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Alaska House appears likely to pass 85% tax cut for proposed gas pipeline
- Alaska Beacon
- 5 hours ago
- 6 min read
A state tax break doesn’t guarantee pipeline construction, but analyses indicate it would boost the project’s economics
By James Brooks
Alaska Beacon
The Alaska House of Representatives is planning to vote as soon as Friday morning on a proposal to cut state taxes in order to encourage construction of the proposed trans-Alaska natural gas pipeline.
On Wednesday, the House Finance Committee voted unanimously to advance a bill that would effectively cut taxes on the project by about 85% for 30 years.
Project developers have said the tax break is necessary to keep the project economically competitive in global markets, and the reduction would reduce the cost of natural gas for Alaskans across the Railbelt.
The finance committee — four Democrats, two independents and five Republicans — voted unanimously to advance the bill, indicating a broad level of support for the proposal.
Rep. Will Stapp, R-Fairbanks and a member of the committee, said on Thursday morning that he expects the bill to pass by a “wide, bipartisan margin” on Friday.
Rep. Andy Josephson, D-Anchorage, said he expects the bill to pass the 40-person House by a 3:1 margin.
“The fight in at least one chamber is over,” he said.
The bill’s fate is less certain in the Senate, where leading lawmakers have repeatedly expressed concerns about possible risks to the state and Alaska natural gas consumers.
“The bill still has a long way to go. I think we can do better,” said Sen. Bill Wielechowski, D-Anchorage, on Facebook.
The legislature is currently in a 30-day special session that ends June 19, which puts a strict timeline on action.
Under a draft schedule discussed by House lawmakers on Thursday, the House would pass the bill on Friday or Saturday, allowing the Senate to formally receive it on Monday.
The Senate Finance Committee would have a few days to examine the bill and amend it before sending it to the full Senate for a vote. There would be no time for the House and Senate version to be negotiated further: The Senate is expected to present the House with a straight up or down vote on Friday to determine whether legislators in the House agree with the Senate’s changes.
“The way this is going to play out … is that the Senate is going to have the last touch,” said Rep. Calvin Schrage, I-Anchorage.
The version of the bill that passed out of the House Finance Committee on Wednesday does have the support of Dunleavy and Glenfarne.
In a written statement, the governor thanked the committee for its work.
“Alaska has a tremendous opportunity before us, and this bill is a critical step toward making the Alaska LNG Project a reality,” he said on social media.
Glenfarne also praised the committee’s work in a written statement.
“The hard work by committee members produced a thoughtful bill that, if passed by the legislature, will enable Alaska LNG to go forward and unlock the long-awaited benefits of Alaska’s North Slope natural gas resources while protecting the state’s interests,” said Glenfarne Alaska President Adam Prestidge.
A $54 billion project from North Slope to Cook Inlet
As currently proposed, the Alaska LNG project would involve constructing an 807-mile pipeline from the North Slope to a port on the Kenai Peninsula.
At the northern end would be a multibillion-dollar industrial plant needed to strip carbon dioxide from natural gas produced on the Slope. That carbon dioxide would be injected deep underground to keep it from being released into the atmosphere and contributing to climate change.
If the gas were left untreated, the carbon dioxide would create carbolic acid within the pipeline, destroying it.
At the southern end of the pipeline would be another multibillion-dollar industrial facility that takes the gas and prepares it for shipping via specialized tankers to customers in Asia and elsewhere around the world.
Prestidge has said that tax incentives are “critical” in order for Glenfarne to obtain loans and attract investors for the project.
Under new cost estimates published June 3, Glenfarne expects the project to cost between $44.5 billion and $54.5 billion altogether. The high end of the developer’s cost estimate has gone up by almost $10 billion.
Alaska currently levies a 2% tax on oil and gas property. The pipeline and associated facilities would be exempt from taxation during construction, but Glenfarne is proposing to build the project in two phases: First, the pipeline, which could transmit gas to Southcentral Alaska as soon as 2029, and second, the associated processing plants, which are expected to be online by 2033.
That schedule, coupled with the setup of the property tax, means Glenfarne would be required to start paying taxes before it begins selling profitable amounts of gas.
In March, Dunleavy introduced a bill that proposed a 90% tax cut for the project by replacing the property tax with a tax on gas shipped through the pipeline.
Legislators held dozens of hearings on the proposal and House legislators even considered a consequential pipeline-for-pensions trade, but no bill passed during the regular session, which ended May 20.
Special session advanced progress on the issue
Dunleavy immediately called a 30-day special session on the issue, and the finance committees in the House and Senate continued holding hearings.
Those continued discussions helped move the needle, Schrage said.
“I think more time to talk, time to move it through the committee process, really has been very helpful, and will help to produce a different outcome than last time,” he said, referring to the failed pipeline-for-pension arrangement.
Josephson said Glenfarne’s willingness to offer new cost estimates also helped convince legislators, as did the revelation that Glenfarne was willing to cap the cost of natural gas to Alaska consumers, preventing Alaskans from shouldering any cost overruns.
John Sims, president of Southcentral Alaska’s largest natural gas utility, told lawmakers that the utility is already in negotiations with Glenfarne on a 30-year contract for gas at no more than $16 per mmBtu.
That’s above current prices but below the expected cost of imported gas.
Glenfarne’s Adam Prestidge said the company would be open to a cost cap on similar terms for Alaskans in general.
Members of the House Finance Committee adopted that proposal and others in close consultation with Glenfarne. During frequent breaks, legislators would duck into a hallway connected to the committee room to talk with company officials and lobbyists.
Under the draft of the bill finished Wednesday, Glenfarne would pay no taxes for five years after the first gas begins flowing down the pipeline.
For the following 30 years, Glenfarne would pay 6 cents per thousand cubic feet of gas that flows through the pipeline, 13 cents per thousand cubic feet through the North Slope plant, and another 13 cents per thousand cubic feet through the gas liquefaction plant on the Kenai Peninsula.
Ken Alper, an aide to Josephson and adviser to the Finance Committee during its deliberations, said that roughly amounts to an 85% tax cut when compared to the current property tax rate.
Of the collected taxes, 93% would go to boroughs along the route of the pipeline. The remaining 7% would stay with the state.
The new tax rate is conditional. Glenfarne would have to sign labor agreements with local unions, agree to construct a pipeline spur to Fairbanks, and pay $80 million into an impact fund.
That fund would be used to compensate borough governments for costs they incur to deal with as many as 12,000 temporary workers who would be employed building the pipeline.
Only six communities are eligible for the money in the fund: the North Slope Borough, Fairbanks Borough, Denali Borough, Matanuska-Susitna Borough, Anchorage and the Kenai Peninsula Borough.
Pipeline construction isn’t guaranteed
Even if the current bill passes the Legislature and is signed into law, it doesn’t guarantee a pipeline.
In presentations to the finance committees, various consultants and experts from the Alaska Department of Revenue have said that the forecast cost of natural gas exported by Alaska LNG is very close to the cost of gas available from other sources internationally.
If the project costs more than anticipated, if natural gas from the North Slope costs more than expected, or if buyers aren’t willing to pay as much as forecast, the pipeline is uneconomical and doesn’t get built.
“I think there is a broad belief that it’s going to be a difficult project to pull off, but we want to give them a chance, and we wish them the best in doing so, because I think most Alaskans do want to see our natural gas brought to be able to benefit Alaskans,” Schrage said.
Stapp, sitting in the halls of the Capitol on Thursday and awaiting the final draft of the bill, said he believes that without the bill, there is a “zero percent chance of a pipeline.” With the bill, “there’s a 10% chance.”
Tomaszewski is more optimistic.
“I’m looking forward to the groundbreaking ceremony,” he said.
• James Brooks Cascade is a longtime Alaska reporter who lives in Juneau. He previously worked at the Anchorage Daily News, Juneau Empire, Kodiak Mirror and Fairbanks Daily News-Miner. Alaska Beacon is part of States Newsroom, the nation’s largest state-focused nonprofit news organization.
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