WATCHING GOVERNMENT: Gov. Murkowski’s next race

Sept. 4, 2006
Alaska Gov. Frank H. Murkowski may have lost the Republican gubernatorial primary on Aug. 22, but that doesn’t mean he’s through.

Alaska Gov. Frank H. Murkowski may have lost the Republican gubernatorial primary on Aug. 22, but that doesn’t mean he’s through.

Three days beforehand he signed into law a bill reforming the state’s oil and gas taxation regime. Alaska producers now will pay 22.5% of their net profits to the state, a 0.25% increase for every dollar the price rises above $40/bbl. The law also includes a tax credit of 4-20% for investments in exploration and development. At current oil prices, the law will raise an estimated $2.2 billion for the state. At the signing ceremony, Murkowski said he considered it “the first step to ensure a bright and prosperous economy for Alaska over the next 40-50 years.”

The next step, he continued, is to finalize a contract to construct an Alaska gas pipeline.

“He plans to continue to try for that goal and is in discussions with the producers to make changes to the proposed contract that have been indicated in public comments and the views of the legislature,” said John Manley, Murkowski’s press secretary. “They are in the process of renegotiating that contract so he can have it ready for a special session of the legislature in another month.”

Complex process

Reaching an agreement that satisfies both Alaska North Slope producers and Alaskans has been nearly as complex as the prospect of building the $20 billion system to transport previously stranded gas to the US Lower 48.

Soon after Murkowski submitted a proposed agreement with producers, legislators quickly raised questions about the amount of gas that would be available in-state, whether the state’s share was sufficient, and if there were enough requirements to employ Alaskans and buy Alaskan supplies and services.

The two remaining major candidates for governor have weighed in. Republican Sarah Palin, who beat Murkowski in the primary, said she “prefers an all-Alaska project that heats our Alaskan homes, energizes our businesses first, and reduces rural Alaska’s energy costs.”

Democrat Tony Knowles, who served as governor for two terms before Murkowski, would like the state to consider alternatives, which include liquefying gas at an export terminal and shipping it to a Canadian or US coastal site.

Matter of time

Murkowski’s next race is against time-and not simply because his term will end in January. “He would like to get this finalized and signed before the election in November,” Manley told me. “One main reason is that there’s a ballot initiative to enact a reserves tax. If that went into effect, he thinks it would kill the project by adding at least $10 billion to the cost of building the pipeline. He believes the oil companies wouldn’t stand still for that.”

Reconvening the legislature is only the first step. Getting it to accept a new proposed agreement will be difficult since so many members will be running for reelection. But Murkowski recognized years ago that getting this gas pipeline built wouldn’t be easy.