JUNEAU -- Roll the dice.

In 10 years, will the price of oil be very high and natural gas low, maybe even more so than now? Under current law, the state treasury loses.

Roll again.

Will many users around the world switch from oil to cleaner-burning gas, causing gas prices to rise faster than oil? Under a new bill in the Senate, the state loses.

Roll again.

Will it even matter to Alaska? Not if the gas line is never built.

The latest petroleum tax fight is over a bill that appeared only last week, just as the session was approaching its final month.

Introduced by Sen. Bert Stedman, co-chairman of the Senate Finance Committee and a Republican from Sitka, the bill would divide the Siamese twins of oil and gas. The two are now joined in the same state tax scheme, the revenue source that pays for most of state government.

Stedman said his bill will guard against a situation that could occur if gas prices were low and oil prices high, resulting in such a huge loss of taxes that the state would, in effect, be forced to pay oil companies to produce the gas rather than collect royalties and severance taxes.

But two Democrats in the Senate's ruling bipartisan coalition with Stedman, Hollis French and Bill Wielechowski, said that Stedman is describing a rare, though real, scenario. They are alarmed, they said, that Stedman's bill would remove Alaska's progressive tax structure from gas. That would result in a potential loss to the state of billions of dollars if gas prices rise.

The state's revenue commissioner, Pat Galvin, said Stedman is fixing a wheel that isn't broken and the repair is liable to add new complexities to the tax code with unpredictable consequences.

And Democrats in both the House and Senate say they fear the bill will reach the House floor in the closing, chaotic days of the Legislature next month, providing a vehicle to members of the House majority who earlier this session were unable to advance legislation that broadly reduced oil taxes.

A BILLION-DOLLAR MISTAKE?

The original logic for joining oil and gas in the tax code was that the two are usually found together in nature and are produced by the same companies, often with the same tax-deductible equipment, supplies and workers. When the Legislature changed the tax system a couple years ago after the previous one was discredited in the Veco corruption scandal, taxes were made progressive -- the bigger the oil profits, the greater the tax rate.

But an unintended consequence found its way into the law: Under a particular circumstance of very high oil prices and very low gas prices, producers would be able to lower their oil tax and pay nothing for gas. In an extreme imbalance in prices, the state would have to pay the oil companies when they produce gas.

Stedman said the scenario makes a mockery out of the Legislature's decision two years back to provide inducements to oil companies to market North Slope gas. That gas now comes up the oil field wells but is mostly sent back underground because there's no pipeline to carry it off the Slope and to help oil production.

"What's an inducement? It means you're giving up something," Stedman said in an interview in his office off the Finance Committee's hearing room. "What are we giving up? The value of our entire goddang gas field, and it's ridiculous."

Had North Slope gas been flowing down a pipeline to the Lower 48 two years ago, the twinning of oil and gas would have resulted in Alaska collecting $2 billion less in taxes than it actually did in 2008, Stedman said, citing the recent work of a legislative consultant. Last year, the deficit would've been $800 million, he said.

OIL, GAS PRICES DIVERGE

The issue has been kicking around Juneau for more than a year but until recently hadn't created a lot of unease. Many people thought the recession, rather than fundamental shifts in the relative value of gas and oil, accounted for the price distortions of the last few years. Once the economy rebounded, that theory goes, gas prices would get back in sync with oil. And if gas was never marketed, it would be a nonissue.

Then, in February, Stedman said, he attended a presentation by Tony Palmer, the vice president of Alaska development for TransCanada Corp., the pipeline company with the state contract to obtain gas pledges for the Alaska line and build it. The state contract would lock in place for 10 years the gas tax structure in effect on May 1.

Palmer's model, based on U.S. Department of Energy forecasts, showed the price of gas continuing to decline relative to oil by 2020, when the pipeline would be finished, and staying that way for another decade, Stedman said.

"Using his numbers, I came back here and put them in my economic models," he said.

Stedman was stunned. The loss to the state was in the billions, he said.

TWO BILLS

At the beginning of March, Stedman joined other legislators traveling to Washington to attend an energy conference. Before he left, he directed his staff to prepare two "decoupling" bills -- one that retained a progressive gas tax, another that abandoned it. When the Legislature resumed work March 8, the Finance Committee opted for the bill without the progressive tax, Senate Bill 305, because it would be a simpler, "surgical" measure that would stand a better chance of success in the waning days of the Legislature, Stedman said.

French, an Anchorage Democrat running for governor, and Wielechowski, also from Anchorage, want a progressive tax inserted into SB 305.

"Bert (Stedman) has a point -- you shouldn't subsidize gas so heavily that you're paying Exxon to ship it," French said.

But French said the rush to decouple oil and gas by May 1 is "an imaginary timeline" that is encouraging Stedman's committee to produce a bill that is too simple for the complex taxation and policy issues involved. It's extremely unlikely that oil companies will ask for space in the proposed TransCanada pipeline during this summer's "open season," setting back the time when the tax code must be locked in place, he said.

At French's request, the Department of Revenue studied how much tax the state would receive at different oil and gas prices. If future gas prices move closer to oil -- $125 a barrel for oil, $20.83 per million btu for gas -- a non-progressive gas tax would cost the state nearly $6 billion a year, the Revenue Department said. (The current prices are about $81 for oil and $4.25 for gas.)

And French said he agrees with administration officials who think that gas is more likely to go up than down.

"For how long can a capitalistic, free-market economy continue to overvalue one form of energy over another?" he said. "It's got to come back. It can't stay this way for ever. This is just a historical anomaly."

GALVIN: DON'T RUSH

Galvin, the revenue commissioner, said in an interview this week that the administration hasn't taken a position on Stedman's bill, though he doesn't believe it's necessary now.

"I have to question the judgment of jumping into such a dramatic change in the system without fully understanding the implications," Galvin said.

Meanwhile, the House Resources Committee is starting work on a companion bill modeled on Stedman's.

The House Democratic minority voiced concerns last week that House Republicans would take advantage of decoupling to reduce oil taxes. French expressed similar worries with April 18 adjournment looming.

"It makes mischief more likely, because things just move fast and there's not a lot of time to vet them," he said.

But the House majority leader, Kyle Johansen, a Republican from Ketchikan, said he thought the House would keep the bill "surgical."

At a news conference Tuesday, Senate President Gary Stevens, R-Kodiak, said the Senate will give the bill a thorough airing even in the limited time left, and Stedman said he's even reconsidering a progressive tax.

"It's a very complex issue," Stevens said. "We need to make sure everyone in the Senate understands all sides of it."