Republican vice-presidential nominee Sarah Palin, now thrust into the heart of America’s energy debate, has managed as Alaska governor to confound major oil companies and frustrate environmentalists with pro-drilling policies that put the interests of the state and its 670,000 citizens ahead of either powerful special interest.
Mrs. Palin is vilified by environmentalists for wanting to open up the pristine Arctic National Wildlife Refuge to drilling. But last year, some right-wing critics accused her of rivaling the spread-the-oil-wealth philosophy of Venezuelan President Hugo Chavez when she slapped a big tax increase on oil companies operating in the state and used the proceeds to send a $1,200 check to help cover the energy costs of every Alaska resident.
As if that weren’t enough to sting the oil majors, one of Mrs. Palin’s first acts in office was to tear up a deal negotiated between former Gov. Frank Murkowski, a fellow Republican, and Alaska’s big three oil companies - Exxon Mobil, BP and ConocoPhillips - to build a 1,715-mile-long pipeline to carry natural gas from Alaska to the lower 48 states. She replaced Mr. Murkowski’s backroom dealwith an open bidding process that awarded the state’s pipeline license to TransCanada Alaska, a Canadian outsider.
Alaska’s Legislature last month deemed the TransCanada deal to be more favorable in preserving the state’s right to raise taxes on oil companies. The Legislature approved it overwhelmingly after having given a thumbs-down to the Murkowski deal and its guaranteed low tax rates on oil companies.
Republican presidential nominee Sen. John McCain is said to see a kindred spirit in Mrs. Palin, who has a strong independent streak that was on display when she appointed Tom Irwin as Alaska’s natural resources commissioner during her first weeks in office. Mrs. Palin’s predecessor had fired Mr. Irwin in 2005 for writing a memo saying Mr. Murkowski went too easy on oil companies in earlier pipeline negotiations.
“She is not pro- or con- big companies,” Mr. Irwin told reporters last week. “Governor Palin didn’t submit to the force and control of the large companies. She forced [them] into a fair, open competitive process.”
Mrs. Palin also took Exxon Mobil to task for failing to develop one of Alaska’s biggest untapped oil and gas fields at Point Thomson in Alaska’sfar north, threatening to revoke a development permit granted decades ago. The move prompted Exxon Mobil to announce in February that it is beginning a phased-in development of the fields with an eye toward eventually shipping the gas through the new TransCanada pipeline. Exxon Mobil also took pains to show that it is striving to find customers for the gas within Alaska.
“Exxon Mobil is committed to developing North Slope gas resources, and we are ready to work with the state of Alaska,” said company spokeswoman Margaret A. Ross.
In another conciliatory gesture toward the Palin administration, Exxon Mobil dropped out of the consortium of oil companies that negotiated a pipeline deal with Mr. Murkowski and said it is prepared to work with TransCanada as well as the other oil companies on getting the pipeline completed. ExxonMobil said its Point Thomson project will provide about 8 percent of the gas going through the pipeline and its participation will be critical for the project to succeed financially.
BP and Conoco refused to bow to the new governor, however, and have not dropped their plans for a pipeline that would compete with Mrs. Palin’s TransCanada deal.
The companies dubbed their alternative pipeline “Denali” this spring and plan to spend $600 million in the next three years conducting scientific studies and submitting regulatory applications to the federal government with an eye toward beating out the TransCanada proposal by winning over more customers. The Federal Energy Regulatory Commission ultimately could be the arbiter of who builds the pipeline.
“We felt [Mrs. Palin’s plan] was not the best pact to get a pipeline built. We think Denali is the best way to get a pipeline built,” said one oil company official who asked to remain anonymous.
BP and Conoco continue to have differences with Mrs. Palin over the state’s contribution to financing the pipeline. They say they never wanted the $500 million in seed money the state is offering to get the pipeline started. But they continue to insist that state tax concessions will be needed to ensure completion of what is expected to be the largest and most expensive infrastructure project in North American history.
The possibility of Alaska imposing higher taxes years down the road under the Palin plan poses risks that could make it difficult to obtain financing from Wall Street, jeopardizing the viability of the project, oil officials contend.
“The real sticking point seems to be that Governor Palin refuses to make a long-term commitment on the tax rates for the project,” said Robert Rapier, a former Conoco employee.
“For a $30 billion project, it is pretty important to understand the economics of the project pretty far in advance,” he said. “It should be reasonable to at least agree in advance not to change the rules during the game. That is, after all, what Hugo Chavez has become famous for. And Palin’s threats to tear up existing contracts with Exxon do provide a cause for concern.”
Despite her having campaigned on independence from Big Oil, the oil companies seem confident that the governor and state legislators eventually will provide further concessions on taxes once they understand how essential they are for the project to succeed.
“Everybody recognizes there will have to be more discussion on fiscal terms” in two to three years when the pipeline companies start lining up customers, the off-the-record oil official said. In the meantime, the companies are trying to come up with more exact figures on how much the project will cost over the decade it will take to build.
“When we had talked with the governor’s staff, they said they would like to see good cost estimates before talking further about terms,” the official said.
Martin Hutchinson, an analyst with BreakingViews.com, a British financial-analysis firm, said Alaska is swimming in revenues as a result of Mrs. Palin’s oil-tax increases. About 85 percent of the state’s budget is funded by oil revenues.
The governor does not deserve the praise she receives from many Republicans for her strong fiscal record, Mr. Hutchinson contended. “2008 revenues were 40 percent above forecast, making budgeting easy,” he said. “Palin’s budget prowess only qualifies her to replace someone like Hugo Chavez.”
Andrew Leonard, a writer with Salon.com, said “the right wing is probably going a little overboard on the Venezuelan comparison - just as is the left, in its efforts to plug Palin into a familiar Bush-Cheney energy framework.”
He said he suspects that Mr. McCain picked Mrs. Palin because the longtime party maverick “became infatuated with the narrative of the pro-drilling, anti-Big Oil governor.”