A proposed natural gas pipeline in Alaska moved one step closer to reality at the end of February when the State of Alaska, BP, ConocoPhillips Co., and ExxonMobil agreed on a financing arrangement for the project. Once constructed, the 3,500-mile pipeline would run from the North Slope of Alaska through Alberta, Canada, to Chicago, Illinois.

The proposed natural gas pipeline would start at the North Slope of Alaska and run through Alberta, Canada, and into Chicago, Illinois. Credit: http://www.gov.state.ak.us/gasline

The natural gas pipeline is believed to be an important key to reducing U.S. gas prices and increasing the country's energy security and independence. It would also create more than 6,500 jobs and billions of dollars in revenue for schools, roads, and public safety in Alaska, as stated on the State of Alaska's official Web site.

"The Alaska gas pipeline is about Alaska's future, but it is also critical to the nation. Alaska is America's pipeline to energy independence," said Governor Frank Murkowski.

As part of the financing arrangement, the State of Alaska agreed to revise its tax structure for oil production. The tax revision would offer oil producers a 20 percent investment tax credit, require them to pay a 20 percent tax on all oil profits, and give Alaska a 20 percent equity share in the pipeline. The revision would provide significantly higher oil revenues to Alaska, and at current oil prices, Alaska would receive an additional $1 billion in production tax revenue, according to the State's Web site.

Tony Hayward (Group Managing Director and CEO of Exploration and Production for BP), Frank H. Murkowski (Governor of Alaska), Morris Foster (President of ExxonMobil Production Co.), Jim Mulva (Chairman of the Board and CEO of ConocoPhillips), and Jim Clark (Governor Murkowski's Chief of Staff) celebrate the financing arrangement they agreed on for the proposed pipeline. Credit: State of Alaska

"The legislation I am proposing strikes a balance," said Murkowski. "As governor, I must be mindful of all operators, the smallest to the largest, with an eye on the ultimate goal of a sound economic and investment climate in the State of Alaska."

Murkowski predicts that the pipeline would move 4 billion cubic feet (cf) of gas per day to the lower forty-eight states beginning in 2014. It is estimated that Alaska has at least 46 trillion cf in proven reserves and that the United States uses about 60 billion cf per day.

"I am very encouraged by these reports that the State of Alaska and the producers have reached an agreement," U.S. Department of Energy (DOE) Secretary Samuel W. Bodman said. "This is an important step in bringing substantial amounts of Alaska's natural gas to consumers in the lower forty-eight states, enhancing the diversity of supply that is a cornerstone of our nation's energy and economic security."

While the agreement is an integral step, the Alaska legislature needs to approve the pipeline deal and change in tax code, and pipeline proponents still need to secure the right of way through Canada and get authority from the Federal Energy Regulatory Commission for construction and operation. In the meantime, the DOE has been designated as the interim federal coordinator, meaning it is responsible for ensuring that other federal agencies meet obligations to expedite project reviews.

"Alaska's natural gas is vital to our ability to meet the growing demand for natural gas in the lower forty-eight states," said Bodman. "It is critical to our nation's security that we move forward promptly to build the necessary infrastructure and begin production of Alaska North Slope gas."