Crude oil production in Alaska has been steadily declining for years with potentially dire consequences for the Trans Alaska Pipeline System and the state’s tax revenue base.

“Alyeska today is working to respond to the challenges posed by declining throughput. Throughput peaked at 2.1 million barrels a day in 1988. It has only steadily decreased since. In 2011, Alyeska on average moved about 600,000 barrels per day. With the lower flow levels, the crude oil takes longer to reach the Valdez Terminal – about 2 weeks, on average – and the oil is colder on arrival. The slower, colder oil has more potential for water and wax to settle and drop out, and as throughput declines further, the potential for ice to form during shutdown or flowing conditions increases,” according to operator Alyeska Pipeline Service Company’s website.

Total Alaskan crude oil production declined 6% in 2012 from the previous year, dropping to 526,000 b/d, according to the EIA. This is not only problematic for pipeline operations, but it means the government collects less money in taxes, royalties and associated payments from the industry.

Wednesday night’s vote on a bill to cut state oil taxes is a huge deal for Alaska and strongly divided along party lines, with Republicans mostly in favor and Democrats opposed. The vote passed 11 – 9, with only two Republican senators opposing the bill.

Opponents of the bill see it as giving away the state’s oil wealth and placing too much trust in oil companies to increase production, and thus tax revenue, over the longer term. “It was an oil-wealth giveaway of epic proportions,” state Senate Minority Leader Johnny Ellis said at a news conference, as reported by Reuters.

Supporters, including Republican Governor Sean Parnell celebrated what they view as a victory. “For three years, Alaskans have watched from the sidelines as competing jurisdictions eclipsed our state in terms of oil production and industry investment. Alaskans sought a fair and competitive oil tax system that brings new jobs and investment to the oil-rich North Slope. Today, the Senate took bold action to increase production and fill the pipeline,” the governor said in a statement.

Senate Bill 21 now heads to the Republican-controlled Alaska House of Representatives where it will be taken up by the House Resources Committee.

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