By Dave Donaldson
The Parnell administration today gave its side of legislation that would separate oil and gas taxes.
The world could change dramatically, and you do not want to set your policy based on one expected outcome.
That’s Revenue Commissioner Pat Galvi, who shared the administration’s view of the future of the state’s oil and gas tax structure – and gave the Senate Finance Committee details of the effects of separating oil and gas taxes in a volatile industry in an uncertain world.
The facts that we believe today do not pan out, oftentimes, tomorrow. And what we believe today are the dynamics between supply and demand are not the same ones that are going to drive our expectations one or two years from now.
Legislative references to the need to separate oil and gas taxes have been based on the presumption that current economic conditions will not change until a gas line from the North Slope to North American markets goes into operation.
That’s what most petroleum economists predict – and the calculations show when oil costs $120 dollars a barrel, and gas costs $8 for the equivalent amount of energy, the state would lose $2-Billion a year in revenue under the current tax structure.
However, Galvin looks at a different scenario. He says it’s very possible that gas prices could rise to $15. His calculations show that if the legislature changes its tax structure, the state would then lose $1.6-Billion a year.
And Galvin pointed to many conditions that could change market supply or demand in the next fifteen years – such as environmental regulation of Shale Gas – or recent interest in using compressed natural gas for truck fuel. His calculations show the state gets more revenue under current conditions by changing the tax – decoupling oil from gas. But they also show the state gets more under very possible conditions when gas actually will begin to flow toward Canada in 2020 – without decoupling oil and gas. He puts the question back on legislators.
So where will it be in 2020 to 2045? I’m not going to be the one to try to speculate at this point.
Economist Roger Marks, under contract to the legislature, agreed with much of what Galvin had to say, and he doesn’t make any prediction on future oil and gas prices. He left one caution to lawmakers.
Oil and Gas are very different resources, and they have the potential to be valued much differently. And we laid out the consequences of what coupling the taxes for two resources that have the potential of being taxes much differently can be.
The Finance Committee is still working on the bill – and more changes have been promised for consideration next week. It still has to go through the House and needs to be on the governor’s desk by April Sixth to cover tax exemptions the state has promised for the next step in the gas line development process.