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Northern Gas Pipelines is your public service 1-stop-shop for Alaska and Canadian Arctic energy commentary, news, history, projects and people. It is informal and rich with new information, updated daily. Here is the most timely and complete Arctic gas pipeline and northern energy archive available anywhere—used by media, academia, government and industry officials throughout the world. Northern Gas Pipelines may be the oldest Alaska blog; we invite readers to suggest others existing before 2001.

 

Alaska Taxes

3-20-14 Learning From History

20 March 2014 8:14am

What Does This Week's Gas Pipeline Effort Have To Do With The August Primary Election?

by Dave Harbour

                               Alaska, Governor, Jay Hammond, oil taxes, Photo by Dave Harbour

Thirty-three years ago this week, Alaska's governor, Jay Hammond (NGP Photo), gathered with House and Senate leadership to announce bipartisan legislation aimed at reforming oil taxes.

Point of Personal Privilege:
 
We celebrate the life and mourn the passing of our great friend, Dr. Milton Byrd (NGP Photo).  (See our later update and obituary on March 3, 2014)
 
Milton Byrd, Frontier Companies, Tennessee Miller, Alaska Support Industry Alliance, Commonwealth North, World Affairs Council, Rotary, Photo by  Dave Harbour, Charter CollegeInterested readers may contact us personally here, for more information as the Byrd family releases it.
 
For over three decades, Milton has contributed tirelessly to the growth and improvement of Alaska and her people.
 
We first met upon his arrival.
 
Tennessee Miller, the iconic Alaskan owner of Frontier Transportation (i.e. of North Slope 'Cat Train' fame), was his first Alaska boss.
 
"I've hired this bright, young college president," he once said proudly, "to come up here and help me handle my business affairs."
 
Milton called soon thereafter and he said mine was the first business call he had made.  
 
We met for lunch at Sheffield's old "House of Lords" downtown.  This was about a week after he hit town.  
 
We became lifelong friends and he seemed more excited to come to Alaska than any newcomer I've met over the years.  
 
Following his career with Frontier, Milton organized Charter College, which he led during another career, as president (i.e. his fourth college presidency, as I recall).
 
He remained active throughout his Alaska adventure with Commonwealth North, the World Affairs Council, Rotary International and the Alaska Support Industry Alliance, among many other charitable and public interest pursuits.
 
He and his beloved wife, Sue, moved to Las Cruces, N.M. where he passed away recently.
 
Our dear friend, Dr. Milton Byrd, was a serious man with a wry sense of humor punctuated with a twinkle in the eye.  He was a man of honor, grace, wisdom and dedication.  
 
He made the world better.
 
Thank you, God, for letting this great one to have been among us.
 
A mutual friend, Ken Martinson, summed it up best: "The news about Milt's passing is in sorrow, but his Life's accomplishments and contributions are full of joy."  -dh

That action led to roughly 20 years of tax stability, massive industry investment and more production than had been earlier envisioned.  

Then, in 2006-07, the production tax was massively increased, leading to continuing declines in production and action in the last legislative session to again reform taxes.  

Tax reform did pass (SB 21) last Spring, but it was immediately attacked by minority legislators and a group of environmental activists and mostly democratic grass roots operators.  They succeeded in gathering enough signatures last summer to place on this coming August primary ballot a proposition that, if a majority vote "yes", would repeal oil tax reform.  

This week's major focus (scroll down to review stories and commentary) in Juneau has been on legislation intended to advance an Alaska North Slope gas pipeline/LNG project that would both provide intrastate gas supply and gas for export.

We can easily surmise that if a majority elect to repeal tax reform, Alaskans will see diminished oil industry investment, a faltering economy and little hope for a gas pipeline/LNG project during this generation's watch. 


Calgary Herald.  

Deputy premier Dave Hancock was chosen interim premier of Alberta during a Tory caucus meeting at the legislature Thursday morning.

“I think what we need is some stability as we go through the process of leadership selection,” Hancock said when asked what qualities an interim leader should posses. “Government obviously has to continue to do its job. Ministers have to continue to do their work. The budget needs to get passed, the rest of our session needs to be dealt with, so it’s steady as she goes through that process while potential leadership candidates are getting their campaigns together and going out.


San Francisco Chronicle/AP by Becky Bohrer.  

The Alaska Senate on Tuesday passed legislation aimed at advancing a major liquefied natural gas project, over nagging concerns about the role of TransCanada Corp.

The vote, following hours of debate, was 15-5. Republican Sen. Bert Stedman joined minority Democrats Hollis French, Bill Wielechowski, Johnny Ellis and Berta Gardner in voting against.

Natural Resources Commissioner Joe Balash had hoped for a resounding approval as a message to the other project partners and markets about Alaska's resolve in pursuing a project. Tuesday evening, Gov. Sean Parnell thanked the Senate for passing his bill and said he looked forward to working with the House to pass legislation "on Alaska's terms and in Alaskans' interests."


 

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3-18-14 Senate Adopted Gas Pipeline Legislation Tonight

18 March 2014 10:27am

KTUU.  The Alaska Senate has passed legislation aimed at advancing a major liquefied natural gas project, over nagging concerns about the role of TransCanada Corp.  The vote was 15-5. 

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3-17-14 Is Alaska Flirting...?

17 March 2014 4:53am

Is Alaska Flirting With The Last Gas Pipe Straw?

Competition Perspectives: Part IV (Part IPart IIPart III)

by 

Dave Harbour

We had written a very long commentary which tried to shed light on the effect of currently discussed issues on Alaska investment climate competitiveness.  We then delved into the effect various pending decisions could have on prospects for an economically feasible gas pipeline.

And we concluded that, as in Canada's MGM case, investors would do the best they could until the day a straw "broke the camel's back," resulting in an unhappy press conference that catches everyone off guard.

Acknowledging to ourselves today that the whole political structure of Alaska is focused on resolving gas pipeline issues, we decided to not add our voice to the suite of cacophonous debates.  After all, the symphony of special interests will sing and toot for their own ends no matter what we may think.   

Instead, we will offer to readers who may find them interesting, rationale applying to current sub issues of the gas pipeline debates:

1.  Efforts to force use of gas pipeline project labor agreements (PLAs), by LAW, will have at least several major effects:

  • Even if investors were to want PLAs, forcing them to use PLAs by law makes their bargaining position with unions weak.  To get the best deal for shareholders and the lowest transportation costs for consumers and the highest royalty and tax returns for government requires the investors to secure the most reasonable and competitive possible employee costs  (i.e. which we are told could approach a third of the $45-65 billion project cost).  If unions which will negotiate PLAs with investors, know there will be no pipeline without PLAs they can hold out for exorbitant hourly rates and benefits.  Indeed, their negotiations could push the project into a competitive wilderness from which no viable project would emerge.
  • PLAs will not, as advocates claim, further the hiring of Alaskans.  Virtually all competent and qualified oil & gas  backgrounded Alaskans in this lightly populated state are now employed.  It would be in the interest of investors to hire as many long time, qualified Alaskans as possible.  Having a several year boom-time of pipeline jobs will -- as with the Trans Alaska Pipeline System (TAPS) in the 1970s -- suck much qualified talent away from existing Alaska employers forcing them to hire 1) less qualified Alaskans, and/or 2) immigrants to Alaska.  After construction, the long term, qualified Alaskans who left normal, private sector jobs will be faced with taking less attractive jobs in the normal market or moving away from the state to oil and gas projects that demand more experienced talent.  The real beneficiaries of government-forced prevailing wage/PLAs are unions that can expand membership, collect dues and use that wealth, in part, to support their favorite political candidates.  Accordingly, lawmakers should be wary about interfering too much with the invisible hand of economics and free enterprise less they reap unintended -- rather than utopic -- results.  In political debate, union apologists, claim that a union negotiated PLA still allows non-union companies to bid on pipeline work.  While true, the larger effect is to raise the hourly wage scale of employees to an artificial, negotiated level above competitive market rates which both union and non-union employers would have to pay.  It certainly does "even the playing field" between union and non-union companies, making it no more advantageous to hire competitive non-union than union contractors.

2.  "Pay-offs".  We have warned over the years that the singular focus of "monetizing Alaskan resources" is in the constitutional best interest of Alaskans.  With maximum monetary value derived from natural resources, the legislature and governor can then allocate the money to public uses.  However, special interest advocates claim that the gas resource must --by law -- provide more than monetary benefit to Alaska.  Some rural politicians have even said they would only support current gasline legislation if their remote communities receive a direct benefit of the pipeline.  Monetizing Alaska's gas to help the state continue delivering programs throughout Alaska is not enough.  This is where politicians encounter a thousand rabbit trails, seducing them into tempting areas far removed from simply monetizing the gas.  For example:

  • Alaska communities not near gas pipeline facilities will argue for funding socialized energy programs in their areas.  
  • Some might ask for propane to be split off from the gas stream and provided to them via subsidized projects.  
  • Some will ask for subsidized LNG/barge distribution projects to serve coastal communities.  
  • Some will want subsidized LNG storage and local distribution facilities, because their cost will be exorbitant.
  • The pipeline project involves a state agency (i.e. Alaska Gasline Development Corporation {AGDC}).  That will usher in other challenges, including both subtle and bold requests from public officials, friends, family and private influence leaders to provide employment, contracts and other favors involving public funds.  Without a formal audit procedure, public monies and project performance are at risk.
  • Then, there will be those who will politically harass investors (i.e. oil and gas companies) to subsidize the cost of natural gas, LNG and propane to their communities in return for not molesting them with tax bills during legislative sessions or tax referenda at any time.
  • Many of these unanticipated burdens accompanying state participation in a private project can not only lower state income but also increase state operating costs.

Our Gentle readers can see why we decided against publishing a longer treatise on this matter today, as the Alaska Senate and then the House approach decisions on Alaska gas pipeline Senate Bill 138.  There is much more that could be said, but it could only add to an impression that we are "just being negative", rather than what we believe we actually are: optimistic by nature, but realistic.

Even after reading this summary of current challenges, we believe reasonable minds will conclude that the weight of government interference in a private enterprise project inversely affects the project's efficiency and competitiveness. 

So, question: rather than just be relegated to the critics' peanut gallery, what would we be inclined to do were we to have absolute power?

Answer: We would sell oil and gas leases in the private market for the highest price.  We would loudly proclaim that, "in reliable Alaska, a deal is a deal and we put great value on protecting our reputation".  While our constitution gives us the sovereign power of taxation, we are loathe to use that power selfishly, negatively or in ways that diminish our integrity as a respected, sovereign state.  We would endeavor to never change the tax/royalty/regulatory rules of the game affecting an investment for at least 20 years--except to moderate the impact of those burdens in response to logic and our competitive position with respect to competing markets.  We would control the nearly insatiable appetite for increased spending beyond our means, knowing that run-away spending could force us to raise tax burdens and decrease our competitive ability to attract investment.  We would not impose any unnecessary costs (i.e. "must haves") on energy projects that diminished the maximum monetary returns; we would then be free to consider use of those maximum returns for social or capital needs of our citizens.

In this way, we would seek to not add an unnecessary and burdensome straw to the back of a project that needed every possible advantage to compete in the world energy marketplace.  

We would not risk adding one single incremental project cost that could kill a project.  

We would not flirt with disaster.

And that, Dear Reader, would lead us to become a place in the world where investors have confidence that, "a deal is a deal".

(We invite comments!)


Today's gas pipeline related energy links from the Office of the Federal Coordinator:

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3-13-14 Is Alaska Flirting With The Last Gas Pipe Straw?

14 March 2014 2:59am

Is Alaska Flirting With The Last Gas Pipe Straw?

Competition Perspectives: Part IV (Part IPart IIPart III)

by 

Dave Harbour

​(Read More)


John Hofmeister, energy policy, Shell, Oxford Club, Photo by Dave Harbour

Our friend, John Hofmeister (NGP Photo), former Shell President, offered this "quotable quote" on the energy situation during his interview with the Oxford Club's Energy and Infrastructure Strategist Dave Fessler:

 

Please Consider Testifying TodayFriday, March 14 on HB 77: Improve Alaska's Permitting Efficiency (We at NGP believe this is one rather small but important way citizens can improve Alaska's investment climate--rather than our usual challenge to fight off additional investment climate attacks!  -dh)

Our friends at the Fairbanks Chamber of Commerce are encouraging citizens to testify in support of  House Bill 77 during the Senate Resources Committee meeting tomorrow. The Chamber's Board of Directors has adopted, as one of the Chamber's 2014 legislative priorities, to increase responsible resource development through the permitting process.  (Read More Here)

"...if we keep the current level of government, where we have the executive branch with 13 agencies governing energy, plus the White House, 26 Congressional committees and subcommittees in Congress, both the Senate and the House, 800 federal judges, 50 states, 50 state governors, 50 state legislatures, 50 state court systems. Then you get to the municipalities and the counties of the country. You have thousands and thousands of governmental units that are fragmenting what it is that the energy industry is trying to do to bring molecules and electrons to the American people for their use. And that governance is so fragmented it can't work."


Is Alaska Flirting With The Last Gas Pipe Straw?

Competition Perspectives: Part IV (Part IPart IIPart III)

by 

Dave Harbour

Earlier this week, the folks at Alaska Public Media reminded us that the republican-led Legislature is dealing with another dimension of gas pipeline competition, an added cost: legislated labor rates.

More coming...!

 


Please Consider Testifying TODAY, Friday, March 14 on HB 77: Improve Alaska's Permitting Efficiency (We at NGP believe this is one rather small but important way citizens can improve Alaska's investment climate--rather than our usual challenge to fight off additional investment climate attacks!  -dh)

Our friends at the Fairbanks Chamber of Commerce are encouraging citizens to testify in support of  House Bill 77 during the Senate Resources Committee meeting tomorrow. The Chamber's Board of Directors has adopted, as one of the Chamber's 2014 legislative priorities, to increase responsible resource development through the permitting process.

Friday, March 14

Senate Resources - 3:30pm

CSHB 77 - Land Use/Disp/Exchanges; Water Rights 

PUBLIC TESTIMONY

Fairbanks Legislative Information Office
1292 Sadler Way, Suite 308
*You must go to your local LIO to testify
 
Comments will be limited to 2 minutes. 
 
You can also send your comments to Senator Cathy Giessel, Chair of the Senate Resources Committee. 
 
OVERVIEW: CSHB 77 is an omnibus bill that seeks to improve the Department of Natural Resources (DNR) timeliness and efficiency in issuing land and water use authorizations. The bill focuses on agency process and does not seek changes in environmental standards or laws protecting fish and wildlife habitat. Nor does the bill make changes to the law governing water rights.

The CS includes changes that limit DNR's authority to issue a general permit, define the process for issuing a general permit to include public comment, allows individuals, tribes and others to be able to apply for water reservations, but clarifies that the certificate will be issued to an appropriate state agency rather than a person. In times of declining budgets, general permits are an appropriate tool to efficiently authorize routine activities such as mooring buoys. 

The bill allows "persons" to apply for instream flow reservations, but if granted the in stream flow certificates are held by a State agency. CSHB 77 solves the problems with the current system, which focuses on who gets paperwork in first. For large projects that are multiple years in the planning, the decision on how to withdraw water, protect the fish, and promote economic development should be made with all the data, and with an understanding of all the environmental and social effects. It should not be based on who gets their paperwork in first. But, recent court decisions and environmental groups' legal claims are making it a paperwork race.

DNR has received over 300 applications for an instream flow reservation. The vast majority are from public agencies. In contrast to the almost 300 agency applications, the state has received 34 applications from other groups. Of the 34 applications, over 85% were from groups opposed to a development project. Their purpose is at least partially to use the application to change or stop the agency permitting process.

Decisions about these projects should be made by Alaskans through their government - not by environmental groups, nor even by individual Alaskans. CSHB 77 solves the problem with the current instream flow permitting system with minimal changes, and does not affect public notice or any other part of the process.

Talking Points to Consider in your Testimony: 

  • This bill will help cut the red tape and put Alaskans back to work.    
  • The bill improves efficiencies in the issuance of General Permits, diminishes the chronic backlog in permitting, results in cost savings to the state, while protecting the environment.    
  • CSHB77 diminishes the ability of ENGOs to abuse the system and stop projects.  
  • This bill will help cut the red tape and put Alaskans back to work.   
  • CSHB77 implements changes that will provide certainty and timely response to Alaskans that obtain permits, while maintaining efficiently run state agencies.  In these times of trimming the state budget, ensuring that state agencies are able to efficiently issue and manage permits, thus keeping down the cost and time expended, is crucial    
  • CSHB77 provides for the issuance of general permits, so that minor projects can be permitted practically.  Section 1 of HB77 makes it clear there is a requirement for public notice and provides opportunity for public input on any general permit.  General permits would cover activities that are already authorized for permit under existing statute.  General permits are not unprecedented; in fact, they are widely used by federal agencies.    
  • CSHB77 requires that appeals to sales, leases, and land disposals can be done only by those who are directly and negatively impacted by the decision.  This brings accountability to the appeals process, ensuring that appeals must be brought only when a directly involved stakeholder is adversely affected by a decision, rather than a special interest attempting to block permits    
  • Thanks to special appropriations by the legislature, DNR is making positive progress on a tremendous permit application backlog.  Extra funding helps address the backlog symptom, but efficiency measures in CSHB77 help address the cause of the backlog.
  • CSHB77 ensures that Alaska's water resources are managed by those who are best equipped to do so - agency staff with science-based expertise.

Additional Information & Talking Points:  

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3-10-14

10 March 2014 11:25am

Fairbanks News Miner/AP.  Allowing municipalities in on natural gas pipeline negotiations would be as “impracticable as having 60 legislators sitting at the table,” Gov. Sean Parnell (NGP Photo) wrote to four local governments concerned about property tax deals the state could cut with producers.  Municipalities, including the Fairbanks North Star Borough, have raised concerns about agreements the state penned with North Slope producers and TransCanada that could allow the gasline to make payments based on throughput in lieu of traditional property taxes.

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3-4-14 Palin Predicted Ukraine - Romney Advocated Stand Against Russia

04 March 2014 6:44am

BP

BP today announced its intention to establish a separate business to manage its onshore oil and gas assets in the US Lower 48.


See today's Globe & Mail piece on Asian LNG competition for price


 

Comment: Yesterday we noted that two legislators are planning for a new oil revenue stream should voters adopt an August Primary Ballot proposition to repeal oil tax reform.  

That revenue stream will be based on a new policy emphasis on state investment and equity into oil and gas exploration and development projects.  These are the same minority legislators who are leading an effort to repeal the SB21 oil tax reform bill passed by a majority of the House and Senate, and signed by the Governor, less than a year ago.

We can now see a strategy rising from the mist: repeal of tax reform will have to be replaced by something that produces revenue.  Since repeal of reform will deflect investment, an unhappy but obvious policy replacement would be to socialize/nationalize natural resource industries...starting with the small step of massive equity investment of public funds and employment of state employees to oversee the profitability of the investments.  

What could possibly go wrong?

Today, we hear in a Fairbanks News Miner editorial, that certain Mayors who reap large and mostly passive benefits from the oil and gas statewide property tax, are mounting an effort to investigate impact on their revenues from an agreement between the state and gas pipeline parties regarding the fiscal regime enabling a gas pipeline project to proceed.

Charlotte Brower, Mayor, North Slope Borough, property tax, ACES, tax reform, oil, Photo by Dave HarbourWe again note that Alaska North Slope Mayor Charlotte Brower (NGP Photo) has gone on record in support of oil tax reform.

Certain gubernatorial candidates oppose both oil tax reform and the fiscal terms surrounding a gas pipeline project.

The current governor supports both tax reform and the proposed gas pipeline fiscal regime.

While there seems to be alignment among major gas pipeline and oil tax stakeholders, lack of political alignment from other, vocal influence leaders could well cause oil tax reform to disappear after August, soon to be replaced by new statewide leadership and a new world of natural resource control by bureaucrats and government ownership of the 'means of production'.

Should this be the outcome, we can envision great impact, as well, on Alaska's entire investment climate, not merely limited to natural resource investors.  -dh

Sarah Palin, governor, alaska, russia, ukraine, Photo by Dave Harbour

Comment:  Fox News interviewed former Alaska Governor Sarah Palin (NGP Photo) today.  

During the interview, we learned that Candidate Obama opposed Candidate Romney's conviction that Russia posed a global threat to peace.  

The program also produced a video of Candidate Sarah Palin, earlier warning that just as Russia invaded Georgia it could as easily invade Ukraine.  

Throughout the interview, Palin emphasized the importance of approving the Keystone XL pipeline and developing domestic energy resources with Administration support--rather than Administration opposition.  

Our faithful readers know that we have been hard on Palin for her Alaska oil tax and gas pipeline policies nearly a decade ago...but in this interview we found ourselves appreciating her message, which we paraphrase: "Develop America's resources aggressively and responsibly now, Mr. Obama, or watch our standing in the world and support for our allies diminish along with our national security and economic recovery."

John Norman, Commissioner, AOGCC, IOGCC, Alaska Oil And Gas Conservation Commission, Photo by Dave HarbourWe also note from the current issue of  Petroleum News, that "Commissioner John Norman (NGP Photo) retired from the Alaska Oil and Gas Conservation Commission at the end of January. Norman, an attorney, had been the public member of the commission for 10 years. He was named to the commission by former Gov. Frank Murkowski in 2004, replacing Sarah Palin as the public mem....​"  (We are reminded once again of what a small world it is as we congratulate Governor Palin on her stand for domestic energy production and her replacement, Commissioner Norman, for a lifetime of service to the state and nation.    -dh


Wall Street Journal by James Freeman  

WARREN BUFFETT, CLIMATE-CHANGE DENIER 

Warren Buffett, Dave Harbour, NARUC, Photo by Dave Harbour, climate change, global warmingThe billionaire chairman of Berkshire Hathaway (Photo, Buffett with NGP Publisher) is on some kind of roll. Yesterday we told you about his warning on public pension funds in his annual letter to shareholders. Now, he's puncturing deeply-held liberal myths about global warming. Mr. Buffett tells CNBC that extreme weather events are not becoming more common, and that climate change is not altering his company's calculations when insuring against catastrophic weather events. "The public has the impression that because there's been so much talk about climate that events of the last 10 years from an insured standpoint and climate have been unusual," he said. "The answer is they haven't."   (We commented on the subject of climate change two days ago, invoking Aristotle's Golden Mean ideal; and we challenged both sides of the debate).  -dh


Comment and link: We earlier commented on LNG competition.

Here, Peter Tertzakian of the Globe and Mail gives further insight on the softening LNG market for British Columbia exports.  Are not some of Canada's LNG export concerns ones that we Alaskans share.  In both Alaska's land Canada's cases, LNG market demand and competition are exacerbated by local political interests striving to obtain for themselves and their constituencies all possible benefits --  even if the end result is achieving 100% success in gaining benefits for projects that became embroiled and then doomed in a sea of local and national political struggles.

To quote our reference at the Globe and MailJapanese benchmark prices for LNG in Asia have been exceptionally high since the Fukushima nuclear disaster, almost exactly three years ago. Concurrently, domestic Canadian natural gas prices have been anomalously low. The resulting “differential” between the two was $15.70 (U.S.) for one million British thermal units (MMBtu) at its widest in July, 2012. It’s been that massive price gap, or arbitrage, that triggered the buy-low-sell-high opportunity to build LNG export facilities in North America, including 14 projects off the west coast of B.C.

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