Gas pipeline bill adds oil tax increase, industry calls process rushed

The Alaska Senate Resources Committee passed a gas pipeline tax bill this week that increases the state's minimum oil production tax. The oil industry says the change was rushed through without adequate economic analysis.

Senate Bill 280, Version L, raises the oil tax floor from four percent to six percent effective January 2027. That increase happens whether or not the proposed Alaska LNG pipeline gets built.

Steve Wackowski, president and CEO of the Alaska Oil and Gas Association, testified Saturday that the measure had been transformed into "a sweeping oil tax increase rushed through the process without meaningful economic analysis."

The oil tax floor increase replaced a different provision that legislators removed after industry objected. The original approach would have separated gas lease expenditures from oil lease expenditures so the gas project's deductions would not reduce oil tax collections.

Industry representatives objected to the separation provision during hearings. They called it too complicated and risky for the investment climate. The legislature removed that provision, then added the oil tax floor increase as an alternative revenue offset.

Senator Robert Myers asked whether the oil tax increase was conditional on the pipeline moving forward. Sonya Kawasaki, the Senate majority's legal counsel, confirmed it was not. She noted that the governor's proposal also included increasing revenue for the state.

The tax rate proposals for the pipeline itself vary widely. Governor Dunleavy proposed a six-cent-per-thousand-cubic-feet tax rate, about 90 percent below the existing 20-mill property tax. The House version sits at 20 cents. The Senate version is at 55 cents.

The pipeline developer has not provided economic modeling showing which rate makes the project viable. Senator Cathy Giessel said earlier in the process, "Really, if they want any kind of tax reduction, they need to help us with this bill, giving us actual numbers."

Representative Alyse Galvin questioned why lawmakers were making these decisions without the information typically held by state departments. She noted "historically this process seems better suited for a department that has more information."

Senator Bill Wielechowski warned against acting without adequate analysis. He told industry representatives "I don't want to get in a situation where we do something quick and hurried and all of a sudden we realize, oh, we made a mistake and actually, yeah, they can value the gas at a nickel or 25 cents and then buy it back at you know, pay the tariff and buy it back at the low end, and then all of a sudden we've foregone hundreds of millions of dollars in revenue per year."