Dunleavy seeks huge tax break for Alaska LNG Project, says state won’t benefit from any revenue if it isn’t built
- Mark Sabbatini
- 2 days ago
- 4 min read
Some legislators and skeptics say governor’s bill will cost the state billions of dollars, question if it’s fair and necessary in order for the pipeline to be built
By Mark Sabbatini
Juneau Independent
Gov. Mike Dunleavy, who in January declared "there is simply no shortage of good news" about the Alaska LNG Project on the same day its developer said it was moving into an "execution phase," is now proposing a massive tax cut for the company so the project doesn’t stumble.
A bill introduced by the governor Friday, exempting the pipeline from property taxes and instead imposing a tax on the volume of gas flowing through it, is part of a series of recent actions at the Alaska State Capitol indicating the long-discussed project is still far from certain.
Many policymakers say the gasline is indeed closer to reality than in past years, due largely to President Donald Trump’s aggressive push for expanded oil and gas drilling in Alaska. But there are strong differences about taxation and other details.
Critics of Dunleavy’s bill say it could cost the state billions of dollars in revenue compared to current taxation, while municipalities where the pipeline passes through would lose property taxes on that infrastructure. The governor told the Anchorage Daily News on Friday that if the pipeline isn’t built, then the state and municipalities will get nothing.
“So it’s a catalyst to billions upon billions upon billions of dollars and decades of future (revenue), not to mention the thousands of jobs and the other economic benefits from that,” Dunleavy told the newspaper.
A press release issued by the governor’s office on Friday asserts "the Alaska Department of Revenue estimates the legislation can raise more than $26 billion in tax and royalty revenue over 30 years, including more than $22 billion in state revenue (and) nearly $4 billion in local revenue."
Those figures are being challenged by some lawmakers and policy analysts who are awaiting further details of the bill expected to be presented during legislative hearings this week. Among the concerns are a decade-long delay until the production tax begins, plus a complex array of rules and formulas involving taxes and royalties.
There is universal support — or nearly so — for a natural gas pipeline in the Alaska Legislature, said Senate Rules Chair Bill Wielechowski, an Anchorage Democrat who has made oil tax reforms a major plank in his political platform, in an online town hall Saturday. But in sketching out a hypothetical scenario, based on likely market conditions, he said Alaska in 10 to 15 years would be getting a pittance of its fair share under Dunleavy’s bill
"We're in a situation where you're going to have gas sold for $25 in which the State of Alaska gets maybe 15 to 20 cents — a very, very low amount," Wielechowski said. "We don't want to jeopardize the project, but we need to ensure that we're getting, as a state, our constitutional maximum value for the resource."
The Alaska LNG Project is an 800-mile pipeline transporting natural gas from the North Slope to Southcentral Alaska, with the intent of in-state use of the gas as well as export to foreign countries. The majority owner with a 75% stake is Glenfarne Group LLC, with the Alaska Gasline Development Corp. (a state-owned corporation) the minority owner.
The most recent official cost estimate for the project is $44 billion. Project supporters say it will create at least 7,000 construction jobs, plus hundreds of permanent year-round jobs during the operation of the pipeline, which has a 50-year projected lifespan.
Glenfarne issued a triumphant declaration on Jan. 22 that "a series of major advances" had moved the first phase of the project "from development into early execution" phase. Dunleavy, in his final State of the State address that night, stated a range of agreements and partnerships announced by Glenfarne meant the company "deserves enormous credit for this outstanding work that will benefit all of us."
But Glenfarne still has not officially made a final investment decision to build the pipeline, and many of the agreements announced are pledges of intent or interest — not ironclad contracts to buy gas or otherwise invest in the project. Meanwhile, some key legislative leaders say they haven’t gotten enough information from the company to consider what taxes and other terms are appropriate to impose.
"It’s a little difficult for us to say this is the tax relief we should give," Senate Majority Leader Cathy Giessel, an Anchorage Republican, said during a press conference last Tuesday.
The pipeline would bring in about $1 billion annually for the state under current property tax laws, if the project is assessed at $50 billion and 3.5 billion cubic feet of gas moves through it daily, Larry Persily, a former Alaska deputy commissioner of revenue, told the Anchorage Daily News. He said under Dunleavy’s plan — a tax of six cents per 1,000 cubic feet of gas, with a 1% annual rate increase — the state would get $75 million the first year the production tax is in effect.
The flow tax would not begin until either 10 years after gas starts flowing through the pipeline, or the daily annual flow is 1 billion cubic feet, whichever comes first. The 3.5 billion cubic feet figure is its projected flow once in full production.
The first of this week’s legislative hearings about the Alaska LNG Project occurred Monday when Glenfarne President Adam Prestidge, Northern Compass Group LLC President Mark Begich and Alaska Gas Line Development Corp. Commercial Director Matt Kissinger presented their arguments in favor to the House Resources Committee.
"In front of us right now, and in front of the state Legislature, is an incredible opportunity to develop and lead one of most important infrastructure projects in the entire world right now," Prestidge said in his opening remarks to the committee.
The governor’s proposed tax change, Senate Bill 280, is scheduled to get its first hearing at 3:30 p.m. Wednesday by the Senate Resources Committee.
• Contact Mark Sabbatini at editor@juneauindependent.com or (907) 957-2306.
