Senate panel advances gas pipeline tax overhaul with $610M revenue target

The Alaska Senate Resources Committee voted 5-2 Monday to advance a sweeping overhaul of how the state taxes natural gas pipelines, combining strict legislative oversight with a new tax structure that could generate $610 million annually once the Alaska LNG project reaches full capacity.

The committee substitute merges two separate bills into a single measure that fundamentally changes how Alaska captures revenue from its natural gas resources. The bill replaces the traditional 20-mill property tax with a volumetric tax ranging from 15 to 25 cents per thousand cubic feet depending on which facility processes the gas. That is a significant departure from Governor Mike Dunleavy's original proposal in March that called for a 6-cent rate.

Senate Majority Legal Counsel told the committee the alternative volumetric tax structure would charge 15 cents per thousand cubic feet for gas moving through the pipeline itself and the gas treatment plant on the North Slope. Gas processed through the liquefied natural gas export facility near Kenai would face a 25-cent rate. Gas moving through all three facilities would accumulate the full 55-cent charge.

"At that maximum amount, we were expecting, we are expecting $610 million under this alternative volumetric tax," Senator Forrest Dunbar said. The projection is based on capacity of 3.3 billion cubic feet per day with 2.7 billion cubic feet destined for export markets.

The bill also creates a 9.4 percent income tax on pass-through entities involved in gas projects. That includes limited liability companies and S corporations. The tax closes what the committee described as a loophole created when Alaska repealed its personal income tax in 1980 while maintaining corporate income taxes. The tax would apply to entities earning more than $5 million in taxable income from gas production or pipeline transportation. Current partners like Glenfarn, which holds a 75 percent stake in the Alaska Gasline Development Corporation's pipeline subsidiary, would be covered. So would Great Bear, an LLC that has discussed supplying gas from the Pantheon lease.

The committee substitute requires legislative approval before AGDC can divest its remaining 25 percent stake in the pipeline subsidiary or enter into business relationships with foreign entities. The bill also mandates that AGDC ensure a spur line to serve Fairbanks and caps the price AGDC can charge Alaska utilities at $12 per thousand cubic feet before the export terminal opens and $5 afterward.

Dunbar questioned why the bill used past tense when describing a 15-cent surcharge on gas processed through the LNG facility for foreign markets. A committee member explained the committee substitute eliminates that surcharge, which would have generated an estimated $389 million annually, in favor of the higher volumetric rate on the export facility itself.