Gov. Walker nixes natural gas tax after pledge from Big Oil

It’s business as unusual.

On Friday afternoon, less than 24 hours before the Alaska Legislature was to begin its third special session of 2015, Gov. Bill Walker announced an abrupt change to the agenda.

A tax on natural gas left in the ground ─ intended to push the North Slope’s big energy producers to commit natural gas to the state’s pipeline project ─ is no longer on the table.

“Today I’ve received (letters) from the president of ConocoPhillips Alaska and the president of BP Alaska … giving me the assurance I need,” Walker said. “If someone withdraws from the project for one reason or another, the gas stays with the project.”

Walker has long said Alaska must have security, some way to ensure the AKLNG project won’t fail in the same way that so many other natural gas projects have before.

The threat of a tax was seen as a way to provide leverage, but Walker has always stressed that it wasn’t intended to punish nonparticipating companies. “We need some leverage; Alaska needs some leverage. This was leverage,” he said Friday.

AKLNG is a $45 billion to $65 billion effort to build an 800-mile pipeline from the North Slope to Nikiski, where liquified natural gas (the LNG in AKLNG) will be exported via tanker to ports around the world. The state has partnered with ExxonMobil, BP, ConocoPhillips and Canadian pipeline builder TransCanada on the project, and is preparing to take a one-quarter stake in it.

In separate letters dated Friday, the Alaska presidents of BP and ConocoPhillips said they will commit their gas to AKLNG even if they don’t participate in its construction.

While Walker has been seeking surety from the oil and gas producers, Friday’s announcement wasn’t a complete victory for the state’s position.

The BP and ConocoPhillips commitment is contingent “on terms that are mutually and commercially reasonable,” according to the language of the letters, and it doesn’t include ExxonMobil, the other major oil and gas company on the North Slope.

“We need all the gas,” Walker said. “It makes it more challenging without (ExxonMobil). You end up with a much smaller project. The economics change with a smaller project, so we want to put all the gas available on the North Slope.”

Walker said he expects ExxonMobil to come up with a commitment similar to that of BP and ConocoPhillips by Dec. 4. That’s the deadline for the state to decide whether it will commit to AKLNG for another year.

More immediately, dropping the tax proposal is expected to make the Legislature’s special session much less contentious than previously thought, as the tax proposal was expected to meet opposition from the Republican-led majorities in the House and Senate.

The sole remaining items on the session’s agenda will be approving (and coming up with the money to pay for) a buyout of TransCanada’s share of the AKLNG project.

“Taking gas reserves tax off the call is going to be a real game changer,” said Senate President Kevin Meyer, R-Anchorage, in a text message to KTUU-TV’s Austin Baird. “We shouldn’t be near as long.”

“This is good news for the future of the gasline and the future of our state,” said House Speaker Mike Chenault, R-Nikiski.

The Legislature is expected to convene at 11 a.m. Saturday and hold its first hearings at 1 p.m. The House Finance Committee will examine whether it makes sense for the state to spend approximately $150 million from its Constitutional Budget Reserve in order to buy out TransCanada’s stake in the gas line.

The Canadian company had been promised a share of long-term pipeline revenue in exchange for paying the state’s up-front costs.

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