Lawmakers adjourned the regular session on Wednesday in a largely uneventful final day, at least compared to the mayhem of Monday’s attempt to force through a multibillion-dollar subsidy in the form of state and local tax cuts for the long-elusive 800-mile liquefied natural gas pipeline connecting the North Slope to Southcentral Alaska.
High oil prices driven by Trump’s quagmire war with Iran have helped tremendously smooth out what was expected to be a particularly grim budget year. There’s extra money for education, child care, school maintenance and a $1,200 dividend in a budget that’s expected to run a small surplus even if oil prices dip — and a massive surplus if oil prices continue to stay high, which, given the lack of obvious face-saving offramp for Trump, may very well be the case.
But as kids across the state were having their last day of class, legislators returned to work on Thursday under Republican Gov. Mike Dunleavy’s special session, with the only assignment being: Pass the AKLNG subsidy.
It’s more of the governor’s trademark domineering, my-way-or-the-highway approach to lawmaking — punctuated by news conferences to yell at reporters about how dumb they and their questions are. It hasn’t worked well for him in the last seven years, but perhaps this year’ll somehow be different.
His insistence that they could be done in a day or two has already come and gone, as lawmakers have signaled they’re in no rush — after all, what is Dunleavy going to do, veto the pension bill for a second time? — and plan to take their time to kick the tires on a project they still really don’t know all that much about. How much will it cost? Has the dusty cost estimate really held firm? How much will gas cost to Alaskans under a worst-case scenario? How likely is that worst-case scenario?
While 30 days is still a tight turnaround for such a consequential bill — remember, Dunleavy waited until the end of March to submit it — it’s an opportunity to be much more methodical than Monday’s exercise in blind leaps of faith allowed.
“There’s an old saying about a pig in a poke, buying a pig in a poke, that’s the problem we’re facing,” Senate President Gary Stevens, R-Kodiak, said during a post-adjournment presser, explaining the idiom about buying things sight unseen. “That’s what we’re being asked to do, buy a pig in a poke. We’ve got to see the pig, we’ve got to know the details, and that’s what I think you’ll be seeing in our Finance Committee this coming special session.”
That’s a prospect that Finance co-chair Sen. Bert Stedman, the Sitka Republican renowned for getting the upper hand in negotiations, looks forward to.
“We might have to put some lipstick on the pig,” he interjected.
Both chambers on Thursday approved rule changes allowing them to break for more than three consecutive days. That lets them send non-essential lawmakers home while the Finance committees spin up their versions of the legislation, bringing everyone back when — and, importantly, if — a deal comes together.
The Senate Finance Committee, which has only just received the AKLNG bill from the Senate Resources Committee, is set to begin meeting next week. The House Finance Committee has had the bill for about two weeks.
At the news conference, senators also made it clear they haven’t been impressed with the governor’s approach to selling the project, which has included angry news conferences, social media ad buys, and a contract with one-time opponent Mark Begich to serve as an envoy on the project. Instead, senators said they wanted to see concrete details about the project, adding that rushing in would only increase the likelihood that the next governor and Legislature would change it later.
“What you need to have come out of the building and signed by the governor is something with some stability and transparency, so all parties know what the playing field is,” Stedman said. “What was going on in the building the last few days would not lead to that … they probably get a backlash coming out of the Legislature. So, my recommendation to them is they play a square game, because the Finance Committee in the Senate is not going to mess around.”
Follow the thread: Senate adjournment and presser
‘Still a challenging price’
And, if the House Finance Committee’s hearing on Thursday — an overview of updated modeling by the state’s chief economist — is anything to go by, it’s clear why the governor was so keen on rushing the project forward.
The big takeaway was that it’s simply really, really hard for such a massive natural gas project to be profitable. Natural gas is just not nearly as valuable as oil and is sold on long-term contracts rather than riding the ups and downs of the global energy market, so there’s not really the upside of windfalls. What that means is that even if Dunleavy’s generous subsidy — amounting to about $7 billion in state tax breaks and $14 billion in foregone local property taxes — is in place, AKLNG will still likely have a hard time finding the international buyers who are so key to delivering affordable in-state gas.
This chart, showing the various impacts on the final sale price, is an excellent illustration of why so many are deeply skeptical that this project will be built anytime soon.
It’s a heatmap comparison of various sale prices to the global market under the status quo tax structure, the governor’s preferred plan and the version produced by House Resources. It charts the two most uncertain costs in the project: The price of gas from the well (the columns) against the project’s cost-overrun range (the rows). Stickel conceded that cost overruns are expected, but noted that developers think a full 100% increase is “probably too high,” which is comforting.
As you can see in the chart, there’s a slight difference in gas prices, but likely not as significant as you’d think $21 billion in subsidies would make. It won’t take much of a fluctuation in price, project cost or market appetite to send prices into the red. If the gas from the well ends up at $5, then it’s not competitive at any price. The same goes for the cost overruns compared to the several-year-old estimates.
In fact, according to one estimate, the subsidies pushed by Dunleavy bring the sale price for an MCF of gas from $9.07 to about $8.48. The House Resources version would set the price at $8.96. It’s a far, far smaller impact than the cost of the project or the price of the gas.
“You can see that, yes, even under our baseline assumptions with the bills introduced by the governor, it’s still a challenging price into the global market based on what we’re seeing,” Chief Economist Dan Stickel told lawmakers.
That’s a big deal because the project’s long-term benefit to Alaskans in the form of lower-cost energy for those with access to it, and the state revenue, all rely heavily on the export terminals and associated treatment facilities being built. The assumption — a word used often throughout the hearing — is that the developers will decide to build the second phase while they’re building the pipeline, and the assumption is that they’ll structure the tariffs to spread the pipeline’s cost over the life of the entire project, not just over the small in-state user base.
If both of those assumptions are correct, then gas out of the AKLNG project will be cheaper and more plentiful than pretty much every other option on the table.
But if either of those doesn’t come to pass, Stickel conceded that gas from the pipeline would likely come in above the $17 per MCF cost of imported gas.
“We came up with a baseline cost of supply to utilities of $22.70 under our current law scenario, and $18.60 under our, as introduced by the governor, scenario,” Stickel said. “Those would be higher than the price of imported gas.”
Again, that’s all based on assumptions.
By my count, the words “assume” and “assumption” were used more than 80 times during the hearing — and I tuned in 10 minutes late.
Work on the bill continues next Wednesday, when the Senate Finance Committee is scheduled to hold its first hearing of the special session.
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 Bluesky.
