Alaska LNG faces tax competition from Canadian projects with federal support

Alaska's Senate is looking at a bill that could decide whether the Alaska LNG project ever gets built. The question: do Alaska's taxes push away the big investors who backed similar projects across the border in Canada?

Nicholas Fulford, a senior director at energy consultant GaffneyCline, told the Senate Finance Committee on Wednesday that British Columbia handed LNG Canada a stack of tax breaks before investors agreed to fund the project in 2018. The Canadian federal government delayed sales tax for 20 years and let the company write off equipment faster. The province repealed an LNG tax, cut a carbon tax, and dropped corporate income tax from 12 to 9 percent.

The result: Canadian LNG pays a combined 24 percent corporate tax rate. Alaska's combined rate is 28.4 percent.

Senator Bert Stedman asked whether Alaska's higher tax might actually push investors to set up the project as a Subchapter S corporation — a structure that skips state corporate tax entirely. "The optionality provides value to investors," Fulford replied. Under that setup, Alaska's rate would drop to 21 percent, below Canada's.

The Senate Resources Committee advanced a bill in April that would replace Alaska's 20-mill oil and gas property tax with a fee tied to how much gas moves through the pipeline. Finance is now reviewing it.

Fulford named three Canadian competitors already further along: the Xyla Shims floating facility 60 miles from Ketchikan, a possible second phase of LNG Canada, and the smaller Cedar LNG and Woodfibre LNG projects.

The committee resumes with Fulford on Thursday at 9 a.m.