If Alaska wants more Cook Inlet gas, taxpayers should get ready to pony up

Mike Dunleavy, Alaska’s governor, has proposed an incentive package to revive natural-gas production in Cook Inlet. The urgency of the proposal stems from the fact that urban Alaskans rely on Cook Inlet gas for heating and electricity, and Hilcorp, the leading company in the area, has warned of depleting reserves in the coming years.

However, the proposed legislative measures alone may not be enough to rejuvenate the gas industry in Cook Inlet. One of the major obstacles to drilling in the area is the high level of risk involved; companies can spend millions of dollars on drilling wells only to come up dry. Additionally, Cook Inlet poses additional challenges such as harsh weather conditions, regulations protecting endangered wildlife and high support costs due to the closure of many contracting companies.

The proposed solutions by the Dunleavy administration mainly focus on reducing royalties for successful extraction, but they fail to address the fundamental issue of risk. To mitigate this risk and attract companies back to Cook Inlet, tax credits could be a more effective approach. These credits would provide a reimbursement of up to 30% of expenses incurred by oil and gas companies. Previous attempts at implementing tax credits in Alaska have successfully revived gas production but at a significant cost to the state.

While tax credits could be a powerful tool to incentivise drilling in Cook Inlet, they would need to be carefully designed and subject to state review processes before approval. Ultimately, any discussion about spending money on natural gas projects raises questions about financial implications and overall viability.

Overall, Mr Dunleavy’s proposed incentive package aims to rejuvenate natural gas production in Cook Inlet. However, additional measures such as tax credits may be necessary to address the high risk and attract companies back to the area.

The commentary above originally appeared in the Northern Journal newsletter on 3 November. It is republished here in a summarised version. 

The author is a freelance reporter who has spent a decade as a journalist in Alaska, including stints at the Anchorage Daily News and Alaska Public Media. He is currently a regular contributor to the Alaska Beacon. Readers are welcome to submit tips to the author by e-mail  or by phone on 001 (907) 793-0312.