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Proposed Gas Line Incentive Will Have No Negative Effect On Prices; Will Help Consumers, Not Hurt Producers Says Senator Murkowski


October 09, 2003
Thursday - 1:15 am

U.S. Sen. Lisa Murkowski on Monday said that the proposed hybrid financial incentive package to enable an Alaska natural gas line to be built to the Lower 48 States will help American consumers, but have little negative impact on government revenues or natural gas producer revenues in the Lower 48 States.

Murkowski refuted the relevance of an Energy Daily story that appeared late last week that quoted a federal agency's report that the incentive package would save U.S. consumers nearly $16 billion over 15 years in lower gas prices, but cost the U.S. Treasury some $14 billion and Lower 48 producers billions of dollars in lost revenue over the same period.

Murkowski, however, noted that the article was based on a study of last year's Senate financial package and not on the proposal actually being considered by the House-Senate Conference panel that is working to craft a comprehensive energy package this fall.

"There is little wrong with the Energy Information Administration report. An Alaska line will benefit consumers. The article, however, focuses on the wrong incentive proposal in the report ­ on one that no one is currently considering, rather than on the comments in the report on the right proposal currently under consideration.

"It would be truly unfortunate for the nation if such misinformation clouds the debate over the assistance that is actually being sought to help turn the dream of finally getting Alaska's huge gas deposits to market into reality," said Murkowski, a member of the Senate Energy and Natural Resources Committee.

The EIA report considers both last year's proposal, one which called for producers to get a tax credit whenever the price of gas drops below $3.25 cents per thousand cubic feet (mcf) - producers paying back any tax credit taken whenever prices rise above roughly a $4.87 mcf price - and this year's marginal well credit proposal that caps the tax credit at 52 cents, allowing the credit on a penny-for-penny basis only if the price of gas on the North Slope falls below $1.35 per mcf.

Both incentive plans also include a loan guarantee, where the government would guarantee up to 80 percent of $18 billion in bonds to finance the more than 3,000-mile pipeline project, and accelerated tax depreciation for the Alaska segments of the line (to seven from 15 years), a provision the EIA estimated would cost just $260 million over 15 years. The report predicts that through 2025 the treasury would lose nearly $14 billion in revenues under last year's proposal, but predicts that under the hybrid proposal now under consideration (the same language as S. 1149) the incentive would "result in no impact on the U.S. Treasury, when based on an approximate calculation using annual average forecasted prices." (Page 47)

Concerning the revenue loss to Lower 48 producers, Murkowski noted that an Oct. 3 article from Cambridge Energy Research Associates, a widely recognized international energy consulting firm, reports that the sale of "Alaskan gas does not have as big a price impact as feared by competing project developers.

"In fact, the impact of the Alaskan pipeline on North American prices is much more muted than might have been expected. The analysis shows a short ­ two year ­ moderate dampening of prices when Alaska (gas) comes on-stream. Prices then recover to pre-Alaska levels. Demand growth, declining domestic production and supply flexibility owning to LNG flexibility, allows Alaskan natural gas to be incorporated readily into the market. Over the long term, natural gas prices are established largely on the offsetting factors of productive capacity erosion in the existing North American producing basins and new natural gas coming on stream from new frontier resources," wrote CERA.

The firm also said in its article that bringing "Arctic natural gas, including the pipeline natural gas from Alaska, and natural gas from Eastern Canada and the U.S. Atlantic Basin are of critical importance" if the nation is to avoid even higher and more volatile prices for gas given the country's likely gas production shortfall next decade.

"The energy bill under development must contain sufficient incentives to bring about construction of a gas line to get Alaska's huge reserves to market. Alaskans have to keep fighting to explain the importance of and the problems facing construction of an Alaska gas line. I'm optimistic that before this bill is done we all will agree on a mechanism to craft the help this project needs to become a reality," said Murkowski.

Another new study, this released Sept. 26 by the National Defense Council Foundation, also predicts that construction of the Alaska gas project will produce 709,865 direct jobs nationwide, and an additional 425,913 indirect jobs nationwide ­ the gas line resulting at peak production in development of 1.136 million jobs across America. The report notes that California will gain 172,000 jobs, Washington State 72,000 new jobs and Oregon 12,000 jobs if the gas line proceeds. Federal revenues from the line are estimated at $1.1 billion a year.

"At a time when nearly 400,000 Americans have just gone on unemployment, Congress just has to provide the help to get this gas line moving forward. Clearly passage of an energy bill with sufficient financial incentives to get an Alaska gas line built will be good news for American workers, but it will be even better for America's economy and security. The line would help Americans have sufficient gas for cooking our dinners, heating our homes and running our factories, while helping to protect our energy independence -- keeping us from becoming overly dependent on imported gas from overseas, the problem we now face with oil imports.

"This project is too important for America not to happen," said Sen. Murkowski of the gas line assistance package.

Work on the energy plan will resume in the conference committee Oct. 14.



Source of News Release:

Office of Senator Lisa Murkowski
Web Site


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