If the controversial price supports for Alaska gas production fail to make it into the broad energy bill being negotiated, “there will be nothing of significance in the bill that addresses the supply-demand needs” of natural gas customers in the United States, said an official for Alaska producer ConocoPhillips Thursday.

“A lot of people have been prematurely burying the wellhead provision,” or the tax credit for gas produced in Alaska and transported over the proposed 3,600-mile Alaska gas pipeline. Both ConocoPhillips and Alaska producer BP insist a production tax credit is essential to the construction of the long-line system from the North Slope to the Lower 48 states.

The Senate was standing firm on including the production tax credit and other financial incentives for an Alaska pipeline in comprehensive energy legislation, according to Don Duncan, ConocoPhillips’ vice president for federal and international government affairs. He noted the Senate late Wednesday informed the House of its position. A key opponent of the tax credit and other Alaska incentives is Chairman Bill Thomas of the House Ways and Means Committee, who is negotiating the tax title of the energy bill.

“The betting on the street is it [production tax credit] won’t make it into the bill, but I’m not willing to say that yet,” Duncan told NGI. It’s “not dead yet,” although he conceded it “may end up that way.” Other incentives being discussed include a loan guarantee for 80% of the construction costs of the Alaska pipeline up to $18 billion, accelerated depreciation of certain sections of the line, and a Section 29 tax credit to spur production of heavy oil and coalbed methane in Alaska.

Whether or not the tax credit stays in the bill hinged on the outcome of the meeting between Senate and House leaders and the top energy negotiators that was held late Thursday, he said. It was the second meeting called by Senate Majority Leader Bill Frist (R-TN) and House Speaker Dennis Hastert (R-IL) to pressure negotiators to finish up the energy bill this week, approve it in conference on Monday and vote it out to the Senate and House floors by Tuesday.

The proposal reportedly on the table would provide producers a 52 cents/MMBtu tax credit in the event Alaska gas prices fall below $1.35/MMBtu at the wellhead (excluding transportation and processing costs). It effectively would create a floor price of $1.35/MMBtu at the well for gas transported over the proposed Alaska gas pipeline, providing producers with a “penny-for-penny” credit up to a maximum of 52 cents if wellhead prices fall below the established floor.

In order to get the proposed tax credit “off the dime” in Congress, Duncan said ConocoPhillips and BP proposed a “payback provision,” which would require Alaska producers to return credits if wellhead gas prices bounced back. This is being considered by energy bill negotiators.

“We don’t think we’re ever going to need to use this [tax credit],” he noted, but Alaska producers want it as a fall-back. They will be producing gas “3,600 miles away from their markets. If the wellhead price drops, [they] still will have to flow the gas through the pipeline. They can’t shut it in” like producers in the Lower 48 states can, he said.

Duncan noted that Alaska producers would not have had to take advantage of the tax credit over the past two years, given the high prices. If anything, he said they would have had to pay back credits they may have gotten previously.

ConocoPhillips “will not commit company resources to move forward with this pipeline without the wellhead [tax credit] provision,” he said, adding the risk was too great for the company and other Alaska producers. If the tax credit gets the go-ahead, Duncan noted that ConocoPhillips, BP and ExxonMobil would be part of a “conglomerate of interests” that would construct the $20 billion line.

“If it [the pipeline] doesn’t happen, we will [turn] our interests to LNG,” Duncan noted.

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