Miss a day
Miss a lot

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.

 

3-12-14

12 March 2014 5:51am

Becky Booher, Associated Press: Draft Gas Pipeline/LNG Bill Proposes Changes To AGDC/Taxes


Advice To Those Who Want A Vibrant Economy And Who Elect Politicians

Competition Perspectives: Part III (Part I, Part II)

by

Dave Harbour

Yesterday we finally finished a commentary on how important it is for a sovereign to pay attention to its competitive position as an investment climate.  

​​Links from the Alaska Gas Pipeline Office of The Federal Coordinator:

No sooner had we turned off the laptop (from our perch this month high in the Ecuadorian Andes) than we received relevant news from Dan Healing, Calgary Herald.  MGM is giving up on its effort to produce gas and shale oil in the Northwest Territories due to the excruciatingly long and prohibitively expensive regulatory process.  (Note the sense of optimism in N.W.T. in 2012, even after struggling for success since 2007.  Alaskan companies are doing their best to navigate the dangerous shoals appearing and disappearing among the flood of regulations, delays, laws, taxes and political campaigns on their side of the border.  Citizens might want to note that in MGM's case over in the N.W.T., all signs were that projects were moving ahead--until the day of an unexpected press announcement.)

The Herald reported MGM President Henry Sykes as saying that, "licensing a horizontal oil well in N.W.T. takes longer than a year and costs millions of dollars. If an environmental assessment is ordered, the process stretches out for years and is no longer economic for a small company."  But Healing reported that even a large company like Royal Dutch Shell found the process infeasible.  (Read more)

We believe evidence is ample now that local political leaders --- whether they be Alaskan, Canadian or Argentinean -- better build into their tax and regulatory calculus how their very own policy changes affect their competitive positions as investment climates.  

Political leaders ignore their own self-imposed development obstacles at the peril of jobs, education, economic opportunity and even social and cultural amenities that depend upon a vibrant place to live an work.  (Misc. Note: ...which is irrelevant if their real goal is to cripple the economy so that a an executive might find it easier to amass power amid chaos and even nationalize industries and socialize the economy.)

STATE OWNERSHIP OF ENERGY INDUSTRIES

Under the category of, "Other Observations", we received this email from one of our Australian readers, in light of the Putin/Ukraine tension:

"How welcome would Putin's best mates in Rosneft be in Alaska right now if/when they exercise their option to come into Point Thomson?!

"Maybe the advocates of an 'Alaskan NOC' would welcome another State owned oil company in the State?

"Unfortunately the decision by the State {Alaska} to take direct equity ownership in aspects of the LNG project allows others to advocate further State ownership in the oil industry.

"I must admit that if I had a taxing power that gave me money for no capital outlay, I wouldn't be bothering with ownership....but it's not uncommon for developing nations to want to do this (even Britain had a national oil company until 1982 when Mrs. Thatcher sold it off).

"I do a bit of business in Mongolia (where per capita GDP is probably less than 1/20th of that in Alaska) and the Government is currently trying to promote the private sector as it retreats from mistakes brought about by over-exuberant desires for State ownership of key assets, etc.

Cycles go around everywhere!"          -N.Y.

Bottom line: those who elect politicians should begin paying more attention to long term economic realities than to short term, special interest gains.  -dh


Today's Energy In Depth Links:

 NATIONAL

Hydro-fracking complaints are not supported by scienceThe Tennessean, Op-Ed. Former governor and U.S. Secretary of the Interior Ken Salazar says, “The science is here. Hydro-fracking is safe, and it’s important that the information gets out to the public.” He is right.
 
Study: officials view HF positivelyNorwalk Reflector. Shawn Bennett, field director for Energy In Depth, said the survey results show that the economic benefits of shale development extend beyond just the oil and gas industry. "Local residents are getting jobs. They're spending more money," he said. "There's overwhelming support regarding the oil and gas industry in east Ohio," Bennett added.
 
TAEP urges US LNG exportsLNG Industry. In a letter to President Obama, the Texas Alliance of Energy Producers (TAEP) has asked for the pending export permits of liquefied natural gas (LNG) from the US to be quickly approved. The TAEP also urge Obama to support legislation in the Congress that also would allow exports of LNG.
 
Ohio Looks at Whether HF Led to 2 QuakesNew York Times. Mark Bruce, a spokesman for the department, said it was too early to determine whether drilling operations induced the earthquakes. “What we’re focusing on now is getting all the data from the company,” he said. “We’ll examine it first and decide next steps after that.”
 
Industry Group Says HF Could Help UkraineRoll Call. As Congress prepares to take up legislation in response to Russian intervention in Ukraine, a group representing American companies that rely on inexpensive gas is advocating an alternative approach. Instead of exporting natural gas, the Industrial Energy Consumers of America says the U.S. should export the hydraulic fracturing expertise that will let Ukraine — and other European countries — develop their own gas reserves.

Categories:

3-11-14 Competition Is Not Only About Markets...A Sovereign Ignores A Competitive Investment Climate At Its Peril

11 March 2014 2:42am

The Human Temptation To Ignore The Value Of  A Competitive Investment Climate

Competition Perspectives: Part II (Part I, Part III)

by

Dave Harbour

The North American platter is heavy with energy sustenance, now manifested by the boom in oil and gas shale productivity.

Last week, the office of the Federal Coordinator for the Alaska gas pipeline project summarized current and developing trends in Liquefied Natural Gas (LNG) competition for markets.

Earlier, we commented on the same subject.

Over the Weekend, we hear from British Columbia that a new taxing regime on LNG exports will produce billions of dollars of new revenue for the coastal province, and that concerns investors.

We shall refer to these pieces in today's commentary.  -dh 

Suddenly, the fundamentals have changed as the US works toward becoming as big a producer of energy as it is a user, and Canada seeks to expand energy wealth from Alberta to British Columbia.

But, this challenge of plenty, as Alaska and Alberta have found over the last several decades, is almost and maybe more difficult than challenges of shortage...as during the late 1980s when oil prices and oil patch economies bottomed.

You would think that as jobs increase and city/state treasuries grow with additional income, property and sales taxes, the people and politicians alike would be celebrating prosperity.

History in Alberta and Alaska has taught that a growing private sector doesn't buy too much political capital.  No, taking more of the income stream -- even at the cost of private jobs and prosperity -- buys politicians votes in his/her voting districts.  Supporting status quo prosperity is oh, so boring.

Alberta learned during the last decade that it must moderate its royalty take to bring back jobs and economic growth--and it worked.

Alaska took longer to learn the lesson; it was loathe to give up its death grip on the flow of confiscatory production taxes, even if keeping a tight grip meant a loss of private jobs, dangerously low and diminishing throughput of the Trans Alaska Pipeline System (TAPS) and economic suicide (i.e. since over a third of Alaska's economy and 90% of its government operating budget is based on that diminishing tax base, put into place during the Palin Administration).

But slow as it was to understand the economic reality that its repulsive investor tax policies had pushed Texas, North Dakota and, now, even California ahead of the so-called "Pioneering State" in annual oil production.

Yet act, Alaska finally did.  In the latter days of last Spring's legislative session, a majority of the House and Senate joined the Governor to reform the Palin production tax increase.  

But lest those hoping for a more competitive investment climate in Alaska would find breathing easier, some minority leaders in the Legislature joined with anti-business environmental and social activists to advocate a voters referendum immediately after the session ended.  That referendum would, if passed, repeal the tax reform bill passed not even a year ago.

You can imagine how someone poised to make new investments in Alaska last spring must feel now; "let's give it a good go and if tax reform is withdrawn by a vote of the people, we'll have to reevaluate our project plans."

In the box above, the Federal Coordinator Office analysis of market competition reveals that there are too many LNG projects chasing too little demand.

This means that LNG project investors will be carefully choosing the investment venues more likely to produce a reliable return on and of their capital.

The pending Alaska vote this coming August, at best, does not improve Alaska's reliability or attractiveness as an investment climate.  In 2014, with Alaska's governor, legislature and large producers pretty much find themselves under aligned stars; it would seem that this could be a watershed moment in history for an Alaska LNG project.

Similarly, with British Columbia announcing new taxes that they proudly proclaim could bring billions of dollars in tax revenues, one can only wonder how that changes the metrics of current LNG investor plans--especially if it takes a final 'net profits' format.  Net profit approaches, like the reformed Alaska production tax, cause immediate tension between tax authority and taxpayer.  One will always be refusing expense deductions and the other will always be defending them -- at great cost of time and relationships.

Meanwhile, virtually every oil producing state in America is increasing production--except Alaska.  The giant Alaska ​oil producer lies strapped Gulliver-like to the ground by a thousand strands of Alaska political strife, federal opposition to every kind of Alaska development and a growing competition from other producing areas.

Alaska seems to not realize that its resources can be properly developed and reasonably taxed in a way that brings not just maximum benefits to one greedy generation, but maximum benefits to many generations of thankful, employed Alaskans.

BC seems to be less interested -- from the perch of a foreign observer, in facilitating LNG projects that can provide generations of good jobs and economic development than in separating gas transporters from their hard earned money as soon as possible regardless of how that treatment may affect long term jobs and prosperity.

With more LNG projects underway than there are markets to satisfy, some will not be built.

We think it logical that jurisdictions treating the new LNG export opportunity as a money tree will find themselves losing competition to those who place greater value on long term industry relationships that foster long term jobs, community support and economic prosperity.

Categories:

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.

Categories:

3-9-14

09 March 2014 3:32pm

Petroleum News.  Faced with rising costs and uncertain about the impact of a proposed tax, some of the biggest LNG players in British Columbia are on the hunt for partners as they voice concern about the province’s ability to compete with other export countries. 

Categories:

3-8-14

08 March 2014 6:20am

Weekend Energy Clips:

FuelFix (blog): The War on Energy is Underway, Op-Ed by David Holt (NGP Photo)

David Holt, Keystone XL, Photo by Dave Harbour, ANWR, Consumer Advocate, energy policy   ...   Far too often energy consumers are confronted by organizations which promote one narrow view.  The answer is always the same: No.

No to ANWR; No to Keystone XL; No to the Gulf. No to wind. No to transmission lines. Anti-development activists see only a binary world. Do nothing or face disaster.

These narrow views are contrary to the attitudes that have driven America to succeed. As a country, Americans have long prided themselves on being good stewards of the environment. Natural resources, whether they are oil, coal, shale gas, timber, hydro-power or windmills, can all be utilized in an environmentally sound way that benefits the economy.  As a country, America can have both.  We can protect our environment AND develop our resources.

Theodore Roosevelt staked out a balanced approach to natural resource management, which later became one of the founding principles of America’s national park system, when he argued:

“I recognize the right and duty of this generation to develop and use the natural resources of our land; but I do not recognize the right to waste them, or to rob, by wasteful use, the generations that come after us.”

Today, this generation is using its resources to bring manufacturing jobs back from China. It is using these resources to re-ignite industries once lost to the high cost of energy.  People are going back to work.

The unemployment rate in rural Carroll County, OH dropped from 16.7% to 6.7% because they welcomed responsible shale development.

In the State of Texas employment in the natural gas industry has grown so large that if it were a city, it would have more residents than San Antonio, Austin and El Paso combined. 

Daily Caller: Poll: Keystone XL pipeline looms large in Colorado Senate race
Colorado Democratic Sen. Mark Udall may have more to worry about during his re-election campaign than his support of Obamacare. A plurality of his supporters want to see the Keystone XL pipeline built, a move Udall opposes, according to a new poll. The survey, conducted in mid-February by Democratic polling firm Hickman Analytics found that 43 percent of Udall’s supporters are behind the project to build an oil pipeline from Canada to the Gulf of Mexico, with 39 percent opposed.

Categories:

3-7-14 North Slope Borough Mayor Weighs In On Gas Pipe Property Tax Issue

07 March 2014 5:30am

Gas Pipeline Testimony of North Slope Borough Mayor, Charlotte Brower, Delivered Yesterday (March 6, 2014) To The Alaska State Senate Finance Committee Regarding SB 138.

Good morning Co-chairman Kelly, Co-chairman Meyer, and Senators. 

NSB Mayor Charlotte Brower, gas pipeline, oil and gas taxes, Photo by Dave HarbourMy name is Charlotte Brower (NGP Photo).  I am honored to be the Mayor of the North Slope Borough, the wife of a whaling captain, and am blessed with six children and twenty-five grandchildren.

Thank you for the opportunity to speak on SB138, a bill that authorizes the State of Alaska to move forward on developing a natural gas pipeline from the North Slope to tidewater.

Today I would like to talk about some of the concerns and interests of the North Slope Borough regarding SB 138 and the Heads of Agreement, which is a separate document that outlines the guiding principles of the Alaska LNG Project.  I’m also here to offer some suggestions on how those concerns could be addressed by this committee, the Legislature, the Governor, and his Administration.

Before we talk about concerns, its important that say ‘Thank You’ to our Good Lord for the opportunity to be having this discussion on how to build a 40 to 50 billion-dollar project to develop our natural gas.  How many other legislators or mayors would love to trade places with us right now?

The Alaska LNG Project envisions a 20 to 25 percent ownership by the State of Alaska.  This requires the Legislature to evaluate complicated policy decisions and risks and costs on a level equal with decisions made by Fortune 500 companies.  Please let me take a moment to acknowledge our appreciation for your efforts on behalf of our residents.  You are truly deciding the future of our state, and on behalf of the North Slope Borough, I commend you.  Quyanaqpak.

As Alaskans, we’ve learned from the past that large projects like this can set a positive course for our future.  But we also know that in order to provide the maximum possible benefits, we have to be prepared for the impacts.  For example, the Trans Alaska Oil Pipeline has provided billions of dollars of revenue and jobs, but we also learned lessons about demands for public services to deal with social services, job training, infrastructure, public safety, and education.

That brings me to the points that should be addressed in Senate Bill 138 and the Heads of Agreement document before this committee.

The Heads of Agreement has language in Article 9.3 that states the “Parties” intend for the project’s fiscal terms to be included in project-enabling contracts.  Subject to “consultation” with local governments, the Administration will establish payments in lieu of property tax (PILT), which are to be based on a unit rate per throughput basis.  In other words, the payment is calculated as cents per thousand cubic feet of natural gas.

The reason for concern is that the process for “consultation” is not defined.  We see that the process for enabling contracts is an “up or down” ratification vote by the Legislature after the Administration submits them to you for approval.  If the local taxing authority of municipal governments is going to be modified to provide fiscal certainty, we must be part of the process.

Let me turn now to the language in Senate Bill 138.

The current language in SB138 addresses the taxing authority of local municipal governments in three different sections. 

First, the Senate Resources Committee added Legislative Intent language in Section 1 that the interests of local governmental entities “must be considered in contract negotiations to protect the financial and other interests” of the local governmental entities.  The addition of this language is recognized and appreciated, but it does not have the force of law, and does not go far enough.

Second, in Section 8 of the bill, the state-created subsidiary is given the legal provisions created in current law for the Alaska Gasline Development Corporation, known as “AGDC”.  This includes the language in Alaska Statute 31.25.260, which exempts AGDC from municipal taxes for any property owned by AGDC.  In addition, this section of law further exempts taxable property for any joint venture or partnership with AGDC during construction of the pipeline. 

This creates confusion because the new subsidiary for the large-diameter project is given the all the benefits provided to AGDC, but they are two completely separate and distinct projects.  In the case of the Alaska LNG Project in SB138, there is a very large project that proposes to have significant state ownership.  This was not the model that was envisioned when the Legislature discussed the formation of AGDC last year during the hearings on House Bill 4.

Third, the Commissioners of the Departments of Natural Resources and Revenue are provided authority to negotiate enabling contracts that must be ratified by the Legislature.  Based on the language in the HOA, these enabling contracts will be used to establish a PILT system and also establish a series of impact payments during project construction.

I am here today to request your consideration for making amendments to SB138 and other changes that will protect the interests of local governments.  Before discussing those amendments, I would like to provide some background.

Less than three weeks ago I was fortunate enough to offer testimony to the House Resources Committee in Juneau to support of HJR26.  HJR26 is a resolution calling upon the United States Congress to pass legislation that establish a revenue sharing program from the proceeds of oil and gas development on the outer continental shelf off our shores.  Earlier this week, HJR26 passed the Senate on a vote of 17 – 0.  Thank you for your vote.  By working together as Alaskans, we are sending a message for receiving a fair and equitable distribution of revenues that come from energy development off our shores. 

It was our combined message as state and local governments that we will need resources to keep up with infrastructure requirements, expand emergency response and search and rescue capabilities, and work to maintain healthy communities and a healthy ecosystem.

When it comes to dealing with the impacts of oil and gas development, the basic discussion between offshore and onshore is not really that much different.  As the local government responsible for providing basic essential services, the North Slope Borough is there to help provide for cost of schools, emergency response, health and social services, and public safety.

Like most other municipal governments, the North Slope Borough relies upon our authority to levy a property tax in order to generate the revenue to provide these public services.  That is why any discussion to exempt property taxes from a project of this magnitude gives me cause for concern.

This is not the first time we’ve discussed the development of a natural gas pipeline and the issue of fiscal stability for the project.  And I continue to believe that municipal taxes are not the issue that makes or breaks the margin on a project that could exceed $50 billion. 

On behalf of the North Slope Borough, I would like to request your consideration for the following amendments to Senate Bill 138:

1)            The newly created subsidiary should not be provided the tax exemptions provided to AGDC for the small in-state project.  In particular, the tax exemptions under AS 31.25.260 should not apply to the large-diameter project in SB138.

2)            Let’s explore ways for municipalities to participate in the project.  For the all the reasons that the project benefits from participation by the State of Alaska, perhaps many of the concerns of municipalities could be addressed in the same manner.  For example, perhaps municipal governments could access revenues and get access to natural gas by having an ownership stake in a portion of the project. 

3)            The Governor has authority to issue Administrative Orders that could establish an advisory working group of municipal officials, Administration officials, industry participants, and others.  Perhaps this approach could be explored to get conversations started to resolve some of these concerns.

No one wants to see a natural gas pipeline more than myself.  I see the opportunity for my grandchildren to have good jobs, and I also want to see access to affordable energy for my grandchildren’s children.

In order to get jobs and access to affordable energy, our villages will need good schools, housing, and other basic services in order to take advantage of the opportunities.  And for that reason, I am here today to speak up for the ability of our municipal government to have the authority to meet those needs.

Quyanaqpak

Syndicate content