Is ANS Gas Uncompetitive? - Will Larry Persily End Up in the White House?

Alaska Dispatch by Rena Delbridge. ...two new bills hit the Senate on Monday, delivering, as promised, a major change to the state's oil and gas tax structure as a pipeline open season approaches. The bills, SB 305 (.pdf), and SB 306, would tax oil and gas separately instead of as a combined resource. Senate President Gary Stevens (NGP Photo-l) , R-Kodiak, took the unusual step of referring the bills to only one committee. Typically, bills are sent to three for hearings. Some lawmakers -- most vocally, Sitka Republican Sen. Bert Stedman (NGP Photo-l) -- say a tax change is necessary, and soon, in order to protect Alaska's treasury once gas is flowing a decade or more from now. (Comment: The effect of these bills is to increase taxes on oil/gas producers that invest in and transport their gas via an ANS gas pipeline, further diluting the incentive for investing in a pipeline. As our Legislative leaders seek, year by year, to creep closer and closer to more complete appropriation of the 'means of production' they may find out sooner than they think that 100% of nothing, is less than they had in mind. See our further comment below. -dh)

ADN by Richard Mauer. The House majority leader returned to work after last week’s Energy Council break with a significant dose of pessimism about the future of a big gas pipeline from Alaska through Canada to the Lower 48. The source of that concern: new techniques that can be used to free gas and oil from huge shale deposits in the Plains states. ... More than 20 legislators left Juneau last week to attend meetings of the Energy Council in Washington, D.C. They’re back at work today. (Note: 1. see our Energy Council Report.) * Alaska Gas Pipeline Blog. Alaska Department of Natural Resources Division of Oil and Gas have published regulations aimed at setting values on Alaska gas for royalty purposes. See below: The Proposed Regulation LINKS: (11 AAC Royalty Election Under Alaska Gasline Inducement Act.); (Gas 15 AAC Gas Production Tax Exemption under Alaska Gasline Inducement Act); Read more: http://alaska-gas-pipeline.blogspot.com/2010/03/proposed-regulations-for-alaska-gas.html#ixzz0hh6qLtir

Commentary: The competitive status of ANS gas is based on many factors, including the cost of production. Yes, a greater Lower 48 shale gas supply could depress gas prices, as could lower consumer demand. As market prices drop, therefore, production costs and/or profit margins must drop if the product is to remain competitive and the pipeline capital investment viable. The largest if not only investors in an Alaska gas pipeline are expected to be Alaska gas producers, who must risk that over the life of the pipeline, prices will be sufficient to compensate their shareholders for costs plus a reasonable return of and on the investment. Alaska hosts an array of huge non-variable costs that work against our competitiveness: high labor, transportation, supply, climactic costs. One notes that most of our gas competitors in the world enjoy locations either closer to the market (i.e. shale gas), and/or at tidewater, and/or usually in much more temperate, low-cost zones. One of the most burdensome of the production costs is the cost of taxation. Alaska's oil and gas taxes--among the highest anywere--inhibit investment. Our taxes create a high marginal cost that provides a restricted opportunity for a producer to adjust prices downward in response to supply and demand variables. Therefore, producers can only finance big projects like pipelines when they can project the price of produced products to be high enough to survive competing energy supply challengers that have fewer roadblocks than those confronting Alaska investors. Our counsel for Alaska remains focused on improvement of the investment climate and a lower cost of taxation, factors over which lawmakers have significant control. -dh (See our earlier tax commentaries.)

Calgary Herald/Edmonton Journal by Dina O'Meara. Natural gas production in Canada slipped four per cent last year reflecting a continuing trend of declining volumes, but not an industry death knell, say industry observers. There are huge resources available in Alberta and Western Canada that just need time and money to develop -- unconventional resources such as shale gas and tight gas plays, analyst Jeff Fetterly said.

Alaska Dispatch by Scott Woodham. In a new op-ed in The Globe and Mail (Canada) following recent reports of Korean Gas Corp.'s entry into unconventional North American natural gas production, Gwyn Morgan, EnCana Corp.'s retired founding CEO says that news is another sign that the future of natural gas production in North America is unconventional (meaning shale gas deposits), not conventional. The editorial covers ground that may be familiar to hard-core oil and gas news junkies, but Morgan's frank statement about shale gas's impact on Arctic natural gas pipelines is of interest: " ... cost estimates for the Arctic lines have escalated from billions to tens of billions of dollars and neither the Alaska Highway nor the Mackenzie Valley pipelines have been built. And burgeoning new gas supplies much closer to markets make it highly unlikely they ever will." Read more here.

Juneau Empire by Pat Forgey. President Obama plans to boost the effort to develop Alaska's natural gas resources into the executive office of the White House, according to legislators who visited Washington, D.C., to discuss energy issued with other legislators. Sen. Mark Begich (NGP Photo-r), D-Alaska, recently nominated legislative aide Larry Persily (NGP Photo-l) for the Obama appointment as federal coordinator. Persily has support from Sen. Lisa Murkowski, R-Alaska, as well. He is now awaiting confirmation by the Senate, after having been approved by the Senate Energy Committee. Senate Majority Leader Johnny Ellis, D-Anchorage, said a top Obama administration official, former Alaskan Pete Rouse, told Alaska legislators in Washington that Obama would be more than just verbally supporting the Alaska natural gas pipeline. "Mr. Rouse said the president was planning to elevate the Alaska gas line coordinator's office effort into the executive office of the president once Mr. Persily is in place and is official," he said.