02 October 2006

Gas Tax Redux

As I indicated earlier, I'm still unsure as to how I'll be voting on the gas reserves tax ballot measure on November 7th. The gubernatorial candidates don't share my uncertainty, however:

The three main candidates for governor are aligned on opposing a natural gas reserves tax, saying the policy would be bad business for the state.

"It's a short-sighted public policy, and it's a bad business decision," said Halcro.

Instead of prompting the producers to build a multibillion-dollar gas pipeline to avoid the tax, the producers would challenge it in court, delaying a pipeline, Halcro said.

"It's taxing income before it's earned. Fundamentally, I have a problem with that," said Palin, explaining why she'd vote against the tax.

"We should be negotiating for development, not litigating," she said.

Knowles agreed that the reserves tax would likely lock the state into a legal battle with the producers.

"There is no reason for us to put an additional barrier to the market incentives for people who are willing to invest in Alaska or to tie it up in litigation," Knowles said.

It's Palin's argument that makes the most sense to me, actually. Sure, let's tax the income after the producers make it but until then, let the market do it's work.

On the market note, ADN's Compass is on the gas reserves tax, as well. This is the point that stuck with me from that:

Unfortunately, right now the gas market is in a dive. When voters signed the initiative, natural gas prices were upward of $14 per million Btus. But prices have fallen dramatically and natural gas futures for delivery this month hit $4.78 -- the lowest closing price in more than two years. If we want to develop our gas, there is no time to delay. Natural gas prices have been extremely volatile, and from a banker's perspective, volatility equals risk.
I don't think adding a billion dollars a year to the cost of the pipeline makes the pipeline any easier to construct. Maybe the way to make the pipeline would be to have the producers sign on to a contract that includes work commitments and a targeted timeline of when this thing might be complete.

Still, my vote is still up in the air, though it's leaning towards no after this weekend.

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