The state's natural gas production tax, its interplay with oil taxes and how those might combine as a carrot attracting producers to sign onto a proposed mega pipeline generated tense talk this morning in the Senate Finance Committee.

Chairman Sen. Bert Stedman, R-Sitka, is convinced that the tax structure linking oil and gas values on an energy basis could cost the state millions, both in lost gas revenue and in lower oil taxes, once gas is flowing down a large-diameter natural gas pipeline from the North Slope to Alberta, Canada.

But state Revenue Commissioner Pat Galvin said there's no real loss to the state, because without a gas pipeline there wouldn't be that extra money from gas production coming in to start with. He said the "inducement" for companies who bid on pipe space during an initial open season under AGIA is a lure, the promise of gas taxes no higher than they are on May 1, when an open season starts.

Digging down to the bottom line isn't easy, with key variables at play - the price of oil and of gas 10 to 20 years from now, oil production rates, even whether the state Legislature will change taxes on either resource between now and 2030.

The gas tax could be locked in May 1, as an open season starts on a gas pipeline planned under the state's Alaska Gasline Inducement Act - at least, that appears so, but Galvin is still detailing the odds of that and the potential impacts. The lock-in was designed as an incentive to draw companies with gas to the project. Lawmakers could tinker with the gas or the oil sides after May 1, but the gas committed by producers in an initial open season wouldn't be subject to anything higher than is in place now.

Gas is taxed on an energy equivalency basis with oil. When oil and gas streams are combined for taxes, the lower-value gas in quantity dilutes the high prices of oil, bringing the state's tax rate way down under a progressivity factor - the higher the price, the higher the tax.

Stedman framed it this way: Does Alaska really want a gas pipeline so badly that the state's willing to potential pay Exxon to take the gas?

"My answer to that is no," he said.

According to Galvin, the structure was intended as an incentive to get companies to buy into the state's Alaska Gasline Inducement Act, a $500 million deal with pipeline builder TransCanada that was championed by former Gov. Sarah Palin.

"To the extent that the state is taking some of the price risk ... It has a positive impact on the likelihood of this project going forward," Galvin said.

Galvin said the structure lets companies blend a low-value product, like gas, into a high-value stream, like oil. That brings down the overall value, saving the companies tax money.