The Alaska Senate plans to vote today on a new draft of a bill that would reduce taxes on the Alaska LNG project. It’s the last day of a special session Gov. Mike Dunleavy called to consider the issue.
Dunleavy and pipeline developer Glenfarne, which owns a 75% stake in the project, say a measure replacing a 2% annual property tax with a much smaller tax on gas throughput is essential to allowing the project to attract investors and court lenders. Dunleavy and Glenfarne applauded the version of the bill that passed the House a week ago.
The Alaska LNG project, estimated by the developer to cost up to $54.5 billion, includes an 807-mile pipeline, a conditioning facility on the North Slope to remove gas impurities such as carbon dioxide, and a liquefaction plant on the shores of Cook Inlet to export the gas to Asia. The project would be split into two phases: first, a shorter in-state pipeline to provide gas to Alaskans, and then the much more expensive — and much more lucrative — export infrastructure.
The Senate’s new draft retains many of the House’s provisions with some important changes.
Perhaps the most significant changes are to the project’s timeline: to be eligible for tax relief, the developer must commit to a final investment decision for the first phase by Jan. 1, 2028, and construction of the in-state pipeline would need to be complete by the end of 2032.
The House’s version required only that construction begin by Jan. 1, 2032.
The faster timeline is an effort to address Southcentral’s looming shortage of natural gas, said Sen. Bert Stedman, a Sitka Republican and a co-chair of the Senate Finance Committee. The Department of Natural Resources’ production forecast envisions demand outstripping Cook Inlet gas production by 2032, requiring producers to dip into storage.
“There’s been a lot of concern out of the Railbelt with the declining volume in Cook Inlet,” Stedman said.
But the more aggressive timeline sparked concerns from minority Republicans on the committee; it increases the risk on an already risky, marginal project, they said.
“That’s very damaging,” said Sen. Mike Cronk, a Tok Republican and the Senate minority leader. “There’s so many factors that we don’t control.”
Putting a “hard construction date” in the bill may be a “poison pill,” Cronk said.
Glenfarne and Gov. Mike Dunleavy did not immediately respond to requests for comment on the new version of the bill.
Stedman suggested future legislatures could revise the date to account for “unforeseen black swan events.”
“We can change these and modify these going forward,” Stedman said. “This is not in the Constitution, so I think there’d be some consideration under good faith trying to get the project constructed.”
The tax rate at the heart of the bill — the so-called alternative volumetric tax on gas flowing through the pipeline from the North Slope to Southcentral Alaska — would be fixed, rather than a weighted average tied to the cost of each component of the project.
The Senate draft sets the tax initially at 6.2 cents per 1,000 cubic feet of gas throughput, starting five years after gas begins to flow through the pipeline. The tax would take effect sooner if throughput reaches 500 million cubic feet per day, which is more than double what Southcentral Alaska uses now.
The tax would rise to 10.6 cents per 1,000 cubic feet once Phase 2 of the project, which includes the liquefied natural gas export facility, is up and running. The tax revenue from that mirrors what the Department of Revenue estimates the weighted tax that passed the House would yield.
The rates would rise between 1% and 3% each year, depending on inflation.
The House backed 30-plus years of tax breaks. Some senators were skeptical of that, so their version doubles the tax rate ten years after exports begin, then doubles them again in 2060.
The new bill retains key conditions for the tax relief included in the House’s version: the developer must commit to building a spur line to Fairbanks and negotiate project labor agreements with unions. It also includes up to $80 million in community impact funding for municipalities: $40 million due shortly after the final investment decision for each project phase.
It also includes House-passed price controls on in-state gas. Utilities would pay no more than $16 per million British thermal units, adjusted for inflation. That’s roughly $16.60 per 1,000 cubic feet, substantially higher than current Southcentral gas rates — about $10 — but likely cheaper than imported gas, according to Southcentral’s gas utility.
Also notable is an omission from the bill. It does not include a measure that had been under discussion that would subject large so-called S corporations and other pass-through entities in the oil and gas business, like LLCs, to the state’s corporate income tax.
Glenfarne, in its only comments so far on the new bill, urged lawmakers not to include that tax in the final version.
“If the Senate passes a bill with the proposed S Corp tax, it will introduce major hurdles for Alaska LNG to secure the right financing to build the project,” the company said in a statement provided by spokesperson Tim Fitzpatrick.
Senators are due to amend the bill and take a final vote later today.
The special session expires at midnight tonight, but Gov. Mike Dunleavy has already signed a proclamation calling another special session to begin Saturday.
Asked whether the new special session represented a contingency plan in an event the bill failed to pass, Dunleavy spokesperson Jeff Turner declined to say.
“We will see what happens,” Turner said.
This is a developing story. Check back for updates.
