Officials with gas utility Enstar told legislators on Tuesday that they were “extremely close” to running out of gas during last week’s cold snap.
That event puts a fine point on the looming gas shortages facing Southcentral utilities, which have warned they may soon need to start importing natural gas. For legislators, it’s driving a renewed conversation about what, if anything, can be done to bolster production in Cook Inlet gas fields that have fallen short of expectations.
Producers and utilities are set to meet with the House and Senate resources committees at a joint hearing this afternoon.
“There’s a lot of gas in Cook Inlet; the question is how we get it,” said Sen. Bert Stedman, the Sitka Republican who co-chairs the powerful Senate Finance Committee, at the Senate Majority’s weekly news conference on Tuesday. “It’ll be interesting to hear from the leaseholders of the two gas fields that have ample gas what’s the impediment to getting gas to market, so we can try to zero in and see if there’s anything the state can do to help with that without just throwing money at the problem. There might be royalty issues there possibly, but there might be just the challenge they have with raising capital to do the development.”
Stedman and other senators questioned what is behind the middling production, noting that issues like storage and Southcentral’s aging energy transmission grid need to be addressed. They bristled at the notion of bringing back a tax credit program akin to what was tried about a decade ago when production was last flagging in Cook Inlet.
“I’m not suggesting cash credits,” said Sen. Cathy Giessel, the Anchorage Republican who co-chairs the Senate Resources Committee. “Absolutely not. We’ve tried that. It didn’t work.”
But House Republicans are suggesting something that’s not too far off.
They spent much of Tuesday’s weekly news conference pitching a plan to cut royalty payments by Cook Inlet producers in the hopes that it would encourage them to develop more. The method was tried by the Dunleavy administration at a lease sale last year, drawing middling results and questions over whether it was a good use of money.
Rep. Tom McKay, the Anchorage Republican who chairs the House Resources Committee, was undaunted by the criticism.
“The public will not tolerate us being in this situation,” he said. “We are going to have to act. You can call it a giveaway, you can call it a subsidy, you can call it whatever you want, but we’re out of options. We’ve kicked the can down the road for years now, and we’re down to basically one operator in Cook Inlet. We’re going to have to incentivize them to increase their activity.”
Sen. Bill Wielechowski, the Anchorage Democrat who has long called for higher taxes on the oil and gas industry, questioned whether the state has been too lax with the companies when it comes to their duty to produce oil. While others bristled at the state taking a more direct hand in oil and gas production, he questioned if there would be a point where it’d make sense for the state to hire the drilling companies owned by Arctic Slope Regional Corporation and Doyon, Limited to lead exploration.
When House Republicans were asked about such a prospect, they bristled and said they had no interest in “nationalizing” oil and gas production.
“We offer the opportunity to drill, the opportunity to make a return on investment and that’s just the system we provide,” said Rep. Dan Saddler, R-Eagle River.
While the state isn’t likely to take a direct hand in oil and gas production anytime soon, several legislators said they wish the companies would at least be a little more forthcoming about what’s holding up production in Cook Inlet.
“One could argue they’re already getting a tax break in that they don’t pay corporate income tax to the state of Alaska,” Sen. Giessel said about Hilcorp’s status as an S-Corporation, where profits are taxed as personal income rather than corporate income. “We’re already, in a way, subsidizing that company’s work and we wish they would be more clear with us as to why the gas is not being developed now.”
Matt Acuña Buxton is a long-time political reporter who has written for the Fairbanks Daily News-Miner and The Midnight Sun political blog. He also authors the daily politics newsletter, The Alaska Memo, and can frequently be found live-tweeting public meetings on Twitter.
