VOVLUOMLUEM1 |EIS3 S| UISES2U|ES2U|MJUMNEER 20264
ALASKA LNG: TAXES STILL A WORK IN PROGRESS
several hundreds of millions of dollars on ad- vanced engineering and design in 2015 and 2016. The producers ultimately decided that while the project appeared marginally via- ble, the state would be better off with an in- frastructure company as a partner in Alaska LNG. That led the state, after several years, to select Glenfarne, a company specializing in energy projects, to be a partner. Through all of this, however, the state property tax on oil and gas facilities has been known to be an economic hurdle along with other challenges, such as the high capital cost. While not much can be done about the capital cost, the state tax burden can be modified. The particular problem with the property tax is that the current state 20-mill tax, which is 2% of the assessed property value, is paid yearly. While oil producers have paid this since the 1970s, the crude oil they produce has a much higher value than does natural gas. Under the current state tax, Alaska LNG would pay about $1 billion a year, which is a real burden for the project, particularly in its early years, against its main competitors on the U.S. Gulf Coast and Canada, who
pay much lower local taxes. The current plan by the governor and Glenfarne is an alternative commonly done where the particular structure of a tax is a problem. It is a Payment-in-Lieu-of-Tax (PILT), an alternative tax. The propos- al from the governor and Glenfarne is for a tax based on the volume of gas shipped rather than the assessed property value, which is typically done with property taxes. It took a while for legislators to under- stand the advantages of this, but a big one is that it ties the tax to production rather than a property appraisal, which can be subjective and the source of costly disputes, as experi- ence with the Trans Alaska oil pipeline has shown over the years. No one really argues with this but the debate in the Legislature has mostly been over the tax rate. The gov- ernor and Glenfarne are asking for a rate of 6 cents per thousand cubic feet, or mcf, with a mechanism to share this with local govern- ments along the pipeline route. As legislative committees worked on the bills, tax rates climbed to 15 cents/msf and even 25 cents for gas through the LNG plant. When the governor and Glenfarne
balked, the rates were reduced. In the latest Senate bill, it is roughly what the governor and Glenfarne want. There are other issues, however. The proposal by the governor and Glenfarne originally had no up-front payment to mu- nicipalities to offset the cost of local impacts during construction. This quickly became a must-have for municipalities and legislators representing them, particularly for Fairbanks where there are painful memories of impacts during the 1970s with construction of the oil pipeline. The governor and Glenfarne responded with a proposed impact fund but discussions over this consumed a lot of time. Fairbanks also pushed for guarantees of a spur pipeline so North Slope gas could be supplied to the Interior city. The pipeline route for Alaska LNG is west of Fairbanks and there is no connection absent a con- necting spur. The requirement for a spur is now in the House and Senate bills, but how it would be paid for is still being discussed. A major unresolved issue is the cost of gas delivered within Alaska if only the first phase pipeline-only project is built and the LNG export plant is not built or delayed.
State partner Glenfarne says project not viable under current structure BY TIM BRADNER STATE LEGISLATORS RAN OUT OF TIME ON AN IMPORTANT BILL TO EASE STATE AND LOCAL PROPERTY TAXES ON THE PROPOSED ALASKA LNG PROJECT, BUT CONTINUED WORK IN A SPE- CIAL SESSION. THE SPECIAL SESSION BEGAN AS LAWMAKERS ADJOURNED THEIR REGULAR SESSION MAY 20, AS WAS REQUIRED UNDER THE STATE CONSTITUTION. The legislation is Gov. Mike Dunleavy’s top priority in his final year in office. Glen- farne, the state’s partner in the project, says state and local property taxes make the project uneconomic. The governor and the company have proposed an alternative that would lower the tax burden to match taxes paid by large liquefied natural gas (LNG) export projects operating in the Gulf of Mexico and now British Columbia. These are now Alaska’s competitors in Asia, the prime market for Alaska LNG. Alaska LNG is now divided into two phases, an initial first phase that would build a 42-inch gas pipeline from the North Slope to Southcentral Alaska to serve Alas- ka utilities and gas customers, followed by a phase two with a large LNG project at Ni- kiski, near Kenai, that would export large volumes of liquefied gas to Asia. House and Senate committees in the Leg- islature invested a huge amount of time this spring working through complex details of the plan by the governor and Glenfarne, led by CEO and founder Brendan Duval. It was a heavy lift, however, given the compressed schedule. The governor did not introduce the proposals, in HB 381 and SB 280, until March 20, about halfway through the 120-day ses- sion, a time when legislators were busy with the state budget and other priority bills. By May 20, adjournment day, both the
Photo Courtesy Alaska Sustainable Energy Conference Gov. Mike Dunleavy and Glenfarne CEO Brendan Duval provided updates and insight on the Alaska LNG project at the recent Alaska Sustainable Energy Conference.
The Alaska LNG Project is the latest, but most advanced, proposal to build a large-di- ameter natural gas pipeline from the North Slope to Southcentral Alaska and to a planned large LNG export plant that would ship liq- uefied gas to Asia. Many initiatives have been made since the 1970s to move the large gas reserves on the North Slope to market either in Asia as LNG or by a long-distance pipeline to the continental United States. Major North Slope oil producers, which own the gas, were involved in many of these initiatives, along with major U.S. gas trans- mission and Canadian pipeline companies. The prior efforts failed mainly due to the huge capital costs as well as unexpected changes in market conditions such as when inexpensive U.S. shale gas entered the domestic market. The Alaska LNG Project as we now know it grew out of the most advanced initiative involving the North Slope producers. Exxon- Mobil led this with BP and ConocoPhillips as partners, as well as the state of Alaska through its state gas corporation, the Alaska Gasline Development Corp. (AGDC). The state it- self is a major owner of the North Slope gas through its royalty share of reserves. The producer and state consortium spent
House and Senate had actually made con- siderable progress. They had made changes in the bills to meet the objections of mu- nicipalities along the pipeline route affected by the state basically preempting their tax. Other changes were to better protect the state’s interests, as they saw it. In fact, the Senate had lowered its tax rate in the latest version of SB 280, its bill, to what the governor and Glenfarne asked for. How- ever, there were still too many differences and too little time to mesh the House and Senate, which differed, as the clock ticked down to- ward the midnight adjournment May 20. A last-minute attempts in the House to speed up the process by adding language es- sentially agreed on in both the House and Senate bills failed. The governor had offered a trade with his agreement not to veto a major pension reform bill passed by the Legislature if lawmakers enacted his bill. The House spent hours debating the trade on the pension bill but couldn’t reach agreement after one munic- ipality, the North Slope Borough, raised con- cerns about giving up its rights to tax property within its boundaries. With that, the gover- nor vetoed the pension reform bill. The issue could rise again in the special session.
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ALASKA RESOURCE REVIEW JUNE 2026
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