Royal Dutch Shell Plc .com: Alaska governor pushes pipeline deal

The Chronicle Herald (Halifax, Nova Scotia)
By MATT VOLZ The Associated Press

JUNEAU, Alaska — With his re-election on the line and a $1-billion-US oil industry tax initiative looming, Alaska Gov. Frank Murkowski will try again to line up his state legislature behind a deal with three oil giants to build a natural gas pipeline to Canada.

The Republican governor says his incentive-laden proposal with Exxon Mobil Corp., BP PLC and ConocoPhillips is Alaska’s best shot at making the long-coveted North Slope gas pipeline a reality.

But legislators haven’t passed changes to state law that would legitimize the contract he negotiated, and they have twice not passed a rewrite of the state’s oil taxes which is integral to the deal.

So Murkowski will bring them back into session next week to try again.

The pipeline would pump more than four billion cubic feet a day, and proponents tout the megaproject as a way to lessen U.S. dependence on foreign sources of energy.

A separate pipeline proposal would carry 1.2 billion cubic feet a day within five years from Canada’s Mackenzie Valley to U.S. markets.

That project would stretch 1,200 kilometres from the Far North to Alberta and is led by Imperial Oil, Exxon’s Canadian subsidiary, and Shell Canada Ltd., a unit of global giant Royal Dutch Shell. Other partners include ConocoPhillips and Exxon as well as an aboriginal group.

And with consumption forecast to explode globally for the relatively clean-burning fuel used to generate electricity, heat buildings and power manufacturing processes, energy companies are racing to raise billions of dollars to build the infrastructure to transport liquefied natural gas via ships to the United States and other consuming countries.

The Alaska pipeline’s cost was estimated in 2001 at $20 billion US, but has now escalated to between $25 billion and $30 billion because of soaring prices for labour and raw materials such as steel.

State politicians see the gas pipeline doing what the trans-Alaska oil pipeline did after it was built in the 1970s: bringing billions in royalties and taxes and forming a cornerstone of the economy.

“If we don’t have a gas line, we can expect that the oil will run out in 20 to 30 years. That’s what our models show,” Murkowski chief of staff Jim Clark told a recent news conference.

Until recent years, the price of natural gas has been too low to make the 3,360-kilometre link to Alberta’s transmission system worthwhile for the companies that hold leases to the 35 trillion cubic feet of known reserves in the North Slope.

When prices started rising, the three companies that control nearly all of the North Slope gas fields entered negotiations with the state.

Also driving the governor to push through the deal is the threat of voter approval of a $1-billion annual tax on Alaska’s gas reserves until the gas is tapped. The initiative on the Nov. 7 election ballot is sponsored by Democratic gubernatorial candidate Eric Croft and two other Democratic legislators, and is meant to force construction of the pipeline.

The initiative would tax the industry every year a pipeline is not built, but Murkowski’s contract would shield Exxon Mobil, BP and ConocoPhillips from paying. “We are concerned that the reserves tax will kill this project for all time,” Clark said. “It has that potential.”

Consequently, the pipeline has become the central issue in this year’s campaign for governor. All the front-runners are pro-pipeline, but opposing candidates from both parties are attacking Murkowski’s approach.

His proposal calls for a 30-year freeze on the three companies’ oil tax rates, and a freeze of up to 45 years for gas taxes. The state would take its tax and royalty payments in gas instead of cash.

Alaska would be a 20 percent owner in the pipeline, which means fronting at least $4 billion in construction costs.

There is no starting date for construction in the contract.

Still to be written into the contract is the net-profits tax, which the governor plans to introduce for the third time this year as a 20 per cent tax on oil companies’ Alaska revenue after expenses.

The legislature has twice rejected the tax bill after both the House and Senate raised the rate but failed to agree on what it should be.

A signed contract is only one step toward constructing the pipeline. Permitting, design and working through Canadian regulatory issues are expected to last about four years. After that, the three oil companies could still choose not to build the pipeline.

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