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Experts recommend against subsidy for Alaska gas pipeline
Anchorage Daily News


September 01, 2005

JUNEAU, Alaska - Experts working for the Alaska Legislature said this week that oil companies stand to make a lot of money from a natural gas pipeline and there's no reason for the state to offer tax breaks or other concessions to make it happen.

"It's a profitable venture, certainly very economically viable. . . . It would not appear concessions would be necessary," said Barry Pulliam, senior economist for Econ One Research.

Gov. Frank Murkowski is negotiating with the three major oil companies on the North Slope over a contract for what the state taxes and royalties would be if the gas pipeline were built. Legislators said that, given the information from Econ One, the governor shouldn't offer the oil companies too much for a pipeline.

"We are not going to pay just any price to get it done," said North Pole Republican Sen. Gene Therriault, chairman of the Legislative Budget and Audit Committee.

The governor would have to present any gas pipeline contract to the Legislature for approval. He has said he plans to do so in a special session this fall.

Juneau Democratic Rep. Beth Kertulla said the message behind the numbers was clear.

"It's economically feasible," said Kertulla, a member of the committee. "And why aren't they building it?"

The Legislature has a $500,000 contract with Econ One Research, which has offices in California and Texas, to analyze issues surrounding the proposed multibillion dollar pipeline to bring the vast North Slope gas reserves to market in the Lower 48. The legislative Budget and Audit Committee hired the firm to have its own set of experts, which give lawmakers an independent viewpoint to rely on apart from the governor's.

The Econ One researchers laid the numbers out to the committee members and several other legislators Wednesday. They said it looks like the major oil companies on the North Slope stand to make a rate of return on the project between 17 percent and 21 percent if they own the pipeline and between 31 percent to 46 percent if someone else builds the line and they ship gas through it.

The earnings would also depend on how much the companies invested in the project. By some estimates, the gas line from the North Slope to Chicago would cost about $21 billion.

The companies could get even higher rates of return using federal loan guarantees Congress passed last fall, the Econ One researchers said. Pulliam told the legislators the numbers compare favorably to other projects the companies have done worldwide, even with conservative price forecasts.

The negotiations between the companies - BP, Exxon Mobil and Conoco Phillips - and the governor's aides are confidential. BP spokesman Darren Beaudo said he couldn't discuss specifics on whether the companies are seeking concessions.

"This is a very big, very expensive and very risky project," Beaudo said. "What we are seeking is a clear and durable fiscal contract with the state of Alaska."


Distributed by Scripps-McClatchy Western Service,

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