Contrary to published reports stating that negotiators have removed from the energy bill a controversial production tax credit for natural gas transported over a proposed Alaska gas pipeline, Sen. Lisa Murkowski (R-AK) said Wednesday the tax credit and other financial incentives for the long-line gas system were “still in play.”

Murkowski was negotiating the items with Conference Committee Chairman Pete Domenici (R-NM) and Senate Finance Committee Chairman Charles Grassley (R-IA), according to her spokeswoman Kristin Pugh.

The junior senator from Alaska’s remarks came on the heels of published reports Tuesday, attributed to Domenici, that Alaska producers would not get a tax credit from the federal government assuring them a minimum price for gas that would be delivered over the proposed $20 billion pipeline. Domenici is shepherding the energy bill through the House-Senate conference committee, which hopes to clear away the remaining stumbling blocks to the bill this week and report it out to the House and Senate possibly next week.

Domenici spokeswoman Marnie Funk said she could not confirm that the production tax credit had been removed from the energy bill. Similarly, other aides on Capitol Hill were not able to corroborate the reports. At the center of the storm is a provision in the Senate bill passed in July that would offer Alaska gas producers a tax credit of 52 cents/MMBtu in the event gas prices fall steeply, effectively guaranteeing them a floor price of $3.25/MMBtu.

“Everybody seems to be excited over the Domenici comment Tuesday. I’m hearing that it might have been taken a little bit out of context,” said Don Duncan, vice president for federal and international government affairs for ConocoPhillips, one of three Alaska producers who would be involved in the construction of the pipeline.

“We’ve been told the House has not accepted it [production tax credit], and the Senate is in discussions on [an undisclosed] counteroffer,” he told NGI. ConocoPhillips “[has] sent messages to the conferees that without the wellhead provision [tax credit], we are not willing to move forward” on the pipeline, Duncan said.

“Since Day One, we’ve said this [tax credit] is the one that means the most” of all of the incentives proposed for the pipeline, he noted. “We’ve been led to believe that by tomorrow [Thursday] at the latest we will know where we stand” on the issue.

Unlike ConocoPhillips, Alaska producer ExxonMobil “consistently has not been in support of incentives tied into a price floor” or any other federal subsidies for the pipeline, said spokesman Bob Davis. The company, which also would be involved in the Alaska pipeline, believes “the project should stand on its own without any artificial supports.”

The “main” opponent of the tax credit proposal is Chairman Bill Thomas (R-CA) of the powerful House Ways and Means Committee, who is helping to negotiate the massive tax title of the energy bill.

If the tax credit isn’t part of the final energy bill that emerges from conference, “I would be [especially] concerned about [Sen.] Ted Stevens of Alaska holding up the entire bill,” ConocoPhillips’ Duncan said.

The production tax credit has come under fire from the Republican-led House and the Bush administration. Murkowski proposed the tax credit earlier this year, along with a number of other incentives for the pipeline in the Senate bill — a federal loan guarantee for 80% of the construction costs up to $18 billion; accelerated depreciation of certain sections of the pipeline over seven years instead of 15 years; and a Section 29 tax credit to encourage heavy oil and coalbed methane production in Alaska.

The Senate bill also requires the Alaska pipeline to be built over the inland “southern” route through Alaska, rather than under the Beaufort Sea to Canada. The line is expected to take 10 years to build, and would deliver an estimated 4.5 Bcf/d of gas from the North Slope of Alaska to the Lower 48 states.

In related developments on Capitol Hill, leaders of the House and Senate met Wednesday with Domenici and Grassley, who reportedly have pledged to finish up broad energy legislation this week and vote it out of conference committee early next week. Domenici had indicated that a conference session would be held this week. But “they’re not going to be able to untangle the knots enough to have a meeting this week,” said Bill Wicker, a spokesman for Sen. Jeff Bingaman of New Mexico, the ranking Democrat on the Senate Energy and Natural Resources Committee.

The key sticking points in the bill still appear to be a ban on methyl tertiary butyl ether (MTBE) in gasoline and the product liability waiver for MTBE vs. increased corn-based ethanol content in gasoline; electricity provisions on participant funding for transmission line construction, backstop siting authority for FERC, and a delay in FERC’s plan to standardize electricity markets; and the multi-billion tax title of the legislation.

The potential “certainly exists” for Senate Democrats to filibuster the energy bill, Wicker told NGI. “There are enough senators who are unhappy about certain things.” Senate Democrats would need 41 votes to sustain a filibuster, he said.

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