By the OGJ Online Staff
WASHINGTON, DC, Oct. 5 -- Supporters of a new pipeline that would move natural gas from Alaska to the Lower 48 states are hoping Congress this session will provide tax incentives and streamline permitting to make the project more attractive to industry.
It remains uncertain whether there is enough political support to encourage the $20 billion line to be built when natural gas prices are easing. The state of Alaska would like to see incentives be part of a new $75 billion economic stimulus package now being discussed between the White House and Capitol Hill to jump start the economy.
Advocates of the gas pipeline argue that with incentives in place, industry could make a more informed decision on whether to go forward. And while gas prices may be soft now, demand in the US is expected to grow over the long-term. Another argument they use is that because the US does not rely on foreign gas as heavily as it does for oil, a pipeline will ensure US supplies from Alaska reach US consumers.
For now, the administration of George W. Bush has avoided trying to spell out whether it supports the aggressive incentive plan industry says it must have to push the project forward. If built, the pipeline would entail the largest steel order in American history.
On the table for Congress to consider are three key incentives, as outlined by Knowles in testimony before the Senate Committee on Energy and Natural Resources Oct 2.
Alaskan Gov. Tony Knowles (D) wants pipeline owners to have an accelerated depreciation of a 7-year rate rather than the 15-year rate. Knowles said that kind of depreciation has been granted by Congress for other projects on a bi-partisan basis.
Second he asked for a 10% investment tax credit that would save $2 billion on the $20 billion project. Finally he called for a production gas tax credit which he said would provide investor confidence by allowing a tax credit for natural gas production tied to a floor price of gas.
The exact cost of those tax incentives is not yet clearly understood by congressional budget makers. Supporters of the new line insist that the tax proposals are not government subsidies.
Congress may also be needed to help expedite permitting of the route and make clear the federal government has the authority to approve the line.
At least at the committee level, there is a call to move forward.
"We will never be able to produce enough oil to be independent of the world oil market, but we have the potential to retain the security of a North American gas market," said Chairman Jeff Bingaman (D-NM). "I believe we are at a critical energy security juncture here. "I am prepared to develop legislation to streamline the regulatory approval process needed to move forward with the pipeline. This legislation would need to supplemented by a mechanism to reduce the financial uncertainty for the companies that undertake to build the pipeline; I am committed to working with the Finance Committee on that piece of the legislation.
A pipeline transporting domestic natural gas reserves from Alaska to markets in the lower 48 states is a project that can provide real jobs across the country and in Canada; enable the US to meet the growing demand for natural gas; and prevent import dependence in the future. "
Meanwhile, congressional sources said that some lawmakers that want to see the coastal plain of the Arctic National Wildlife Refuge opened for drilling fear if Congress decides to offer better tax treatment to an Alaska gas pipeline it may dull interest in ANWR oil production this session.
The Alaska delegation in Congress have vehemently denied that assertion. But they also say they do not want a federally subsidized project.
Senate Frank Murkowski (R-Alas.) told the committee he supports a federal tax change to allow seven-year accelerated depreciation for all gas line projects. But he expressed caution about the federal government providing "huge" subsidies. According to Murkowski, Federal Reserve Chairman Alan Greenspan and Former Treasury Secretary Robert Rubin questioned the advisability of subsidizing the project since it would set a bad investment precedent and draw down the current surplus for an unreasonable duration.
Murkowski added that a bigger issue for the future of the gas line is whether the State of Alaska can commit to provide the producers with "long-term fiscal certainty. A project of this magnitude must have the certainty that the whims of the state's taxing authority are tied in real terms to the market price of gas," said Murkowski.
Murkowski said he is still waiting for the producers to finish their feasibility studies and to explain how "technological advances" can help to lower estimated costs
The House passed energy legislation that includes an ANWR leasing provision. It did not address favorable tax treatment for a gas line. However Republican leaders did include an amendment to ban a shorter route through northern Alaska favored by the Canadian government. International experts say the amendment, if it became law is unenforceable. However, the House plan does convey its support for a 3,500-mile "southern" Alaska Highway route favored by Alaska. The Senate has not sought to mandate a pipeline route although pipeline supporters would like Congress to consider the tax proposals offered by the state either as a stand-alone bill or as part of pending legislation.
Knowles was one of about 20 witnesses representing government, industry, and the environmental community who testified on what role the federal government should play in expediting the pipeline.
Knowles also reiterated an earlier position that the federal government should give its blessing to the "southern" Alaska Highway route (OGJ Online, Aug. 31, 2001).
Knowles will meet with senior federal Canadian officials next week to seek support for the project to go through Alaska. The Canadian government does not want the US to subsidize a route following the Trans-Alaska Pipeline System to Fairbanks and then the Alaska Highway to Canada. Some Canadian officials prefer an "over-the-top" route through the Beaufort Sea and down through the Mackenzie Valley because it could also collect gas from sizeable, undeveloped Mackenzie Delta fields.
A spokesman for Knowles said the governor will also meet with Canadian steel companies to push the project.
