Oil and Gas Taxes Remain “Coupled”

By Dave Donaldson

Governor Parnell today vetoed the bill that would have separated oil taxes from natural gas taxes.   It was originally proposed after economic analysts found that under current market conditions and taxes the state risked losing as much as $2-Billion a year in revenue once gas is in the pipe. 

In vetoing it,  the governor said it was the equivalent of a tax increase on the oil industry.

It also destabilizes our economic environment as we are headed into two open seasons.  And, finally, our Attorney General’s opinion was that it is not necessary at this time – that at any time across the next ten years the legislature has the ability to change tax regimes.  So there’s no reason to change it now and change it again later after the open seasons.

The veto came the day before TransCanada Pipeline and Exxon-Mobil begin the first “Open Season” offering of shipping rights on a state-licensed gas line from the North Slope to Canada.  One of the inducements offered to shippers that respond under the  state’s AGIA statutes guarantees there will be no change in the tax structure for the first ten years of the line’s operations.

The principle supporter of the bill,  Senate Finance Co-Chair Bert Stedman (R-Sitka), says the bill was trying to avoid that lock-down by removing the effects of having combined oil and gas taxes that are, in effect, subsidizing each other.

The net effect of the treasury is a substantial reduction.  Erasing under the current environment today of eighty dollar oil and a little over four dollar natural gas, we’d be losing a couple of Billion dollars a year – or more.  We’d lose all of our gas revenue and a good chunk of our oil – about a third of our oil revenue.  We’d be better off to shut the gas line down.

With the tax guarantees going into effect for those who accept the first open season offering tomorrow morning,  Stedman says it’s too late for any further legislative action on the possibility.  He describes the veto as the result of different policy decisions by the legislature and the governor  over the amount of financial exposure the state was willing to face.   He says the anomaly in the tax structure still needs to be fixed,  but it will not likely come before the legislature until tax decisions need to be made on the project.

In the future, when there are fiscal terms brought into the legislature from whoever the administration is at the time, I think the legislature’s abilities to understand the complexities of the oil and gas inter-relationship is substantially advanced and that the future governor is going to have a very difficult time selling the legislature on a proposal that impacts the treasury at such a severe impact that we’d be better off not even building the gasline.

The bill became the most controversial measure before the legislature and only passed n the closing hours of this year’s session after losing in the House on its first attempt.


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