Tax Issues

Alaska currently receives about 12.5% of the gas or oil in the ground as a royalty share, which is can either take “in-value” by receiving cash, or “in-kind,” which means the state receives the oil and then markets and sells it itself. Under the new gas pipeline agreement, Alaska will take its royalty gas and its production tax gas all in-kind, maximizing the income possibilities and sharing in the project’s risk.

In-kind is not a new concept – the federal government operates its own successful gas in-kind program. And because the state will be following this method, an independent state entity will be set up to market and sell the gas via the state.

Gas pipelines are financed and constructed with transportation commitments in place. The commitments require that the owners (the shippers, or the state) commit to send a certain volume of gas down the pipeline for a certain length of time, whether they have the gas to ship or not. Shipping commitments like these are necessary to secure financing for the project.

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Building the Alaska Natural Gas Pipeline