Alaska state officials last night fired the first shots in what promises to be a heated battle over oil-production tax reform in the 2013 legislative session, with Gov. Sean Parnell (R) calling for a flat 25 percent state oil tax and state Democratic leaders warning that the proposal would slash state revenue by $2 billion each year and result in huge budget deficits.

In his State of the State speech to a joint session of the Legislature, Parnell proposed overhauling Alaska's oil taxes by eliminating progressivity provisions that require oil companies to pay higher fees as the price of oil increases.

The governor and three of the state's major oil companies -- BP PLC, ConocoPhillips Co. and Exxon Mobil Corp. -- say the progressive tax discourages the multinational companies from reinvesting in Alaska's oil and gas fields.

"We do not have a tax system that attracts new investment for greater Alaska oil production," Parnell said. "Unless we restore balance to our tax system, our oil fields will become obsolete."

Along with the flat tax, the governor's plan would revise the state's tax credit program to reward oil production rather than oil industry investment in the state.

"Gone would be old arguments about what qualifies for the capital expenditure credits, gone will be the need to calculate progressivity each month," he said. "What will remain will be a more balanced, more competitive and more predictable tax system."

The governor's plan was immediately attacked by state House and Senate Democratic leaders, who charged that the new flat tax system would reduce funding for critical state programs.

"The reality is that we may be laying off teachers and firefighters while outside shareholders are rewarded with billions in profits from our oil," Senate Minority Leader Johnny Ellis said in a rebuttal.

Ellis said state Democrats are willing to modify the progressive oil tax in a way that would "help the industry bottom line but not rip off the people of Alaska."

He warned that cash-strapped lawmakers could seek to replace oil money by imposing the state's first sales and income taxes and by raiding Alaska's Permanent Fund Dividend. Most Alaskans receive a yearly dividend check based on oil industry revenue.

"That's not scare tactics," he said. "That's what's coming, if this bill passes."

However, the Democrats' ability to influence the governor's plan will be limited this year because the Republicans won control over the state House and Senate in the November election. Many of new GOP members were tax reform candidates who were backed by an aggressive oil industry campaign (EnergyWire, Nov. 8, 2012).

During last year's legislative session, a similar tax reform plan floated by Parnell was blocked by the Senate Bipartisan Working Group, a coalition of lawmakers who favored less dramatic tax cuts. At the time, Alaska's 20-person Senate was equally split between Democratic and Republican members.

In his speech yesterday, Parnell also set a deadline for energy companies to take action on a long-awaited natural gas pipeline project in the state.

By Feb. 15, the governor wants the state's three major oil companies and TransCanada to settle on a concept for the project, including the pipeline's size, daily volume, the location of a gas treatment plant and sites where gas could be diverted from the pipeline for local use.

He also called for on-the-ground work on pipeline planning through the summer.

In October, the energy companies agreed to move forward with preliminary plans for the 800-mile natural gas pipeline, despite the project's estimated price tag of as much as $65 billion (EnergyWire, Oct. 5, 2012).

However, the companies have suggested no timeline for beginning on the pipeline. Instead, they have emphasized that they need more favorable financial ground rules for producing energy in the state before they can build the pipeline.

More federal funds sought for Arctic activities

While state leaders were drawing lines in the sand over oil tax reform, the only Democratic member of Alaska's congressional delegation asked President Obama to increase federal funding to Alaska.

In a letter to the White House, Sen. Mark Begich yesterday requested more money for Arctic research and U.S. Coast Guard operations and ice-breaking capacity in Alaska.

He also called for full funding for the Interior Department, the Army Corps of Engineers and other federal agencies to help coordinate the permitting process of oil and gas development in the Arctic.

"As the Arctic opens, we will have to carefully balance protection of the natural environment and those who rely on it with the economic needs of our nation for efficient oil and gas development, marine shipping, fisheries and tourism," he said. Begich is chairman of the Senate Subcommittee on Oceans and Fisheries.

This story was updated at 12:28 p.m. EST.

U.S. EPA is facing renewed pressure from Capitol Hill to re-evaluate a high-profile investigation of groundwater contamination from hydraulic fracturing operations in Wyoming.

In a letter today to EPA Administrator Lisa Jackson, Republican Sens. David Vitter of Louisiana and James Inhofe of Oklahoma panned the agency for recently announcing plans to delay its work on the case for eight months.

The senators called the delay "staggering" and said it serves only to keep misinformation in the public discussion on fracking, a well stimulation technique that blasts millions of gallons of chemical-laced water and sand deep underground to access oil and gas.

In late 2011, EPA released a draft report on the Pavillion, Wyo., case, finding that fluid from fracking was not present in drinking water but was present in deeper groundwater. This resounded among environmental activists who had long been decrying the contamination risks of fracking.

But the results were heavily contested. EPA drilled two monitoring wells, one of which was rejected for further testing by the U.S. Geological Survey because of low flow rates (EnergyWire, Dec. 7, 2012).

Industry dismissed EPA's work as sloppy and inconclusive, a sentiment echoed in the senators' letter to Jackson, which said the findings were "hastily rushed out the door for political purposes."

"Friday's announcement allows the Agency's unsubstantiated claims to remain unchecked in order to justify an Administration-wide effort to hinder and unnecessarily regulate hydraulic fracturing on the federal level," they wrote.

The delay came as unwelcome news to nearly all stakeholders in Wyoming. A spokesman for Encana Oil & Gas (USA) Inc., the driller charged with contaminating the groundwater, said the delay was a disservice to all involved, while grass-roots organizers in the area said EPA's Washington, D.C., headquarters were hindering the work done by EPA's Denver-based Region 8 office (E&ENews PM, Jan. 10).

The agency maintains that it opted to delay the investigation in order to allow for more public comment and evaluate new data.

EPA is also working on a nationwide study into the safety of fracking, which critics say cannot be trusted considering the agency's testing methods in Pavillion. A final report is expected in late 2014.

While North America's energy boom dominates headlines, BP PLC sees it as just one force shaping an energy future that will look very different in two decades but also eerily similar.

In a report released yesterday, BP forecast these differences for the energy world in 2030: The United States will be nearly self-sufficient in energy, Chinese coal demand will have leveled off, world economies will be vastly more energy-efficient, and renewable energy will be the fastest-growing fuel.

BP expected other storylines to stay on course: Russia and Saudi Arabia will remain the world's top energy and oil exporters, natural gas will gain favor throughout the world but coal will remain central, and the world leaders on shale gas will remain in North America.

The BP report put in perspective just how massive the world's energy appetite is; by 2030, 1.3 billion people will demand energy, and they will have higher incomes to obtain it.

BP said the world has enough energy, across all fuels, to supply its needs. But even enormous supplies prove modest in the bigger picture. Shale gas and tight oil, led by North America, will grow sixfold by 2030, but they will muster only a fifth of the increased global supply of energy relative to today. Renewable energy rates comparably, at 17 percent.

"Despite all the growth from shale, renewables and other sources, conventional fossil fuel supplies are still required to expand, providing almost half the growth in energy supply," BP said in the report, "Energy Outlook 2030." "Despite all the attention surrounding the shale gas revolution, in volume terms the bigger story is the expansion of mostly conventional production" outside Organization for Economic Co-operation and Development nations.

One factor holding down global demand is energy efficiency. BP said nearly every part of the world is getting more economic activity per unit of energy, a pace that will pick up over the next decade. By 2030, the world economy will need 31 percent less energy to generate $1 of gross domestic product.

Overall energy demand still grows, however, as fossil fuels switch places on the leaderboard. Coal, natural gas and oil are each converging on 26 to 28 percent of market share, BP said. Natural gas will get there by increasing its global market share, but oil will get there by losing market share.

Coal, too, faces a flat future according to BP. China, the world's leading coal consumer, is expected to scale back for energy efficiency reasons and because of a switch to less energy-intensive economic activities. Combined with decreasing demand in the wealthy countries, BP said, coal consumption and production is expected to level off after 2020.

That forecast resembles Exxon Mobil Corp.'s, issued in its long-term energy forecast last month. Exxon Mobil expected global coal demand to revert to 2010 levels in the long run (EnergyWire, Dec. 12, 2012).

The American coal industry, hopeful for its prospects in Asia, has resisted that storyline. Speaking at the National Press Club yesterday, National Mining Association President and CEO Hal Quinn said coal will become the world's top energy source by mid-decade. He portrayed coal as the fuel of choice in emerging economies and said it could also burn in high-efficiency plants in the United States.

BP forecast another loser in the next two decades: climate change. At a news conference, chief economist Christof Rühl acknowledged that even with gains in efficiency and renewables, the world is not on a path likely to limit global temperature rise to 2 degrees Celsius.

"This is a projection," he said of BP's report. "It is not necessarily what we'd like to see happen."

"You are right, targets will not be reached," he said to a reporter who asked about climate change. "And there's a lot of disappointment currently among those worried about climate change."

Rühl blamed policymakers and energy companies. Several years ago, they promised that climate action could be cheap and easy: that low-carbon technology was ready and that it wouldn't cost much. He said they failed to deliver, frustrating and disappointing the public.

Rühl added that energy markets improve with competition and innovation. He said the lack of market mechanisms on climate, such as a price on carbon, is limiting progress.

Two filmmakers behind a new pro-fracking documentary went on the attack yesterday at a gathering of newsmakers in Washington, D.C., lambasting what they call myths about hydraulic fracturing that their film aims to counter.

Filmmakers Ann McElhinney and Phelim McAleer, whose documentary "FrackNation" makes its television debut next week, were in D.C. to promote the film. The film's third director, Polish journalist Magdalena Segieda, was not present.

"According to myths propagated by The New York Times, CNN, etc., if you go to Dimock, Pa., where there's fracking occurring, [you'll find] death, destruction," McElhinney said. "Obviously, with that kind of description, you'd expect to find dramatic stories everywhere."

Dimock was made famous in the 2010 documentary "Gasland," in which some of the town's residents are shown setting their tap water on fire. The filmmakers attribute this phenomenon to naturally occurring emissions rather than hydraulic fracturing.

McElhinney said there was no such evidence of fracking-caused problems in Dimock. Rather, she and McAleer argue fracking has helped local communities across the United States. In part of the film, they took that message to Poland, which is largely reliant on Russian energy giant Gazprom for its natural gas needs.

"FrackNation" bills itself as a rebuttal of "Gasland" and bears the tag line, "a journalist's search for the fracking truth." It focuses on the controversy surrounding the use of hydraulic fracturing -- the process of shooting sand, water and chemicals down well bores at high pressures to extract previously unreachable deposits of oil or natural gas. The documentary aims to debunk environmentalists' claims that fracking can contaminate groundwater.

The publicist for "Gasland" did not respond to a request to interview filmmaker Josh Fox. However, a section of the film's website includes a 39-page document called "Affirming Gasland" in which Fox responds to criticism from gas-industry groups.

"FrackNation" directors McElhinney and McAleer previously produced the 2009 film "Not Evil Just Wrong" in response to Al Gore's documentary about climate change, "An Inconvenient Truth."

Reactions to "FrackNation" have been mixed. Reviewers lauded the documentary's thorough research and McAleer's use of the Freedom of Information Act to garner video and background from U.S. EPA, although other critics denounced the film's heavy-handed approach to the issue and considered it one-sided.

John Armstrong, an organizer with the Albany, N.Y.-based FrackAction anti-fracking group, dismissed the film's premise and insisted it was an attempt to debase grass-roots movements.

"It seems like a personal attack on our side's credibility as well as our motives," the New York native said in an interview, pointing out what he described as a "cozy" relationship between the filmmakers and oil companies based on promotions by Energy in Depth, the online public outreach arm of the Independent Petroleum Association of America.

McAleer was quick to observe that "FrackNation" received no funding from the oil and natural gas industry and turned away $30,000 from such companies.

"We just felt we can paddle our own canoe," he said, adding that the funding issue "was very important for us."

Instead, the film was financed by more than 3,000 individual contributors via the online funding platform Kickstarter, raising $212,265.

"FrackNation" is set to air Tuesday on Mark Cuban's AXS TV at 9 p.m. EST.

Scientific publishing company Elsevier has launched the Journal of Unconventional Oil and Gas Resources to publish peer-reviewed articles on the shale revolution.

The journal, shortened to JUOGR, will focus on the engineering and technical aspects of onshore energy, including tight gas, shale gas, liquid-rich shales, tight oil, coalbed methane and gas hydrate.

The first issue is expected to be published in March, according to editor John Yilin Wang from Pennsylvania State University. He declined to give more details about the journal.

The launch of the journal is a reflection of the extraordinary growth in recent years of research into unconventional fossil fuels. Elsevier generally launches a new journal only when existing journals cannot absorb a new topic area, according to an interview with a senior editor available online. Journals are usually proposed by the publisher and discussed with the editor.

The journal will cover topics including "interrelated geological studies, well drilling and completion, rock mechanics, stimulation, reserve assessment, production engineering, formation evaluation and reservoir engineering, recovery mechanisms, petroleum economics and policy, environmental aspects, and improved recovery for unconventional resources."

It will include research articles, case histories, field process reports, short communications, review articles and other formats, according to the website.

Elsevier already has publications such as Petroleum Exploration and Development and the Journal of Petroleum Science and Engineering but nothing so far focusing on unconventionals.

Chevron Corp.'s subsidiary in China has entered into production-sharing agreements for oil and gas exploration in the South China Sea.

The contracts with China National Offshore Oil Corp. (CNOOC) are for two shallow-water blocks in the Pearl River Mouth Basin, where companies like Newfield Exploration Co. are also exploring.

The exploration blocks cover a total area of about 2,200 square miles.

In rolling out a similar deal in 2010, Chevron said it has a presence in China dating back nearly a century. It has been partnering with CNOOC in the Bohai Bay and the South China Sea and in onshore fields in Sichuan province. The South China Sea is disputed territory for countries bordering it, with China pressing hard to dominate areas that could produce a lot of oil and gas.

U.S.-China production and exploration partnerships are still hard to come by. Chevron joins other multinational energy companies, including Royal Dutch Shell PLC and Exxon Mobil Corp., in pursuing partnerships with China's three major state-owned oil and gas companies.

"Exploration of these blocks builds on our strategy to grow our business across the Asia-Pacific region, where we are developing LNG, deepwater, shale and sour gas resources," said Chevron Vice Chairman George Kirkland.

Chevron is increasingly active in drilling and liquefied natural gas export projects that can sell into the Asia market, dominated by Japan and South Korea but increasingly a sought-after energy source by China.

In December, Chevron officials said its 2013 capital budget would be $36 billion, an increase of 12 percent from its 2012 spending budget.

Chevron is spending a massive amount to develop the Gorgon LNG project in Australia. The cost for that project has been rising steadily and now breaching the $50 billion mark, up from a previous estimate of $37 billion. About one-third of that cost increase is the result of the strong Australian dollar, according to Barclays' equity research.

The Gorgon project is expected to be complete in late 2014. The project is now 55 percent complete, according to Chevron.

Roughly $20 billion of Chevron's 2013 spending budget will go toward expanding projects in Australia, Nigeria, the U.S. Gulf of Mexico, Kazakhstan, Angola and the Republic of Congo.

Royal Dutch Shell PLC has increased its emphasis on natural gas production over the past few years, a move CEO Peter Voser expects to pay off in the long run. The energy giant is primarily an oil producer but has built sprawling natural gas export stations in Australia, Africa and Canada as well as gas-to-liquids factories in Qatar.

Voser has led Shell since 2009 but faces tough challenges this year. The world's remaining oil and gas deposits are increasingly hard to access, and one of Shell's most prized drilling rigs was recently damaged in an accident off Alaska's coast (EnergyWire, Jan. 16).

Still, Voser is optimistic about the future of energy production, particularly in the field of natural gas. "Gas will play a very dominant role and will have much higher growth rates than, for example, with oil and longer term also [with] coal," he said.

Voser also discussed hot spots on the global energy market, from Nigeria to China, lauding the latter nation for its energy policy. "In a country like China ... you get a much clearer idea where you need to invest and what is the ultimate goal," he said. "And then as an industry, you can actually contribute."

Voser called for a similar regulatory environment in the United States. "I just need clarity [on] what to do," he said (Russell Gold, Wall Street Journal, Jan. 15). -- BS

Activist investor Carl Icahn, known for his heavy influence on the companies he buys stock in, has purchased 1.56 percent of Transocean Ltd.'s shares and is seeking permission to own more than 3 percent.

Transocean, the world's largest offshore oil driller, announced Icahn's purchase this week but was tight-lipped about the details. The company said only that it "looks forward" to talking with him.

Icahn was similarly circumspect in his decision, declining to comment despite repeated calls and emails to his office, according to Bloomberg News.

But analysts say Icahn may push for Transocean to start a tax-advantaged master limited partnership similar to what Norway-based Seadrill Ltd. accomplished in October when it created Seadrill Partners LLC.

"I would guess he's going after an MLP because there aren't a whole lot of other levers to pull," said Joe Hill, an analyst at Houston-based Tudor, Pickering, Holt & Co.

Master limited partnerships can distribute cash to holders of sharelike partnership units held by a public corporation. They pay no U.S. corporate income tax and are managed by a partner that siphons off a portion of the income and holds units.

Icahn's latest move prompted some worry among creditors, and Transocean's bonds had slightly reduced yields yesterday. Rig contractor Transocean is still recovering from its role in the 2010 Gulf oil spill that halved its market value at the time. The company recently reached a settlement with the Justice Department to pay $1.4 billion in damages over the next five years (Greenwire, Jan. 3).

However, Transocean is expected to increase revenue in 2012 for the first time since 2008 (Bloomberg/Fuel Fix, Jan. 16). -- BS

The British government is seeking to make it easier for oil drillers to work in fragile areas by trying to adjust proposed E.U. regulations.

In leaked documents, the United Kingdom insisted on removing a regulatory clause that would have made it harder to drill in vulnerable regions. The government took particular issue with accounting for the "response gap" -- the time between when an oil spill happens and when it can safely start to be cleaned up. In the volatile and remote Arctic, such a gap could last weeks or even months depending on weather conditions and other factors. The U.K. government argued that "oil spills may be effectively dispersed by wind and wave action and this is in itself one form of effective response."

Environmentalists were outraged by the United Kingdom's perceived attitude toward drilling in the Arctic, noting that the government has publicly maintained to members of Parliament that it is interested in "robust environmental protection" for any oil operations in the Arctic.

"The British government has been caught talking out of both sides of its mouth," said Ben Stewart of the international environmentalist organization Greenpeace. "It tells Parliament it's committed to the highest safety standards for the oil industry, but in Brussels it's working to gut regulations designed to prevent a Deepwater Horizon disaster off our own coast."

The leaked documents also revealed U.K. plans to lower the bar for overseeing companies' required "emergency response plans" -- requiring only "descriptions" of such plans rather than full reports, according to the United Kingdom's proposed alternative.

A spokesman for the U.K. Department of Energy and Climate Change said negotiations over offshore drilling regulations were ongoing but added that "the U.K. is working to ensure that the highest levels of safety and environmental protection are upheld" (Fiona Harvey, London Guardian, Jan. 14). -- BS

A corporate clash has flared up between Canadian oil giant Suncor Energy Inc. and the Canadian unit of Houston-based Kinder Morgan Inc. over a proposed pipeline expansion in British Columbia. The latest dispute is indicative of the oil transport infrastructure shortage in the region, which has caused consternation for major oil companies seeking access to more profitable markets via the west coast.

Kinder Morgan's proposed $5.5 billion expansion of its Trans Mountain pipeline is currently under review from the National Energy Board (EnergyWire, Jan. 14). Several oil companies, including BP PLC and Imperial Oil Ltd., have already signed on to the project, which would add 890,000 barrels per day of capacity to the line between Edmonton and Burnaby, British Columbia. But Suncor is accusing Kinder Morgan of charging excessive tolls that would allow the pipeline operator unprecedented returns on equity.

Suncor said it is "disturbed" by how pipeline firms such as Kinder Morgan are "exerting market power that flows from the infrastructure shortage and need and necessity of take-away capacity."

For its part, Kinder noted that the unlevered rates of return expected for the pipeline expansion, while higher than average, are not exorbitant at 12 to 15 percent. The company warned it will not follow through with the project if it can't meet its targets (Nathan VanderKlippe, Toronto Globe and Mail, Jan. 16). -- BS

How do industry leaders in the United States believe energy policy uncertainty is affecting investments and innovation? During today's OnPoint, Phyllis Cuttino, director of Pew's Clean Energy Program, discusses a new report based on roundtable discussions with more than 100 industry leaders pointing to the need for consistent, long-term energy policies. Cuttino also discusses the potential for a clean energy standard under the new Congress. Today's OnPoint will air at 10 a.m. EST.