Gov. supports Kenai gas line

Murkowski tells slim crowd at town hall meeting about getting gas to Cook Inlet

Posted: Sunday, August 20, 2006

Saying he favors the state’s help in getting natural gas to industrial users in Nikiski, Gov. Frank Murkowski told about 16 people at a Soldotna town hall meeting Friday his administration is committed to keeping the plants open.

Following the primary elections this week, Murkowski said he will call the state’s legislators back to yet another special session “to finish work” on a gas line contract designed to bring stranded North Slope gas to market.

Just over a week ago, legislators were allowed to go home to work on the election after they passed an oil and gas production tax bill setting a base tax rate of 22.5 percent of profits derived from Alaska operations.

Murkowski said that is half the job. Now legislators must complete work on a gas line contract.

The governor’s chief of staff in charge of the gas line negotiation team, Jim Clark, said the administration “got the gas line contract to the Legislature on May 10 ... got public comments ... and now the contract has gone back to the (oil and gas) producers for some changes.”

Emphasizing the need to speed the contract on to approval, Clark said, if the gas line contract is signed by the producers and the state “tomorrow,” a projected gas shortage in Midwest markets could be filled by 2016.

Murkowski said the pipeline could move 4.5 billion cubic feet of gas a day.

He said North Slope producers “are sitting on 37 trillion cubic feet of gas,” and said if the Midwest market gap is not filled with Alaska gas, it will be filled by others, such as Qatar or other foreign countries.

The proposed contract routes the gas pipeline from Prudhoe Bay to Fairbanks to Whitehorse to the AECO Hub in Alberta, Canada, to the Chicago market and provides take-off points at the Yukon River, Fairbanks, Delta Junction and Glen Allen.

“I’m trying to keep the Agrium and (ConocoPhillips) LNG plants alive,” said Murkowski.

“We need to get more gas reserves to keep them alive.

“We need a lateral line to get gas here.

“The whole key to a lateral line is to have a big user at the end. These two plants are the big users,” he said.

The governor said the four take-off points are in the contract; the lateral line to the Kenai Peninsula is not.

“The line to the Kenai Peninsula would be economically marginal and the state might have to get behind it,” Murkowski said.

“We did that successfully in the Red Dog mine; it’s now the most successful in the state of Alaska.

“Clearly the need is here. I would look favorably toward the state’s participation,” he said.

Kenai attorney Carol Brenckle asked if the 22.5 percent oil and gas tax agreed to is contingent on the approval of a gas line contract.

“No that’s the law of the land,” Murkowski said.

“This would be $2.3 billion more we would be getting from the producers,” he said of the state’s share in the natural gas resource once it’s brought to market.

Murkowski said the state would be taking its share in gas, and would join in efforts to earn the most from the sale of the gas.

“This is the first time a state has taken an equity interest in a project,” he said. “We’re going to physically take the transfer in-kind of 20 percent in gas.

“This insures we can use the gas in our state or market it,” Murkowski said.

When asked if the state had any assurance the oil companies would not lay off Alaska oil and gas workers if a 22.5 percent profits tax caused production cuts as a federal windfall profits tax did in the early 1980s, Clark said the producers agreed to the tax contingent on a gas line contract.

He said state negotiators had a deal at 20 percent (not 22.5), and now the state must renegotiate terms of the pipeline.

“We’re going to want the producers to give up some things ... they want us to give up some,” Clark said.

While the state will take a base tax rate of 22.5 percent, it also will give production credits to the oil and gas companies to ensure future investment in the state, according to Clark.

In a printed flyer distributed to town hall participants at the Soldotna Sports Center, a section on the gas pipeline contract states Alaska will receive $2 billion to $3 billion a year in revenue if the pipeline is built.

Flashing back to a U.S. Senate vote on the trans-Alaska oil pipeline in 1974, Murkowski said if Vice President Spiro Agnew had not cast a tie-breaking vote in favor of the pipeline, Alaska would not be receiving 86 percent of its total revenues from oil as it does today.

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