This is an excerpt from EERE Network News, a weekly electronic newsletter.

March 01, 2006

Alaska and Oil Producers Reach Natural Gas Pipeline Agreement

The prospects for delivering natural gas from Alaska's Prudhoe Bay to the lower 48 states improved significantly on February 21st, as the State of Alaska and the state's major oil producers reached an agreement on major fiscal provisions for a natural gas pipeline contract. However, Alaska Governor Frank Murkowski noted that technical issues connected to the gas contract must still be addressed, along with terms on oil contracts. In return for their commitment to move forward on a natural gas pipeline, the oil producers are seeking greater financial stability. According to ExxonMobil, oil contract terms consistent with an oil tax bill proposed by the governor would allow the gas project to move ahead.

For the State of Alaska, a key part of any agreement on a natural gas pipeline is a reworking of oil production taxes. Alaska's Kuparuk field, the second-largest oil field in the nation, will no longer pay a production tax this year, and Prudhoe Bay will pay near zero taxes in about 12 to 14 years. To keep tax revenues flowing, the governor is proposing a new tax system based on the percentage of the net profit. Tax revenues would be lower when initial large capital investments are made and higher as oil production increases. At current oil prices, Alaska would receive an additional $1 billion in production tax revenue under the proposed new tax system. See the governor's press release and the state's Alaska Gas Pipeline Web page.