A Citizen’s Guide

When state lawmakers passed the petroleum production tax last year, they included special provisions to lower taxes on natural gas produced in the Cook Inlet, and now, as lawmakers reconvene to review taxes again, two local businesses want those provisions extended to other parts of the state to keep separate Interior natural gas projects alive.

During the first week of the ongoing special legislative session, Doyon Ltd. and Fairbanks Natural Gas LLC have been separately trying to convince lawmakers to extend the Cook Inlet tax breaks to other parts of the state, but while Doyon has found some early success this year, Fairbanks Natural Gas has been scrambling to get support.

Doyon began exploring the possibility of producing natural gas from the Nenana Basin west of Fairbanks about five years ago, but recently put the project on hold after losing a backer. The Houston-based Andex Resources LLC recently pulled out because the Petroleum Production Tax made the project uneconomic, especially compared to Cook Inlet, according to Jim Mery, vice president for Doyon’s lands and natural resources division.

“We though it was a good time to make people aware that our project is not being treated equally with other Railbelt gas projects,” Mery said.

Doyon successfully convinced the House Oil and Gas Committee to include an amendment extending the Cook Inlet tax breaks to all natural gas produced south of the 68th parallel.

That carefully excludes natural gas produced on the North Slope.

But that’s exactly where Fairbanks Natural Gas wants its tax break.

Fairbanks Natural Gas has been trying to secure a supply of North Slope natural gas for nearly a year to escape continually escalating prices in Cook Inlet and to get out of an emergency supply contract set to expire next summer.

Fairbanks Natural Gas trucks liquefied natural gas from a plant in Point MacKenzie to Fairbanks along the Parks Highway. Its new plan is to build a similar plant on the North Slope and truck the liquid natural gas down to Fairbanks along the Dalton Highway.

While the plan nearly triples Fairbanks Natural Gas’ transportation costs, not to mention the added expense of building a $20 million to $40 million plant, the company believes the move north will ultimately lower prices for the nearly 1,000 natural gas customers in Fairbanks by tapping into a more secure supply.

But that is only if the company gets the tax breaks afforded to Cook Inlet producers, according to Fairbanks Natural Gas president Dan Britton. Under current regulations, the taxes on North Slope natural gas are five and 10 times those on Cook Inlet natural gas, Britton said.

Before the House Oil and Gas Committee passed along its tax bill Sunday, Rep. Jay Ramras, R-Fairbanks, introduced an amendment designed to cover projects like the one proposed by Fairbanks Natural Gas. But only Ramras and Rep. Scott Kawasaki, D-Fairbanks, voted in favor of the amendment, while five representatives from other parts of the state voted against it.

Rep. Mike Doogan, an Anchorage Democrat originally from Fairbanks, worried the cost-saving measures of the amendment might not be passed along to consumers.

“I don’t have any objection to offering the same tax benefits to the residents of my old hometown that the residents of my current hometown enjoy, but I have a concern here that the recipient of those benefits in Anchorage are, to the best of my knowledge, all regulated utilities, and it’s my understanding that this company is not a regulated utility,” Doogan said.

The state does not currently regulate Fairbanks Natural Gas, but requires the company to notify both the state and consumers of any rate changes and to regularly give the state financial updates.

Rep. Ralph Samuels, R-Anchorage, said he supported the amendment to extend the tax breaks to the Nenana Basin, but worried about the implications of extending them all the way north.

“When you start talking about North Slope gas, you start getting into the extremely complex world of the gas pipeline,” Samuels said.

Even Ramras had reservations about the amendment, and said he introduced it to help Fairbanks get a secure source of gas, not necessarily a cheap one.

After Fairbanks Natural Gas came within several days of losing its supply last fall, Ramras, who is a natural gas customer at two restaurants he owns, asked state regulators to put the company on a shorter leash.

Britton believes the market for competitive heating market in Fairbanks prevents his company from pocketing any tax break.

In an attempt to get the amendment reintroduced by another committee, Britton took his appeal to the Greater Fairbanks Chamber of Commerce board of directors, of which he is a member.

On Monday, the board unanimously approved a resolution asking state lawmakers to extend the Cook Inlet tax breaks to a North Slope project like the one proposed by Fairbanks Natural Gas.

Contact staff writer Eric Lidji at 459-7504.