Alaska’s Historic Natural Gas Equity

When it comes to domestic energy, Alaska gets it. Alaska is a state rich in natural resources, and through sensible policy it has historically worked with industry to develop those assets in an efficient manner. Yet, keeping pace with shifting energy dynamics requires a tax structure that fosters investment, which voters will decide later this summer.

In the Lower 48, booming shale oil and gas production has driven down energy natural gas prices and revitalized business growth, breathing fresh life into entire regions of the country. And while those states reaped the benefits of growing production, Alaska saw production decline and investment stall. But after years of decline, things are starting to look up.

The reformed oil tax structure in Alaska has been followed by new announcements and new investments. The industry is seeking to turn around production at Prudhoe Bay. ExxonMobil recently announced it had invested $2 billion to date in its natural gas condensate project at Point Thomson. And after decades of starts and stops, Alaska now looks poised to commercialize its vast natural gas resources.

Last month, Governor Sean Parnell signed into law legislation approving the early stages of work on a potential liquefied natural gas (LNG) pipeline with an estimated cost of at least $45 billion. The project will create jobs and investment that will ripple out from along the 800-mile route, which stretches from the North Slope to Nikiski on the Kenai Peninsula.

The agreement inked last month gives Alaska equity in development, making it a partner alongside the coalition of producers. That ownership ensures the state will enjoy a return on its investment, and will equip regulators with additional oversight controls. And the project has promised to build at least five off-take valves, delivering gas to Alaskans before commercializing it for sale abroad.

The construction, with field work slated to begin this summer, comes amid growing global demand for American natural gas. In Asian markets, prices approach nearly five times those in the United States. In 2013, China, South Korea and Mexico demonstrated the biggest growth in demand, all of which Alaska is uniquely situated to supply.

The recent turmoil in Ukraine demonstrates what a powerful geopolitical tool natural gas is. And Alaska, with its vast natural gas resource and geographic position, can lead the country in this developing market.

The North Slope pipeline project and its resource base gives Alaska a leg up on regional competitors – the Globe and Mail recently reported “the sheer scale is bound to suck the life out of some of the 14 [LNG] proposals in British Columbia” – but there are still hurdles ahead.

In August, Alaskans will vote on Ballot Measure 1, which, if approved, would repeal the state’s oil tax reform structure. Such a move would return Alaska to its previous oil tax regime and undermine the state’s future fiscal environment. That volatile oil tax structure– under which taxes could vary wildly from month to month – discouraged investment. As a result, companies opted instead to finance projects in areas with greater tax stability.

Throughout much of the country, dynamic energy growth has sprouted in spite of tepid energy policies and federal hesitation. Alaska has the opportunity now to lead the nation and to capitalize on our energy infrastructure years in the making.

This article appeared on the FuelFix website at http://fuelfix.com/blog/2014/07/01/alaskas-historic-natural-gas-equity/

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