Dan Stickel, chief economist with the Alaska Department of Revenue, testifies in front of the Alaska Senate Finance Committee in 2023. (Photo by James Brooks/Alaska Beacon)
The proposed trans-Alaska natural gas pipeline project would generate an average of almost $800 million per year for the state treasury for 30 years starting in 2033, according to a new estimate from the Alaska Department of Revenue that includes a proposed tax break approved by the state House.
Dan Stickel, the department’s chief economist, presented the estimate to the Senate Finance Committee on Monday, days after the Alaska House of Representatives approved that significant property tax break for the project.
The Senate committee is now considering House Bill 381, containing the tax break.
According to the DOR estimate, the state stands to collect $23.4 billion through 2062 if the tax break becomes law and the pipeline is built as expected. Borough governments would share $7.8 billion during the same period.
The project would create indirect benefits as well, employing as many as 12,000 people during the peak of construction, according to the project’s developer.
As currently planned, the Alaska LNG project would include an 807-mile pipeline from the North Slope to the Kenai Peninsula. At the north end of the pipeline would be a processing plant that takes raw gas and prepares it for shipment. At the south end would be a liquefaction facility that prepares the gas for tankers that could ship it around the world.
Under existing law, the pipeline and North Slope plant are subject to a 2% property tax, shared by the state and boroughs along the project’s route. The tax would be imposed as soon as construction is finished.
Glenfarne, the international firm developing Alaska LNG, has called the tax unaffordable and wants it to be lowered in order to attract investors who would ultimately pay for construction.
Under the version of HB 381 passed by the House, the property tax would be replaced with a tax on gas shipped through the pipeline.
The state would still collect production taxes, royalties and other fees associated with gas production.
Alaska House advances gas pipeline tax break to state Senate for further work
Glenfarne owns 75% of the project. The remaining 25% is held by the state-owned Alaska Gasline Development Corp., and the state could collect additional revenue depending on its ownership share after investors take their slices of the project.
The biggest effect of the proposed tax break would be to reduce the price at which Alaska natural gas would need to be sold in order to make the pipeline profitable.
Under the current tax system, that “break-even” price is $9.07 per thousand cubic feet of gas in 2033, Stickel said. That’s when exports are set to begin. Under the House-passed bill, it drops to $8.57 per thousand cubic feet.
“That is a material change,” Stickel said, “not quite as much of a decrease as the original version of the bill introduced by the governor, but still a very significant tax relief that would impact the project economics.”
Demand for natural gas is highest in Asia, and current prices are above $16 per thousand cubic feet. If the pipeline were operating today, the Department of Revenue estimates that Alaska gas could be exported to Japan for $7.21 per thousand cubic feet.
The price of Asian gas is expected to drop significantly when the Iran war ends, and experts have published widely differing estimates for the expected competitive price of gas in the 2030s.
As a result, it isn’t clear how profitable the pipeline would be if built.
“There is a significant degree of uncertainty around whether the AKLNG project proceeds either with or without the tax relief,” Stickel said.
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