JUNEAU -- Gov. Sarah Palin surprised state legislators Wednesday by indicating she is willing to negotiate how much the state taxes natural gas in order to attract oil companies to a pipeline project.
"We are open to changes in the state's fiscal structure to allow this project to happen. ... We are open to whatever it takes to make sure that this project happens for our state and for our country," Palin told reporters.
Palin's comments came as she defended her approach to trying to secure a natural gas pipeline to the Lower 48. She's reacting to critics in and out of the Legislature. Two state representatives are pushing a resolution asking Palin to re-evaluate the state's award of a natural gas pipeline license to TransCanada, a Canadian pipeline firm. A writer in the business magazine Portfolio also this week wrote what Palin called a "hit piece" blaming her for the state not having a pipeline.
The headline on the story, by author Joe McGinniss, said: "Forget 'Drill, baby, drill.' Sarah Palin says she's building a $40 billion gas pipeline, which even President Obama wants. The only problem: It isn't there. And it's her fault."
"That headline was idiotic," Palin said.
Legislators were surprised to hear Palin express a willingness to put gas taxes on the table in discussions with the oil companies -- who control the huge North Slope gas reserves and are needed to make a pipeline project happen. But Palin said it has always been her position.
"That's the first I've heard of it," said Anchorage Republican Rep. Mike Hawker. "It contradicts what her people said in committee."
Fairbanks Republican Rep. Jay Ramras agreed it sounded like a new approach from Palin, and said he's glad to see the flexibility. Fairbanks Democratic Rep. David Guttenberg said he's interested in looking at how it might make the gas pipeline project more viable.
Paul Laird, who runs the Alliance, an association of oil field contractors, said Palin's comments sound like a positive shift in position. He said an Alaska gas pipeline won't be built without a change in the state's fiscal structure, which is generally taken in Alaska to mean a long-term deal between the state and oil companies on how the North Slope's natural gas would be taxed if produced.
"If she is indeed signaling that she is now open to changing it, that's a good sign," Laird said.
Palin's Revenue Commissioner Pat Galvin has told state legislators he sees no need for a tax change to make the pipeline happen. But he said Wednesday he's also always taken the position that -- if the oil companies provide a good argument otherwise, the state will look at it.
Palin's Natural Resources Commissioner, Tom Irwin, said it's too soon to say if the state will need to make concessions on gas taxes. TransCanada is doing design work on the pipeline and the costs of it aren't clear.
Negotiating taxes is tricky political business. Former Gov. Frank Murkowski's deal with the oil companies in pursuit of a natural gas pipeline fell apart when legislators said he gave away too much. Palin herself criticized Murkowski's efforts.
"The difference this go-around with gas rates that we'll be discussing with lawmakers is this is going to be done of course with the doors open, in the light of day, with public hearings," Palin said. "Politicians' votes are not going to be purchased this go-around."
Two of the oil companies have their own natural gas pipeline project that's competing with TransCanada. BP and Conoco Phillips, who have major gas leases, are pursuing an Alaska gas line project called Denali.
Legislators last year agreed with Palin in giving the TransCanada project the state license and up to a $500 million subsidy, saying it offers the "must-have" terms for the state. But many question if it has a realistic chance.
"If I were a betting man, I'd bet on Denali. They have the money, they have the gas" said Sitka Republican Sen. Bert Stedman.
Anchorage Democratic Sen. Hollis French said he's worried about TransCanada's "open season" next year -- a measure of interest in which oil companies would pledge to ship gas in the pipe. That's going to determine the viability of the project.
Palin said the plan is to try to get the oil companies on board with the TransCanada project. She said the state is in preliminary discussions with the companies, but it hasn't reached the level of dealing with key issues such as what the state natural gas taxes would be.
"We will obviously get to a point of asking them if they are interested in hooking up with TransCanada," Palin said. "That is what we predict will happen."
BP spokesman Steve Rinehart said TransCanada is working under the terms the state set in the Alaska Gasline Inducement Act. BP determined that AGIA is not likely to result in a successful project, he said.
"We want a successful project. So Denali is moving forward outside of that process," he said.
Irwin said the AGIA terms create maximum benefit for the state and encourage smaller companies to explore for gas in Alaska with some certainty that they will have access to the pipeline at a reasonable rate.
There's also the question of whether any Alaska gas pipeline project will go, especially given the low natural gas prices and increased competition from Lower 48 sources like shale. The Palin team said it's confident, and that it's a long-term project and there's room for Alaska gas. Dale Nesbitt, an energy consultant in Los Altos, Calif., agrees.
"I think it's viable. Because I think the low prices are not going to last very long and I think the shale gas is quite a bit more expensive then people are talking about," he said.
But Ed Kelly, vice president of Houston-based energy consultants Wood Mackenzie, said the low prices and shale have created a new competitor for Alaska.
"I think it's a serious competitor," he said. "I think it always had its challenges and now it has one more."
Find Sean Cockerham online at adn.com/contact/scockerham.