Latest Alaska Oil Tax Legislation Would Chase Producers Away, Threaten Southcentral Energy

April 27, 2023

Same song, different day. Alaska’s legislators are about to overhaul the state’s oil tax laws based on the worst government policy known to man: the need for more spending money.

We would like to think our elected officials set policy targeting Alaska’s most important private sector industry based on what would lead to more oil production, more investment dollars coming into the state, or what would ensure the energy security of most of the state’s population. Now, the policy being considered in the State Senate appears to be nothing more than a cash grab.

Anti-oil legislators have consistently cried about how the State could be getting more from producers, and over the years, have introduced bills to increase government’s portion.  This year’s iteration – Senate Bill 114 – is reactionary, over-the-top legislation, as not only does it substantially increase costs for the various oil producers and change the way fields are looked at from an accounting standpoint, but it would change the tax status for a number of Alaska’s small producers, as well as one of its two majors. That change, where “S-corporations” would pay the same amount of income tax as the “C-corporations” doing business in Alaska, would supposedly raise $100-200 million annually.

Sounds rational, right? Ah, but as we all know, the devil is ALWAYS in the details. So, let’s look at what those millions might really cost us Alaskans. Increased costs have proved time after time to lower investment, risk jobs and actually bring in less revenue in previous tax schemes. In this case, we are certain history will repeat itself, and Alaska will once again face accelerated decline in the Trans Alaska Pipeline, which is good for no one besides extreme environmental activists.  

But here is the punchline that should scare us the most: The instability associated with changing tax structures will be felt most heavily in Cook Inlet, which already faces fights from environmental zealots looking to thwart leasing and exploration activities in an area that produces much of Southcentral Alaska’s natural gas, which is used for both heat and power for residents and businesses. Alaska’s utilities have already said publicly they are anxious about where to get their energy in the next ten years; without serious new investment in Cook Inlet, the “old faithful” oil basin that has kept energy costs relatively cheap in Southcentral for decades won’t be able to meet demand. So, the legislature has some explaining to do about why its members think enacting a huge new tax on the Inlet’s largest natural gas producer will help that situation. It is not complicated, and not hard to see how disastrous such a policy would be for natural gas consumers, who will see energy bills spike when gas runs low and gaps must be filled with crazy-expensive alternatives like imported LNG.

Here’s a better idea: Instead of asking current companies to pay more, Alaska should be helping grow the number of producers by creating a stable, win-win environment that grows the overall barrels of oil and cubic feet of gas, rather than threatens their production.

With 25 percent of Alaska’s private-sector employment directly or indirectly tied to oil and gas development, anything that threatens production and future investment also threatens jobs.  If jobs go away, the consistent outmigration from Alaska to more stable resource environments will continue, and those jobs and families who leave take with them philanthropic activity, community involvement and begin to shred the fabric they helped create throughout the Great Land. With this much risk, and such little potential gain, it is amazing the Legislature hasn’t rejected outright this year’s legislation.  There’s still time to send a message that Alaska is going to continue to be fully open for business, that economic stability is more important than budget gluttony, and that SB114 would be horrible for Alaska.