Reliable and affordable Cook Inlet natural gas is essential to keep our lights on and our houses warm. It also fuels the Marathon refinery that produces gasoline for our vehicles and jet fuel for Ted Stevens International Airport. I introduced Senate Bill 254 to reduce royalties on Cook Inlet natural gas because the State of Alaska’s management of this resource has an enormous impact on our economy and our day-to-day lives.
Currently there is just barely enough natural gas to meet our needs, but this may not be the case soon. During the cold snap last month, the system almost ran out of fuel and lost pressure. It can take days for the system to be repressurized — leaving homes and businesses cold and dark in the dead of winter.
When a company produces natural gas on state-owned leases, they must pay a royalty, also known as a severance tax, to the State. The State must consider if the royalties imposed on a field are so high that the production of the State’s resources is uneconomic. I’ve been talking with Alaska’s Department of Natural Resources and with Cook Inlet producers about what royalty levels make sense and will result in reliable and affordable gas for our utilities and the Marathon Refinery.
Senate Bill 254 would provide a small two percent reduction in the royalty rate on current fields. For new fields, the royalty rate would be zero. The goal is to encourage companies to find and bring into production new supplies of natural gas that will help ensure south-central Alaska has sufficient fuel to meet our needs in the future.
Concerns have been raised regarding a provision in the bill that would allow the State to purchase private royalty interests in fields that are not economically competitive. It’s important to note that the State can already “claw back” leases and dissolve production participating areas. This means that current lease holders, as well as people who retain a financial interest in the field through what is called a royalty override, would get nothing in exchange for their royalty interest. SB 254 would allow people who hold overriding royalty interests in these non-economic fields to receive fair compensation as required by the Alaska State Constitution and would allow the State to better manage the Cook Inlet Basin for the benefit of all Alaskans.
I am honored to be your Senator and I want to hear from you. You’re welcome to call my office at 907-283-7996 or email me at Sen.Jesse.Bjorkman@akleg.gov. I hope you’ll take the time to share your questions and ideas.
