda Boyles (NGP Photo) served on Governor Tony Knowles' Alaska Highway Natural Gas Pipeline Policy council and her city participates in a 'Gasline Port Authority' project to build a similar LNG project with similar financing concepts, but now oriented to an LNG project extending from an Alaska Highway project 'leg' from Fairbanks to Prince William Sound.
Alliance member Dave Haugan asked about a statement in the initiative suggesting "permits have been pledged." Heyworth explained that Yukon Pacific Corporation had said the permits would be available." Haugan challenged, "at what price?" Heyworth answered that negotiations could take place after the law passes. Whitaker observed that the Legislature could change the law.
Anchorage Daily News reporter, Wesley Loy (NGP Photo) asked the panel if the initiative could pass but not be acted upon. Whitaker said that would be possible, but "...I suspect we will take it very seriously." Loy asked if the Legislature would appropriate funds for the authority. Whitaker said he couldn't answer. "After the initiative passes," he said, "we'll find out." Hayworth said, "Both Frank Ulmer and Frank Murkowski have agreed that if elected governor they would move forward on this."
Tapps, referring back to the eminent domain issue, asked if the producers had paid money for the leases, implying that the state should compensate them for expropriating gas reserves. Whitaker said, "The state is the gas owner by virtue of the lease agreements. Producers under the leases have an obligation to produce. We're suggesting," he said, "that a project be built rather than deferred for another decade or so."
Boyles said that, "Before I go back to Fairbanks I want to hear that a project the state owns will work." Whitaker referred to a state-owned housing agency and the Alaska Railroad. Heyworth said a project's success depended on "great leadership", and that local executives had been mentioned. Pressed by Ragsdale, he mentioned Ken Thompson, a retired president of ARCO Alaska, Inc. who served last year on the Governor's Alaska Highway Gas Pipeline Policy Council.
Finally, Loy asked that if the authority is formed, "Would ConocoPhillips negotiate in good faith with the state?" Findling replied that, "ConocoPhillips has long said that it would negotiate in good faith for the sale of its gas to an economically viable project." Heyworth added, "I didn't hear the term 'eminent domain' in that answer."
(Note: since our objective is accuracy of archives, Northern Gas Pipelines invites anyone to provide us with additions or corrections to our reports. -dh)
9-26-02 Updates: 01:30 ET. (Alaskan Insight) Juneau-591,537 Alaskans will receive a 2002 Alaska Permanent Fund dividend of $1,540.76. Revenue Commissioner Wilson Condon announced the amount of the 2002 dividend at last night’s annual meeting of the Alaska Permanent Fund Corporation in Juneau. "We can expect smaller dividends for the next few years," Condon said. "The dividend is based on the fund’s average earnings over five years, and it will take awhile to overcome these low market years in that average." The fund’s total market value at the end of Fiscal Year 2002, on June 30, 2002, was $23.5 billion, down from $26.5 billion on June 30, 2000. Readers may download Condon's complete presentation here. Due to its resource wealth (receiving 80% of its revenue from oil and gas severance, property and income taxes plus royalties) Alaska has no statewide sales tax or personal income tax. However, with Prudhoe Bay production half of peak volumes, Alaska is now depleting its savings to fund what would otherwise be a $1billion annual deficit. The reserve fund source of that funding will be depleted in the 2004 time frame absent dramatically higher oil prices. Condon reminded citizens that change is coming: "Though some may choose to avoid reality, we are quickly approaching the day when Alaskans will have to help pay for the society we enjoy", he cautioned. Politicians are now debating tough choices on taxing citizens/tapping the Permanent Fund. A gas pipeline will only produce a fraction of the projected deficit, and though it is a large fraction the revenue could not be 'on stream' until 2010 or later. Soon, Alaskans will have to 'bite the bullet' and face the reality of which Condon spoke. -dh
9-22. ADN on fiscal gap.
9-7. ADN Editorial-
8-27 Updates: Commentary: "Moody's Outlook Negative On Alaska". Please review our story and download Moody's analysis here.
7-22. On the fiscal gap and role of the Permanent Fund, Anchorage Daily News Opinion.
7-17. Whitehorse Star by Jason Small-In total, 69 per cent of the Yukoners queried said they feel the Yukon’s economy was in either serious or critical condition. That’s up from 64 per cent a year ago.
7-1. Anchorage Daily News by David Reaume (Photo)-With the gas pipeline project having been set aside for the immediate future, Permanent Fund dividends on the decline and the rest of the country showing signs of economic recovery, both Alaska's absolute economic performance and its relative economic performance are likely to revert to the stagnation that characterized most of the 1990s.
6-02. "Fostering Alaska Business Development," a presentation given this month to the Anchorage Chamber of Commerce and, earlier, to Commonwealth North by Edward Lee Gorsuch (NGP Photo, 9-7-01), Chancellor, University of Alaska Anchorage. The presentation features strategies and opportunities facing the state's economy and focuses on Alaska's fiscal crisis. The presentation is reflective of the 'fiscal certainty' requirement which Alaska's gas producers consider critical to forward movement of an Alaska gas pipeline project.
5-23: Northern Gas Pipelines asked five leading U.S. and Canadian economists and analysts familiar with gas pipeline issues to comment on Alaska's gas pipeline strategy. We identify these as highly regarded professionals, objective, and not committed advocates. None knew the other was commenting, yet the responses are alarmingly consistent, reflecting important views of how Alaska is currently perceived throughout North America.
5-22: The Alaska legislature adjourned last night without adopting a long-term fiscal plan or creating fiscal certainty for gas pipeline investors. Here is an Alaska Star Op-Ed piece by Rep. Fred Dyson, written earlier, which suggests a way out of the briar patch, for a long-range plan if not for pipeline fiscal certainty.
4-7: Anchorage Daily News: See our special supplement of this week-long series of important editorials. -dh
2-19: (Draft: revisions to be completed 2-19) Introduced by Alaska Chapter President, Kristen Maines, Alaska Revenue Commissioner Wilson Condon (NGP Photo-left) discussed Alaska Natural Gas Pipeline state ownership issues today at the United States Association for Energy Economics meeting hosted in BP's Anchorage headquarters. Condon briefed members on the presentation Governor Tony Knowles made February 7 on the concept of using the Alaska Railroad's unique bonding authority to potentially reduce pipeline financing costs by over $1 billion (Story here). He gave background on a state ownership study released on February 1, which argued for no state gas pipeline ownership. The Alaska Railroad financing concept had not been included in the state ownership study ordered by the state Legislature.
Condon gave background new to some in the room. He recalled that on four separate occasions, the state had considered owning all or part of the Trans-Alaska Pipeline System. Most of that interest had risen from the state's frustration with NEPA and Native claims related litigation in the early 1970s. Governor Bill Egan's administration reviewed such a study produced by the Governor Keith Miller administration and forwarded it to the Legislature which did not act upon it. Condon said that at the time, BP proposed that partial state ownership would better align interests of the state and producers. The state declined participation, "...because it did not have the skill set to be effective and was uncomfortable with the inherent conflict of at once being a regulator and an owner."
After it had won the ANGTS approvals, Condon said, by 1978 the Alcan/Northwest partnership approached the state and for four years tried to obtain state involvement via direct investment or conduit financing. This was at a time when producers were not permitted to own the gas pipeline, though they were able to guarantee pipeline debt. State participation in gasline financing did not materialize, prices lowered and a project was never built.
Bringing his audience to the current timeframe, he said the Legislature last year asked for a current study to review two financing approaches: the state could enter the gas transportation business; or, the state could facilitate financing for a privately owned project. Absent the more recent Alaska Railroad financing option, he said, neither of these approaches was attractive. Discussing alternatives, he said the "Port Authority" concept initiated by the City of Valdez, Fairbanks North Star and North Slope Boroughs would involve buying, transporting and selling the gas in the market, with ownership net operating revenues benefiting those local governments, the state, the producers and other municipal governments. He said the concept expected a 100% debt financing scheme whereas the state thought the market would be more likely to accept a more traditional 70/30 debt/equity ratio...but could not prove the 100% debt concept would not work.
If the state were to participate in a 70/30 debt/equity ratio project, Condon speculated as to the sources of the equity. The equity portion of a 1/8th ownership position, he said, would be about $500 million, or $4 billion if the state provided 100% of the equity. He said there were not such resources in the general fund and alluded to the state's fiscal crisis, well documented in these IAEE pages. While the Permanent Fund has the resources to invest, he said, it does not have the statutory authority to go into the gas pipeline business. The Permanent Fund Earnings Reserve fund, he said, would be an unlikely source as its use would affect the balance of the permanent fund and the dividends. He added that without the Alaska Railroad concept, the debt would be taxable, with tax exempt status applying only to certain types of facilities--no more than 10% of the gas pipeline project. Also, the state's annual allocation of tax exempt financing ($187.5 million) is fully subscribed by the Alaska Housing Finance Corporation, the Alaska Student Loan Fund, the Alaska Industrial Development Authority and municipal governments.
Condon reviewed the reasons sometimes given for the state's involvement in gas pipeline ownership, including: control of the state's future via 'a seat at the table'; a good investment opportunity and supporting creation of a project. He then provided reasons the state should not participate, including: risk, lack of available funds, legal and procedural contradictions for the state to act in an entrepreneurial role; state's track record in owning projects; potential project sponsors do not support state participation; and increasing state dependence on oil & gas revenue.
Using the Governor's Alaska Railroad financing authority, he said, could overcome many of the previous obstacles to state financial involvement in a gas pipeline project. Interest on the bonds would be tax exempt from federal income taxes. The tax-exempt nature of the financing could reduce debt costs by up to 75%. He said this opportunity developed when the Federal government transferred the Alaska Railroad to the state and granted pre-1968 authority to sell tax exempt private activity bonds. The project can be privately owned, he said, tax benefits to owners will be available and the transaction will not affect the Alaska Railroad's credit assets.
Condon introduced Oil & Gas economist Roger Marks (Photo), who said the ARR concept would provide the following financial benefits to the project: tariff reduction: .16Mcf; after tax cost reduction: .11Mcf; increase in rate of return: 1.4%; and present value increase: $1.6 billion. Marks then went on to describe the financial organization of the project, involving the project owners, project investors (bondholders), and the trustee. The trustee would take bond proceeds up front, distribute capital as the project needed, invest bond funds in the interim and accept payment from the owner for distribution to bondholders at project startup. He related an opinion from the state's financial advisors that interest payment deductions could be subject to accelerated depreciation as well. (Please see other meeting photos here.)
2-13: The Juneau Empire, by Bill McAllister-Recent moves on a long-range fiscal plan .... Rep. Lisa Murkowski, an Anchorage Republican who is chairwoman of the House Labor and Commerce Committee and a leader in the Fiscal Policy Caucus, has had two setbacks. Her bill for a "dime a drink" increase in the alcohol tax got derailed temporarily last week when members of the House Finance Committee added income, sales and corporate taxes and then tabled the bill. And her own committee Monday tabled a bill to levy a $100 annual employment tax that would raise $38 million a year. This morning, Fairbanks Republican Rep. Jim Whitaker sketched a gloomy picture for the House State Affairs Committee while presenting his bill for a 6 percent seasonal sales tax. The committee didn't take a vote.... He said that with no action this year, the Constitutional Budget Reserve will be gone in 2004 and to balance the budget the Legislature will have no choice but to use earnings of the permanent fund. But Senate President Rick Halford and Finance Co-Chairman Dave Donley said the public won't respond to that line of reasoning because the same rhetoric has been heard for more than a decade.... "I don't think anybody can accurately predict when the CBR will or will not run out," Donley said.... "Obviously, the plan we're working on hasn't been fleshed out," Halford said. "I do not believe we have to come up with $400 million," the total proposed by Knowles this year.... The governor would tax income at 20 percent of federal tax liability, with reductions to 10 percent and 5 percent if the CBR climbed to $2 billion and $2.5 billion, respectively. The reserve today is $2.56 billion, although a draw down of a few hundred million dollars is projected by June, with another $1 billion-plus in the coming fiscal year.... Knowles also would levy a $30 head tax on nearly 700,000 cruise ship passengers, for about $20 million....
2-6: Alaska Needs Leaders—Now! by Chuck Achburger, Common Sense for Alaska--Raising a couple of hundred million by the current suggestions coming out of Juneau only leads the citizens to wonder where our government will attack next, as our "leaders" roam our economy like wolves, to look for victims. They have told us they need $1.2 Billion so we know you will be back haunting our doorsteps looking for more.
1-30: FISCAL UNCERTAINTY ?: (Note: 'Fiscal certainty' was an important theme of last Friday's Alliance conference. Talk of increased industry taxes affects ongoing industry plans for long term investment; resulting uncertainty works to the advantage of competing exploration areas and to the disadvantage of gas pipeline economics. When elected officials promote increasing the already high industry tax burden, in effect they advocate increasing Alaska's 80%+ dependence on oil & gas revenue and signal planners that long range cost projections for Alaska operations and capital investment must be adjusted for political risk. For related stories.-dh) Anchorage Daily News, by Ben Spiess, Juneau -- Executives from Alaska's oil companies called on legislators to solve the state fiscal gap, but not with further taxes on the industry. "Any changes in taxes might impact profitability and further investments on the North Slope," said Jack Williams, production manager for Exxon Mobil Corp., at a luncheon held by the Alaska Oil and Gas Association at Juneau's Baranof Hotel. ... "We're a convenient target," said Kevin Meyers, president of Phillips Alaska. "But we cannot afford an increased burden on the industry." Last year, Alaska got more than 80 percent of revenue for general spending from oil royalties and taxes. But state oil production has dropped in half in the past 14 years, leaving the state government short of money to cover state services. With fresh oil from new discoveries and the use of new production technology, Alaska oil flow has been steady at about 1 million barrels a day for the past two years. Tuesday, executives painted a bright future for continued investment on the North Slope, but not if tax rates increase. "Don't forget, every Alaskan is in the oil and gas business," Meyers said. ... Until the state's budget problem is addressed, a cloud of uncertainty hangs over investment in the state, said Steve Marshall, president of BP Alaska. Gov. Tony Knowles is proposing new taxes to help cover the gap, including a $365 million income tax. ... Knowles ruled out increased oil taxes on the industry. Increasing taxes threatens to "kill the goose that laid the golden egg," he said in a speech Jan. 16. Rep. Eldon Mulder (Photo-right, 1-25-01 Alliance), the Anchorage Republican who is co-chairman of the House Finance committee, agreed. "I don't think we can (tax) anymore," he said Tuesday. ... "We've got to compete with the world," he said. A modest tax increase on the oil industry when coupled with other revenue measures is an option, said Rep. Eric Croft, D-Anchorage. ... Another option would be a tax when oil prices rise above certain levels, known as a "windfall" tax, said Jim Sykes, founder of industry watchdog Oil Watch Alaska. Sykes said the tax could begin at $17 per barrel. House Republicans and Democrats plan to meet late this afternoon in private to discuss strategy to address the fiscal gap....
1-26: Peninsula Clarion-The cry for a long-range fiscal plan is getting louder. From many corners of the state, private citizens, independent economists, civic organizations and business groups alike -- of all political stripes -- are weighing in on the need for legislators to address the budget gap this session. ... "The gravity of the situation is enormous," said Rep. Andrew Halcro.... See our related stories here, and linkage to gas pipeline issues.
1-25: See Alliance presentations which deal extensively with the economics of doing business in Alaska, and with the concept of 'fiscal certainty'.
1-19/20 weekend: Anchorage Daily News Commentary, by Steve Lindbeck- * AP via Fairbanks Daly News-Miner-AP, ANCHORAGE--Economists say Alaska is facing a recession, even if proposed solutions to the state's chronic budget problems are put in place. Budget forecasters predict state government will be short about $1.2 billion annually in the coming years, due to falling oil production. That shortage is almost one-third of what's needed to cover state services. Proposed solutions include cutting state government, income taxes, sales tax and earnings from the $25 billion permanent fund. But whatever the fix, there will be less money in the Alaska economy. "None of these options can prevent a hit on the economy. The question is how you do it," David Reaume, a former Alaska economist now based in Washington, told the Anchorage Daily News. Less money could result in fewer jobs and slower economic growth, economists say. "We are going to take a hit. There's just going to be less money around," said Scott Goldsmith, an economist at the University of Alaska Anchorage. The state has had budget shortfalls in eight of the past 10 years. But the threat will grow if the problem is not addressed quickly, according to economists such as Goldsmith, Reaume and George Rogers, a former state economist in Juneau. "We're looking at a slowdown if not an outright recession," Goldsmith said. "The longer we wait the fewer options we have. And the more pain we will inflict on ourselves all at once." To raise $400 million annually in new revenues, Gov. Tony Knowles has proposed a personal income tax, an alcohol tax increase and a cruise ship head tax. Knowles, who is in his last year in office, wants future governors to phase in the remaining $800 million. Alaska's revenues are tied to oil. Last year, the state got more than 80 percent of its general fund revenue from the oil production and taxes on production companies. Oil flow, however, is half the 1988 peak of 2 million barrels a day. To compensate for the difference between revenue and spending, the Legislature has regularly drawn from the multibillion dollar Constitutional Budget Reserve. But that account is shrinking. Waiting until reserves dry up would force immediate, sharp taxes or other measures that could throw the economy into recession, Goldsmith said. Filling the gap means either cutting government or diverting money through taxes or a cap on the Alaska Permanent Fund dividend. Many believe the likely fix will be a mix of all options. But the mix and timing are critical, economists say. Since 1990, Alaska's economy has added jobs at an average of 1.8 percent, or 4,500 jobs per year, said state labor economist Neil Fried. Diverting $1 billion from people's pockets into state spending could cost 10,000 jobs, Goldsmith said. Taking that much in taxes in one swoop could mean abrupt, negative job growth. That could lead to a shrinking population and a drop in property values. No one envisions such a drastic approach yet. Goldsmith said he backs an income tax because it can be deducted from federal taxes and places the biggest burden on the highest earners. After that, he said, the state should use permanent fund earnings. The worst course would be a steep cut in state spending, say Reaume and Goldsmith. "If you seriously wound state government, you will seriously wound yourself," he said.
1-15: JUNEAU ‑ The Joint Committee on Natural Gas Pipelines has contracted with a Fairbanks-based economic research firm to provide professional economic services to the Legislature as it continues working to bring Alaska’s North Slope natural gas reserves to market. Economists working on study are: Dr. Douglas Reynolds, Dr. Robert Logan and Dr. H. Charles Sparks. See story here.
ANCHORAGE - IAEE's first 2002 meeting was a joint assembly with the Society of Petroleum Engineers (SPE), with an introduction of new officers and a presentation from University of Houston Professor Ronald Oligney. Oligney (Photo) discussed his co-authored book, "The Color of Oil", and briefed the audience on his co-authorship of "The Imperatives of Arctic Natural Gas Development".
2001 President William Nebesky turned the reins of leadership over to Kristen Maines, an economic planner at HDR Alaska, Inc. Gregory McDuffie, a commercial consultant in the Exploration and Land group at Phillips Alaska, Inc., assumed Vice Presidency and Brigitta Windisch-Cole, an Alaska Labor Department Economist, was elected Secretary-Treasurer. Denise Hawes is Newsletter Editor. State Petroleum Manager, Bill VanDyke (Photo) introduced the speaker on behalf of SPE. See our IAEE photo gallery.
Oligney first set the stage for an Alaska discussion, by painting a picture of world economics and how energy affects the economic prosperity of nations. "Energy consumption is an indicator of the wealth of nations," he said, illustrating with a graph that national standards of living directly correlate to energy consumption. In reviewing various chapters of his book, he said, "The 'greenback' is equivalent to oil around the world". As an example, he pointed out that in Australia, one might question whether you meant Australian or US dollars when you referred to the price of various items. But if you said that today oil was valued at $25Bbl, there is no question that you were referring to USD. He said the "equilibrium price" of oil is about $23Bbl in today's world, but that it would fluctuate higher and lower. He said that, "Oil is the most American of businesses," taking the audience on a bit of a tour back through its history, but then pointed out there were many similarities between the creation of Standard Oil earlier in the Century and Microsoft more recently. He provided a dramatic chart which he said the Congress is reviewing, pointing out that every major interruption in energy supply resulted in a major economic dislocation. "There is a real correlation between employment loss and major energy disruptions," he said.
Having well qualified himself to the audience as a long-time Alaskan currently living in Texas, he launched into the great gas pipeline discussion, saying that, "What I advocate is what is right, what is the truth." He said the appropriate price target for natural gas was in the $3-3.50 range within about two years. He said the country will demand 32 Tcf/y of natural gas by 2010, a higher estimate than that used by most prognosticators. At that rate of consumption, Canadian and Alaskan Arctic gas will be needed.
He said the debate in Alaska centers on: jobs, natural gas use in Alaska and environmental issues. On pipeline routing, he advocated cautions "phases". The first phase would link Mackenzie Delta gas to Alberta. Future phases would tap Prudhoe Bay and expand as both gas provinces could develop the markets at a acceptable prices. He said the U.S. Congress House bill banning the northern route was bad for Alaska and could prevent the construction of any gas pipeline in this timeframe. He said the northern route, being more economical, would offer more incentives for exploration and more long-term jobs for Alaska than the southern route.
On arguments about need for North Slope gas in Alaska, he said, "It is a clear and valid concern for Alaska." He said the event that will change minds will be new Cook Inlet discoveries, predicting that 20Tcf will be discovered in the next few years. Based on gas supplies available to each city, he said, "Anchorage should be less concerned about running out of gas than Houston. In the worst case, you could import gas to Alaska for $3/Mcf. "That's very different from trying to finance a pipeline to Kenai that will never happen," he said. "We need to look at Cook Inlet as an opportunity, not a shortage." You may download the complete study, The Imperatives of Arctic Natural Gas Development".
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