AKLEG Day 23: 'Call it whatever you want'
Anchorage and the rest of Southcentral's energy woes take center stage.
Good morning, Alaska! It’s the start of the 23rd legislative day.
In this edition: Education issues have dominated the legislative session, but it was only a matter of time before a new round of energy supply issues for Anchorage and the rest of Southcentral muscled into the spotlight. With the prospect the region’s utilities will need to start importing natural gas in the near future, legislators are looking toward the Cook Inlet gas fields and wondering why they’re not producing as much as expected and what, if anything, can be done to promote more production.
Current mood: ⚡
‘Call it whatever you want.’
It’s starting to feel a lot like the early 2010s with a renewed round of handwringing over the natural gas supply into Anchorage, Mat-Su and the rest of Southcentral that relies on it. With fears over the future supply and the looming prospect that Alaska utilities may have to import natural gas, attention is turning to Cook Inlet gas fields that are underperforming legislators’ expectations.
Officials with gas utility Enstart told legislators on Tuesday that they were “extremely close” to running out of gas during last week’s cold snap when utilities were using a record 250 million cubic feet of gas per day.
Industry-friendly House Republicans spent much of Tuesday’s weekly news conference pitching a plan to cut royalty payments by Cook Inlet producers in the hopes that it would encourage them to develop more. The method was tried by the Dunleavy administration at a lease sale last year, drawing middling results and questions over whether it was a good use of money. There’s a fair bit of skepticism in the building over anything resembling cash credits to Cook Inlet given that a previous program saw the state make big spends with little to show for it.
Rep. Tom McKay, the Anchorage Republican who chairs the House Resources Committee, was undaunted by the criticism.
“The public will not tolerate us being in this situation. We are going to have to act. You can call it a giveaway, you can call it a subsidy, you can call it whatever you want, but we’re out of options. We’ve kicked the can down the road for years now, and we're down to basically one operator in Cook Inlet,” he said. “We’re going to have to incentivize them to increase their activity.”
He said such cuts would buy the state time to consider other changes and upgrades to its energy system, such as a large-scale liquefied natural gas pipeline.
Over in the Senate, the response was lukewarm.
Several legislators suggested that more needs to be done to understand the production problems in Cook Inlet before rushing to cut royalty payments. Sen. Bert Stedman suggested infrastructure issues like gas storage should be explored.
“There’s a lot of gas in Cook Inlet; the question is how we get it,” he said. “It’ll be interesting to hear from the leaseholders of the two gas fields that have ample gas what’s the impediment to getting gas to market, so we can try to zero in and see if there’s anything the state can do to help with that without just throwing money at the problem. There might be royalty issues there possibly, but there might be just the challenge they have with raising capital to do the development.”
Sen. Cathy Giessel, who co-chairs the Senate Resources Committee, added that other investments into the state’s aging electrical grid should be a priority and voiced some frustration with how forthcoming Cook Inlet producers have been about the situation.
Though it seemed like they could be convinced of royalty reduction in the near term, Giessel was firm that the cash credits of the past are not on the table.
“I’m not suggesting cash credits,” she said. “Absolutely not. We’ve tried that. It didn’t work.”
(It should be noted that in the slides for this afternoon’s presentation, the biggest operator, Hilcorp, is urging legislators to identify an alternative source of gas.)
Sen. Bill Wielechowski, the Anchorage Democrat who has long called for higher taxes on the oil and gas industry, questioned whether the state has been too lax with the companies when it comes to their duty to produce oil. While others bristled at the state taking a more direct hand in oil and gas production, he questioned if there would be a point where it’d make sense for the state to hire the drilling companies owned by Arctic Slope Regional Corporation and Doyon, Limited, to lead exploration.
When House Republicans were asked about such a prospect, they bristled and said they had no interest in “nationalizing” oil and gas production.
While the state isn’t likely to take a direct hand in oil and gas production anytime soon, several legislators said they wish the companies would at least be a little more forthcoming about what’s holding up production in Cook Inlet.
“One could argue they’re already getting a tax break in that they don’t pay corporate income tax to the state of Alaska,” Sen. Giessel said about Hilcorp’s status as an S-Corporation, where profits are taxed as personal income rather than corporate income. “We’re already, in a way, subsidizing that company’s work and we wish they would be more clear with us as to why the gas is not being developed now.”
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