SB 280 / HB 381 modernizes oil and gas property tax structure to be more competitive among global LNG projects and deliver lowest cost to Alaskan customers
Governor Mike Dunleavy today transmitted legislation to the Alaska State Legislature replacing the existing oil and gas property tax structure for the Alaska Liquefied Natural Gas (AKLNG) Project with an alternative tax that is based on the volume of gas that moves through the pipeline rather than the assessed value of the pipeline itself.
The current tax structure levies a 20 mill annual property tax, equal to 2% of assessed infrastructure value. The current tax structure creates a burdensome fixed cost for the project in the first years when capital expenditures are greatest and revenue is minimal.
The governor’s proposed legislation removes the front-end tax burden and aligns the taxes with production. That derisks the project for investors and creates a more predictable revenue stream that is objective based on volume and rather than tied to property tax assessments that are inherently subjective and would be repeatedly contested. This tax structure also benefits rate payers in Alaska, as the upfront costs the current property tax imposes would be passed on to customers.
“The Alaska LNG Project is one of the most significant economic opportunities in our state’s history. This legislation removes a structural barrier that was standing between Alaska and decades of energy security, jobs, and revenue,” said Governor Dunleavy.
The legislation creates a phased tax structure consistent with international LNG investment norms:
- Construction through first gas: Exempt from state and municipal property taxes, consistent with current law.
- Ramp-up period: Property tax held in abeyance from commencement of commercial operations until the project reaches 1 billion cubic feet per day (averaged over 30 consecutive days) or 10 years, whichever comes first.
- Full operations: An alternative volumetric tax of $0.06 per thousand cubic feet of throughput, increasing one percent annually.
Governor Dunleavy, his administration and Glenfarne, the lead developer for the AK LNG project, extensively engaged with local elected officials prior to the introduction of the legislation.
Revenue is allocated between the state and municipalities based on the share of infrastructure within each jurisdiction. The Alaska Department of Revenue estimates the legislation can raise more than $26 billion in tax and royalty revenue over 30 years, including more than $22 billion in state revenue nearly $4 billion in local revenue.
If commercial operations have not begun by January 1, 2040, the alternative tax structure terminates and the standard property tax is restored.
“We have a constitutional mandate to develop our natural resources for the maximum benefit of the people. The benefit of the LNG pipeline isn’t just revenue to government coffers, but more importantly it includes affordable and abundant energy for Alaskans. That attracts new industry, it makes it cheaper to operate schools, and creates new jobs,” Governor Dunleavy added. “By taxing based on the volume of gas that flows through the pipeline, we are ensuring that Alaska receives its fair share of the resource.”
ABOUT THE AKLNG PROJECT
AKLNG would bring North Slope natural gas to Alaskan communities and global markets via a 807-mile pipeline, North Slope gas treatment facility, and Cook Inlet LNG export terminal. The project would lower long-term energy costs for Alaska families, generate thousands of jobs, and unlock the economic potential of North Slope gas resources currently reinjected or stranded.
