Alaska News

Fuse grows only shorter on stimulating oil investment

Is it just me, or is watching Alaska's fiscal future unfold turning into a nerve-wracking experience akin to watching a sputtering dynamite fuse burn down? Am I the only one getting jittery?

Let's see: Alaska lives on natural resource extraction, but has no big, new projects under way to extract natural resources. It has no roads of consequence to any natural resources except the Dalton Highway. In fact, this is a state that has not built a new road of any consequence since Jimmy Carter was elected president.

We have gas, but no way to move it to soft markets quickly finding closer, cheaper sources. The likelihood of building a $40 billion gas line to move North Slope gas south seems a pipe dream. Even if it could be built with gas prices hovering at about $4.50 per million British thermal units, it would not be Alaska's salvation, bringing in $1 billion to $3 billion annually.

Well, you say, we have a bazillion cubic football fields of coal just for the taking. But our betters hate coal -- it's dirty and stinky -- and the likelihood of it carrying the state's economy or underwriting its government is zilch.

While Alaska wrings some tax income from fishing, tourism, mining, logging and other smaller industries, oil is king. It underwrites 90 percent of the state's budget and supplies 11 percent of the nation's crude oil needs. The problem? Less of it is moving to market.

Alaskans in a fatuous frenzy a few years ago elected Sarah Palin governor. Before she bailed out two years later, she gave us the Alaska Gasline Inducement Act and, in a populist tizzy, persuaded a compliant, even eager, Legislature to punish the oil industry by levying perhaps the world's highest tax rate on oil. Palin misnamed the monstrosity Alaska's Clear and Equitable Share.

While AGIA gave away $500 million to TransCanada and Exxon, ACES' high tax rate flattened industry investment to find new oil for the aging trans-Alaska oil pipeline. The line's throughput is dropping 7 percent a year, likely leading to safety and maintenance problems in four or five years.

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Gov. Sean Parnell, who only last year assured Alaskans that ACES was just swell, has decided -- finally -- it must be changed to stimulate investment and exploration. He even said so in his State-of-the-State speech. Lucky for him and lawmakers, there is a wealth of tax-impact information. Or is there? Here's what the Revenue Department knows for certain about the effects of ACES: zip.

How can that be? Surely, in a state where wrangling over oil taxes is blood sport, there must be a treasure trove of data about what such taxes have -- or have not -- done. Maybe in some states, but not here.

When the Petroleum Profits Tax was passed in 2006, lawmakers ordered Revenue to rustle up a study of the effects of production tax changes and report back on or before the first day of the 2011 legislative session.

The report released last week evaluated PPT and ACES and found Alaska has made more money from them than it would have under the Economic Limit Factor. No surprise.

Capital spending, it said, has increased every year since the net profits tax was implemented, but, "The Department of Revenue has extremely limited data from which to determine the nature of the capital expenditure increases. Given the age of North Slope facilities and infrastructure, it is quite possible that much of the capital investment in currently producing properties such as Prudhoe Bay is to extend the life of the facilities or infrastructure."

Here's the kicker: "Based on the multiple changes to the tax laws ... drawing any conclusion about their effect on Alaska's investment climate is difficult. However, what is clear is that production continues to decline. The state should continue to monitor its competitiveness with other oil and gas jurisdictions worldwide and be prepared to change its tax structure as needed."

How? Using what data? This is lousy time to discover Revenue does not know every tiny detail about the very tax that has strangled investment for new North Slope oil.

What all this means is that lawmakers now are going to want more information from other sources, a time-consuming, expensive exercise, making it unlikely there will be any action for another year. Can the state afford the wait?

That fuse is only getting shorter.

Paul Jenkins is editor of the anchoragedailyplanet.com.

PAUL JENKINS

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Paul Jenkins

Paul Jenkins is a former Associated Press reporter, managing editor of the Anchorage Times, an editor of the Voice of the Times and former editor of the Anchorage Daily Planet.

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