Study points out leaks in gas pipeline contract -
COMMONWEALTH NORTH: Taxes, ownership and regulation cause worry.
adn.com
By Petroleum News
Published: September 20, 2006
Last Modified: September 20, 2006 at 06:09 AM
Commonwealth North, an Anchorage-based public policy group, said the Murkowski administration's proposed gas pipeline contract with oil companies is "incomplete" and the public-policy issues it raises should be "re-examined and renegotiated."
In a new study, the group also criticized the proposed gas reserves tax, which will be on the November ballot.
"The negative use of taxing authority is poor public policy," the group concluded. "Implementing a reserves tax on any resource will send a message globally that Alaska is not encouraging exploration or development of its resources. It will also discourage financial market participation in the gas line project."
The gas pipeline deal concerns a contract with BP, Conoco Phillips and Exxon Mobil that the administration of Gov. Frank Murkowski negotiated over the past couple of years. The contract covers tax, ownership and other state terms if the companies take on the $21 billion project.
Murkowski unveiled his proposed contract in May. But momentum to get legislative approval of the deal has waned amid criticism of some terms and since Murkowski lost a re-election bid in the August primary election.
Commonwealth North's study concluded that:
• The Prudhoe Bay gas is stranded because, although natural gas prices are relatively high now, it's impossible to accurately predict what gas prices would be when North Slope gas reached the markets in 10 years or what the price would be over a 35-year, or longer, pipeline life. Because the gas is stranded, it's appropriate for the state to offer incentives to get a gas pipeline project built.
• A state contract should provide that the oil companies take specific actions within certain time frames. The proposed contract's lack of a requirement to start construction is "troublesome," and under the contract, the state has an "unusual burden of proof" to meet to prove the oil companies aren't working diligently enough on the pipeline project.
• The legality of fixing tax rates for decades, as called for in the proposed contract, is unclear. The contract terms should be changed to shorten the period for which rates are fixed and to make this section legally "severable" from the rest of the contract in case the Alaska Supreme Court finds fault with it.
• It's unclear that the state must be 20 percent owner of the pipeline for the project to proceed, as the draft contract states.
• The Murkowski administration's proposal to take possession of 20 percent of the gas and then market the gas itself, rather than taking cash up front, "adds a risk factor that has a potentially high negative impact" on the state.
• The contract should not include terms for developing the big Point Thomson gas field east of Prudhoe Bay. A process for dealing with Point Thomson development already exists and should not be sidestepped.
• The state should not have to indemnify the oil companies against damages, as called for in the draft contract, should the Regulatory Commission of Alaska assert that it can regulate the gas pipeline. The Murkowski proposal states that only federal regulators will have jurisdiction, not the RCA. |
