Gov. Bill Walker sent a chill through the business community last weekend with his opinion piece that appeared in newspapers across the state, whereby he laid out his case for taxing natural gas that is undeveloped.
He argued since leaseholders do not pay taxes or royalties for unshipped gas, there are no penalties for not developing them, and that's the reason why there is no gas line. Disregarding the realities of oil-field life cycles and global market forces, Walker wants to change that through a punitive tax.
What Walker does not say is for decades, gas has been immensely useful in extending the life of our oil fields. After coming out of the ground with oil and water, the gas is reinjected into the reservoirs to scour out even more of the valuable commodity – oil. Using natural gas as an oil extractor has brought more than 1 billion additional barrels into the Trans-Alaska Pipeline System.
Every drop of that black gold has been taxed and royalties have been paid, fueling state and local governments, schools, our health care system, and our nonprofits, not to mention our Alaska Permanent Fund dividends. Alaska's oil and gas has helped our state build a more diverse economy across decades, by paying for infrastructure needed for Alaska jobs in tourism, fisheries, renewable energy, commerce, and trade.
A gas reserves tax has been proposed twice before in the past 15 years, and both times it failed, because in the end, Alaskans know that unless we want to become a state-owned economy, we must have a climate for investment so companies will continue taking all the risk as explorers and developers.
As we have seen in the past week with Shell and the Chukchi Sea, companies burdened too greatly by the cost of development and oppressive government policies, will make the decision to suspend development or move investments to more friendly areas.
Here's the reality Walker can't seem to grasp: If companies can't make it economical to produce energy, they shouldn't produce it, because it means the market is not ready for the commodity at the price at which it would need to be sold.
Alaska, with our high cost of development, production, and our extreme distance to any sizeable market, competes with places all over the world that are more economical in every respect – labor, access, climate, and business-friendly regulation. Time and again, gas producers find it hard to make natural gas investments pencil out even in these best scenarios.
Walker's gas reserves tax is an attempt to force producers to make decisions that may go directly against the economic interests of their shareholders, to whom they are legally bound to make business investments on their behalf. Walker apparently thinks companies will go against their own shareholders because his "Alaska First" mentality has overtaken his understanding of how business decisions are made and jobs are created.
The governor goes on in his op-ed to channel former Gov. Wally Hickel saying, "You drill or I will!" Hickel was indeed a force of nature, but even he could not bully companies into drilling where it was not good business decision.
As Walker's many changes stall the historic alignment and progress on Alaska's gas line, he appears to be making changes on the fly.
Conversely, Senate Bill 138 was passed after exhaustive independent analysis by experts hired by the Parnell administration and the Legislature, and public hearings in House and Senate committees. The state of Alaska and the partners agreed to go into prefront-end engineering, based on those agreements.
As Walker admits, the technical work is progressing. He complains the commercial agreements are not, but refuses to accept his responsibility in not moving the process forward. As he states, "the negotiations only progress at the pace of the most reluctant partner."
In trying to pin blame on a reluctant partner, Walker needs to look in the mirror: He has jackknifed the gas line project.
Alaskans, as contrary as we are sometimes, do love a good sound bite such as the one Walker has offered up with, "We need to control our own destiny." It's a message that sounds as though it came straight out of a marketing focus group. The irony is his actions take our destiny out of our hands, because companies, in and out of the oil patch, are rightfully worried due to the governor's unstable and ever-changing decision-making.
A gas reserves tax perpetuates a downward spiral of Alaska's economy. The governor should back away from this proposal soon, rather than risk Alaska's future.
Frank McQueary is the vice chairman of the Alaska Republican Party.
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com