Federal incentives alone do not make Slope gas line a go
alaskajournal.com
By Tim Bradner
Alaska Journal of Commerce
Web posted Sunday, October 17, 2004
Congress has approved a package of federal incentives for a North Slope gas pipeline, but companies hoping to build the line aren't ready to start the bulldozers yet.
Deals with the state of Alaska and Canada are still needed, and would-be pipeline builders have to trim at least some costs from the $20 billion the pipeline is expected to cost.
A new development is that Gov. Frank Murkowski may propose the state taking an equity ownership position in the pipeline as part of a plan to ship state-owned royalty gas through the line. In a presentation to state legislators Oct. 13, Murkowski acknowledged that a state share in the project is being discussed in negotiations between the state and North Slope gas producers.
The industry didn't get all of the federal incentives it wanted in the congressional legislation. Missing from the package of four provisions is a federal tax credit that would have kicked in had gas prices dipped below a certain point.
That proposal prompted fierce opposition from Lower 48 gas producers, the Bush administration and the Canadian government, who argued the tax credit mechanism would have been an unfair federal subsidy for Alaska gas.
ConocoPhillips, one of the North Slope producers involved, said the tax credit/gas price mechanism was a "must-have" for them to be involved in the project.
Now that Congress has turned thumbs-down on the idea, ConocoPhillips hasn't said whether it will still take a stake in the pipeline along with the two other major slope producers, BP and Exxon Mobil.
What Congress did pass included changes in tax laws to allow companies building the line to take accelerated depreciation on their investment, and to get an investment tax credit on the $2.5 billion gas conditioning plant that would be built on the North Slope.
Two other measures included streamlining of federal pipeline regulatory procedures and a federal loan guarantee for 80 percent of the project cost.
The next step for firms hoping to tackle the project is to complete negotiations with the state of Alaska on a special fiscal contract that would modify tax terms and clarify royalty and tax administration.
Gov. Frank Murkowski said his administration will have a fiscal contract ready to take to the state Legislature in January. The three North Slope producers are negotiating one contract while two independent pipeline companies, TransCanada Corp. and Enbridge Inc., are negotiating separate contracts.
The pipeline companies say they might form a consortium to build the pipeline, which could also include the producing companies.
The state fiscal contract could also place limits on taxes municipalities could impose on the pipeline. The pipeline builders would pay local governments a payment in lieu of tax.
Alternate forms of payments to municipalities by industries are not unusual. In Northwest Alaska the operator of the Red Dog Mine, Cominco Alaska Inc., makes payments to the Northwest Arctic Borough in lieu of taxes the borough could have imposed on the mine.
The companies say they must also have an agreement with Canada on permitting and regulation of the pipeline by the federal and provincial governments.
While they have been working on federal legislation and the state fiscal contract, the companies have been researching ways to reduce costs of the project.
One plan is to use very high-strength steel, which would allow a high pressure pipeline to be operated using pipe with a thinner wall. That would require less steel, possibly lowering costs.
The prospect of construction cost overruns is also a major concern of the companies. The recent announcement that costs of a smaller gas pipeline planned from the Canadian Arctic may be 40 percent higher than originally expected will focus more attention on the potential for cost overruns on the larger Alaska pipeline. |
