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Talk taxes: Pushing Alaska gas can’t hurt but isn’t a catalyst

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Posted: Saturday, October 13, 2012 11:31 pm | Updated: 4:16 pm, Fri Jan 25, 2013.

Fairbanks Daily News-Miner editorial

The recent sales trips to Asia by Alaska leaders gave Gov. Sean Parnell and Natural Resources Commissioner Dan Sullivan the chance to showcase the advantages of Alaska natural gas, but that promotional effort won’t be enough to get a pipeline from the North Slope. At some point, the administration must negotiate with the gas owners to create a tax plan. That’s how the state can truly make a difference.

There are a host of nations hoping to tap into liquefied natural gas. Japan, in particular, is back in the market in a big way after abandoning nuclear power in the aftermath of the 2011 earthquake and tsunami.

Alaska’s advantages start with its proximity to Japan and the strong four-decade record of reliability in exporting liquefied natural gas from Kenai to Japan. Other regions of the world cannot boast of the same prospects of stability for future decades.

Alaska has estimated reserves of 200 trillion cubic feet of conventional natural gas, with about 35 trillion cubic feet of known reserves. These reserves are so-called “conventional” gas, while much of the Lower 48 gas boom is based on unconventional shale gas that is controversial.

In a presentation at the LNG Producer-Consumer Conference in Tokyo last month, Sullivan said that a project from Alaska “has complete certainty of supply; not all other projects do.”

He pointed to studies by Wood Mackenzie and the Brookings Institution that show Alaska gas could be competitive in Asia.

The recent sales trips by Parnell and Sullivan may have focused on advantages, but these ventures demonstrate the challenges the state faces in getting its natural gas to market.

Had the three major oil companies with North Slope holdings been part of the Alaska sales team — with a united message about the 49th state — Alaska natural gas would find a ready market in Japan and Korea.

But the multinational companies operating in Alaska are fierce competitors with each other, they have competing internal interests around the world and they face competition from companies with other LNG prospects.

Those three factors have long complicated and delayed prospects for developing Alaska natural gas.

The Alaska officials, in essence, were in Asia asking that utilities and industries send a message to Exxon, BP and ConocoPhillips that they want to buy natural gas from Alaska, not from some other part of the world.

Proximity and reliability are good arguments to make, but the state’s sales approach is not a game-changer.

In their recent letter to Parnell, officials of Exxon, BP, ConocoPhillips and TransCanada said “significant environmental, regulatory, engineering and commercial work remains to reach upcoming decisions to bring North Slope gas to market.”

They said a project could cost from $45 billion to more than $65 billion.

As one of their next steps, the companies said they want to “secure fiscal terms necessary to support the unprecedented commitments required for a project of this scope and magnitude and bring the benefits of North Slope gas development to Alaska.” The governor indicated last week that he doesn’t expect to tackle that job in the coming legislative session.

We don’t know what fiscal terms the three major oil companies will want from the state and whether those terms will be in the best interest of Alaskans. The administration must enter negotiations, create a package and offer it to Alaskans. Sales pitches in Asia can’t hurt, but they aren’t where progress is needed.

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