Today Alaska Governor Mike Dunleavy outlined a proposal to increase energy security for Alaska’s Railbelt through increased Cook Inlet gas production. The announcement previews legislation that will be introduced in the upcoming legislative session to increase production of Cook Inlet natural gas resources. The proposal will make investment and development in new production more attractive to businesses and unlock the significant resources still in the Inlet while the Administration continues work on long-term energy security solutions.
“It is essential that Alaskans have access to reliable and affordable energy. Railbelt utilities are facing an energy supply gap in the coming years, and Cook Inlet’s untapped natural gas reserves can help fill that gap,” said Governor Dunleavy. “If we maintain the status quo, much of that gas will be left untapped because it doesn’t make good business sense for operators. Alaskans should not have to resort to importing LNG when it is available right outside our door.”
The legislation will propose lowering existing royalty floors and would allow a reduced royalty rate on all new oil and gas reserves being brought online in Cook Inlet for ten years after their startup. The proposal focuses incentives on production by making it more commercially attractive to companies that can get Cook Inlet natural gas to market. These principles ensure it is fair to Alaskans and the state only takes a reduced royalty on new resource development that delivers energy to Alaskan communities.
“There are known gas resources in Cook Inlet that are currently economically challenged. Governor Dunleavy’s proposed legislation gives DNR additional tools to incentivize exploration, development, and production to get more natural gas to Alaskans,” said DNR Commissioner John Boyle. “Royalty is the main economic lever DNR can adjust in the Cook Inlet Basin to incentivize new activity and increase energy security. Royalty drives economics, and economics drive projects.”
The fiscal impact through foregone revenue is minimal. Cook Inlet gas royalties averaged just 3.6% of state royalty income from FY13-22. In FY22, that amounted to $45.2 million. Royalties from this existing production will not be reduced by the proposal, and it will only apply to new pools and fields that are brought online and are not currently generating royalties for the State.
“Twelve-percent of zero is zero. The state makes no royalty on gas that isn’t produced,” said Department of Revenue Commissioner Adam Crum. “Given the looming energy supply gap for Railbelt utilities and the level of production under the current regulatory environment, the Governor’s proposal is squarely aligned with the Alaska Constitution’s mandate to develop state resources for maximum use consistent with the public interest.”
The bill will be introduced at the beginning of the next legislative session. Governor Dunleavy urges the legislature to act swiftly.
If passed, new drilling and development activities would be incentivized immediately and new production from onshore could be realized shortly thereafter. Offshore developments may take several years to come online with the new terms. With the potential to unlock hundreds of additional billions of cubic feet of gas, these new supplies alone could meet our Railbelt’s annual demand of approximately 70 billion cubic feet for several years. These volumes will supplement the significant volumes of gas that are already under contract for the next decade.
The Dunleavy Administration will also be rolling out other energy related initiatives across the state that will lower the cost and increase the stability of energy for Alaskans for both the short term and for years to come.