The Legislature has sent legislation to the Governor that will protect our state’s finances by separating oil and natural gas taxes. Senate Bill 305 secures Alaska’s fiscal position in preparation for development of our natural gas resources.
Under current law, Alaska’s oil and natural gas are taxed at one rate based on their combined value. After extensive review, the legislature identified a structural flaw in this tax that could have major repercussions. The results of our review were alarming. Economic models showed that when oil prices are high and natural gas prices are low, as they are currently, the state could lose a huge amount of revenue. Once gas begins to flow through the pipeline, low gas prices could dilute state revenue costing us as much as $2 billion annually. In other words, since the value of these resources is linked, Alaska would be getting no money for its gas and even less money for its oil. Our state would have less revenue with a gas pipeline, than without it.
This scenario is completely unacceptable. When TransCanada begins their “open season” on April 30, the Alaska Gasline Inducement Act (AGIA) will lock-in our current gas tax rates for the first ten years of production. Failing to fix this error in the tax structure could dilute our oil revenue stream, creating economic instability and financial uncertainty for partners looking to invest in our natural gas pipeline project. I worked with colleagues to pass a de-coupling bill that will address this issue. With the beginning of the Open Season just days away, the Governor must act immediately to de-couple our oil and gas taxes and to protect Alaska’s long-term financial interests.
I’m pleased the legislature transmitted the bill in a timely manner, and I look forward to seeing the measure become law.
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