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      This is your public service 1-stop-shop for Alaskan and Canadian Arctic energy commentary, news, history, projects and people. We update it daily for you. It is the most timely and complete northern energy archive anywhere — used by media, academia, government and industry officials throughout the world. Northern Gas Pipelines may be the oldest Alaska blog; we invite readers to name others existing before 2001.  -dh

 

Alaska Taxes

1-1-16 New Opportunity and New Challenges For A New Year

01 January 2016 1:17pm

Chris Nelson, in his CALGARY HERALD, piece explains why the energy industry is so essential to North American prosperity.  We are only amazed that these principles are not taught in the schools of both countries.  -dh


ECONOMIC FREEDOM ON THE WANE IN THE LAST FRONTIER? (Alaska Headlamp)

We always appreciate Headlamp's take on energy issues and this is another worthy opinion piece.  

See our 12-17-15 commentary on the same subject. -dh


Headlamp's Alaska Gasline response to Governor Walker's policy:

"Walker said that where 2015 was Alaska’s 'year of the budget,' 2016 will be the 'year of the gasline.'  Headlamp questions the basis of this statement by Gov. Walker given the tenuous history of 2015, and the fact that Alaska faces another $3.5 billion deficit in the face of continued low oil prices.

Here is the Governor's fiscal plan presentation.  ("The minimum tax on the oil industry will increase by $100 million.")

The oft disproved concept of "killing the goose that lays golden eggs," is alive and well in the Alaska governor's office.  -dh


Effectively Confronting Alaska's Fiscal Crisis In 2016

Gunnar Knapp, ISER, institute of Social and Economic Research, Alaska fiscal policy, Scott Goldsmith, Photo by Dave HarbourPlease consider this quote from Gunnar Knapp (NGP Photo), Alaska's Institute of Social and Economic Research: "...given the improbability of closing the gap through cuts in expenditures or raising new revenues, there is much interest in the potential to use earnings from the Alaska Permanent Fund to bolster state income, Knapp said."  

We agree that the main reason for establishing the Permanent Fund was to fund government operations during times of revenue shortage.  

But, citizens should beware of the way Permanent Fund revenue sources are tapped.  Why?  Because of the nature of government.  What is the nature of government?  Government's nature is to establish a "new source of revenue", then keep the new sources and create big new government programs even when old sources of revenue return to normal.  Government's nature is never to cut, even as taxpayers suffer and job losses grow...and, even when revenues return to normal or increase.

Accordingly, we would counsel applying an annual "sunset provision" to use of Permanent Fund and ALL NEW REVENUE SOURCES, that may be employed in this and future fiscal crises. 

If continuation of increases from year to year are essential, sunset extensions should be easily if not unanimously achieved via legislation and a governor's signature.

In fact, thoughtful citizens might be well advised to create a voters initiative putting a constitutional requirement for annual sunsets of all new revenue sources forevermore.

For true reform, the use of any new revenue sources should be accompanied by decisive spending cuts.  

Reform should also mean that all remaining government expenses should be effectively spent. 

Effective expenditure of public monies should imply:

  • competitive bidding in all circumstances,
  • right to work legislation,
  • elimination of minimum wage, and
  • elimination of 'prevailing wage' burdens that have unnecessarily inflated state and municipal capital project costs over the decades by billions of dollars.  (Policies that are also candidates for voter initiatives.)

Absent these major policy reforms, such as the other Governor Walker executed in Wisconsin, we have little optimism that Alaska's citizens will find economic prosperity again in this generation and perhaps many to come--unless those citizens are unionized employees of government agencies and politicians they support.

-dh

Alaska: the land of mountainous expanses, tremendous natural resources, phenomenal wildlife, rugged and independent people, and lack of economic freedom. Wait, what? You thought Alaska was a land of opportunity, overflowing with economic freedom? Think again. The Fraser Institute recently released their 11th annual Economic Freedom of North America report and the findings concerning Alaska are grim. The report measures how economically free North America is at a national and sub-national level.  According to the report, in terms of economic freedom, Alaska ranks 48th out of 50 U.S. states – just ahead of New York and California. Supporters of free markets and limited government should be exceptionally concerned that Alaska ranks anywhere near those two bastions of big government and tax and spend policies.

The Fraser Institute defines economic freedom simply as the ability of individuals to act in the economic sphere free of undue government restrictions. The report measures a jurisdiction’s level of economic freedom by analyzing numerous variables from different policy areas such as government spending, taxation, and regulation of markets. Unfortunately, data from the report shows Alaska severely lacks a robust level of economic freedom needed to spur strong job growth, raise living standards, and create greater opportunity for all. According to the report Alaska is losing its competitive edge due to high levels of state spending, generous subsidies, government employee pensions, a sizeable state government workforce, and several other factors.

The only policy area where Alaska shines is taxes,thanks to our lack of a state income and sales tax (though Gov. Walker and others are trying to reinstate the state income tax). It is worth noting that since the passage of oil tax reform under SB 21, our economic freedom measure concerning taxes has substantially increased!

In 2016 the Legislature and Gov. Walker should have one major goal: increase Alaska’s economic freedom in order to facilitate a healthier economy, lift people out of poverty, fix our fiscal crisis, and increase general well-being. Right sizing government, by cutting spending to the sustainable level of $4.5 billion as developed by Dr. Scott Goldsmith, is one of the most important ways to achieve this goal. Not imposing new taxes, not raising taxes on industry, advancing the AKLNG project, and increasing oil production will all help boost Alaska’s level of economic freedom. Headlamp hopes policy makers take notice of our dismal standing presented by the Fraser Institute, and will resolve to change it for the benefit of Alaska’s next generation.


 

As Calgarians embark upon a worryingly unstable new year, here’s an inconvenient truth our head-in-the-sand energy industry haters ignore.

Canadian annual exports — things we produce that others are willing to buy — are topped by oil and gas at almost $130 billion in real, U.S. dollars. The next best product nations give us money for is vehicles — about $60 billion. After that, it’s relative chicken feed.

Now for those content to see this country slide into an agrarian backwater necessitating massive cuts to health, education, pensions and other tax-funded initiatives, then fair enough. That’s odd, but honest. But for the other 95 per cent of whiners, activists, pity-poor-me and bandwagon-jumpers who blow hot air while living off the fat of this land, their parents’ largesse or transfer payments from Alberta, well, perhaps they can come up with a credible industrial strategy to replace the billions we’ll forgo in returning to rubbing sticks together for warmth.

No doubt they’ll blather on about some green energy revolution — as though Alberta will rival China or Germany in designing and building giant windmills, solar panels or such projects.  (Read the Calgary Herald Op-ed by Chris Nelson here.)

Categories:

12-31-15 Happy New Year! There is a way to be optimistic!

31 December 2015 2:53am

Dr. Charles Stanley, Dave Harbour, What we sow, more than we sow, Photo by Dave HarbourAs 2015 comes to an end today, let tomorrow's new year inspire the sort of dedication and successful work that creates a noble legacy from our service. 

A great East Coast attorney reader emailed us about yesterday's commentary: "Great email, lots of news, but I would like to see YOU more positive about the future.  Give me some hope!"  Happy New Year!  L&E H   (The hope lies in the quality of our sowing, doesn't it?  -dh)


A faithful, PhD biologist friend has it right: Alaska should keep its eye on the ball (i.e. TAPS) and not the shiny object (i.e. Alaska owned gasline equity). After yesterday's commentary, he wrote....   -dh

Therein, can our optimism thrive, our work bear fruit and our successors be proud of this generation as we pass that legacy on to them.  For, as our friend Dr. Charles Stanley reminds us, "Every farmer understands the meaning of this principle: We reap what we sow, more than we sow, and later than we sow".  

To preserve optimism, therefore, presupposes that we have a history of sowing well.  Tomorrow can be regarded as a new sowing cycle.  

We are optimistic that we and our colleagues will sow well, though we are destined to reap what was well or poorly done in the past.      -dh


Larry Persily, Kenai, Alaska LNG, Photo by Dave HarbourWe end the year by keeping our readers informed of Alaskan and northern Canadian energy issues and matters affecting those issues.  

From an Alaskan and Canadian gas export viewpoint, today's news is not good for current LNG export planners.  But today's malaise may be shrugged off by those engaged in long term planning.  They must surely be focusing on a time when a new world may be thought to be economically robust, present high gas demand and offer less commercially viable reserves.   -dh

We begin by linking you to Larry Persily's (NGP Photo) current, suggested reading list.

We then provide this year-end comment from our Mid-Atlantic energy analyst friend.


Happy New Year!

 

 

 

 

 

 

 

 

 

South Korea forecasts long-term drop in natural gas demand
 
(Reuters; Dec. 28) – South Korea expects its demand for natural gas to fall by 5 percent over the next 15 years, as increased use of gas by households and industry will only partly offset a steep fall in demand for power generation. The world's second-largest liquefied natural gas importer will also seek to diversify its suppliers, and plans to work with other big Asian buyers Japan and China to cooperate over supplies, South Korea’s Ministry of Trade, Industry and Energy said Dec. 28.
 
Still, South Korea will invest $6.1 billion to expand its gas supply facilities including storage tanks and pipelines through 2029, the ministry said. LNG accounted for about 21.4 percent of South Korea's power generation in 2014. However, gas imports fell more than 9 percent to below 30 million metric tons in the first 11 months of 2015. The ministry said gas-based power generation is too costly compared with nuclear power, which reduces greenhouse gas emissions more efficiently than fossil fuels.
 
Demand is forecast to fall 0.34 percent a year to 34.65 million tons of LNG in 2029 from 36.49 million tons in 2014, with demand for power generation nearly halving by 2029. Household and industrial consumption is expected to rise 2.06 percent a year through 2029. South Korea will look to diversify its suppliers, and expects to take mid- and long-term contracted gas supplies from 11 countries in 2029, up from seven in 2014, officials said. It will also look to set up two- to three-year contracts instead of longer-term deals.
 
 
 
New report says U.S. LNG exports will help lower prices in Asia
 
(Bloomberg; Dec. 28) - An impending flood of U.S. shale gas into world markets stands to lower the price of the fuel in Asia by almost 5 percent while marginally raising costs to U.S. customers, a study commissioned by the Energy Department shows. Exports of 20 billion cubic feet a day of U.S. gas by 2040 may cut prices in the Asia-Pacific market by 73 cents a million Btu, while adding 17 cents to U.S. prices, according to the study by Oxford Economics and the Center for Energy Studies at Rice University.
 
Despite the climb in domestic prices, exports would be “marginally positive” for the U.S. economy because of bigger profits and more spending on gas production, the report shows. The analysis, posted on the Energy Department’s website Dec. 28, comes as developers already are building five liquefied natural gas export terminals in the U.S. — with more proposed. The surge in shale gas production has led to record stockpiles of the fuel domestically, and producers are looking for markets abroad to alleviate the glut.
 
“As exports increase, the spread between U.S. domestic prices and international benchmarks narrows,” according to the report. “In every case, greater LNG exports raise domestic prices and lower prices internationally. The majority of the price movement (in absolute terms) occurs in Asia.” Asia will benefit most as countries including China and India lack adequate domestic gas supplies and will depend increasingly on LNG imports, the report said.
 
Thailand looks to spend billions on gas pipelines, infrastructure
 
(Reuters; Dec. 25) - Thailand's biggest energy firm PTT plans to spend $8.2 billion over the next five years, mainly on building infrastructure such as natural gas pipelines, its chief executive said Dec. 25. The board approved the five-year investment plan, which does not include a budget for potential acquisitions, CEO Tevin Vongvanich said.
 
Domestic demand for energy is expected to increase by 2 percent next year, with Thai GDP growth seen at 3.7 percent next year, up from 2.8 to 3 percent this year, he said. PTT's core subsidiaries include PTT Exploration and Production, PTT Global Chemical and Thai Oil.
 
Thailand in 2014 produced enough natural gas — almost 1.5 trillion cubic feet — to cover about 80 percent of its demand. Most of its imports were delivered by pipeline from Myanmar, with some liquefied natural gas from Qatar and other suppliers. The country, however, is increasing its imports of LNG to meet growing demand.
 
Sinopec forecasts big jump in shale gas production
 
(Bloomberg; Dec. 28) - China Petrochemical, China’s second-biggest oil and gas producer, plans to double annual shale gas production capacity at its Fuling project in southwest China in the next two years to an average 1 billion cubic feet of gas per day. The Beijing-based company, known as Sinopec Group, has steadily produced about 500 million cubic feet of gas a day at the site for more than a month, it said Dec. 29.
 
The combined shale gas output from Sinopec Group and PetroChina, the country’s biggest oil and gas producer, may soon reach a steady 500 million cubic feet a day, though lagging behind China’s output target of about 630 million cubic feet a day, Bloomberg reported Dec. 9, citing people with direct knowledge of the matter. China consumes an average of 18 bcf of gas per day.
 
U.S. shale producers could handle $50 oil, but not $35 oil
 
(Bloomberg; Dec. 27) - In 2015, the fracking outfits that dot America’s oil-rich plains threw everything they had at $50-a-barrel crude. To cope with the 50 percent price plunge, they laid off thousands of roughnecks, focused their rigs on the biggest gushers only and used cutting-edge technology to squeeze all the oil they could out of every well. Those efforts, to the surprise of many observers, largely succeeded. As of this month, U.S. oil output remained within 4 percent of a 43-year high.
 
But oil is no longer at $50; it’s near $35. For an industry already pushing its cost-cutting to the limits, the new declines are devastating. Drillers are “not set up to survive oil in the $30s,” said R.T. Dukes, an analyst for Wood Mackenzie in Houston. The Energy Information Administration predicts that companies operating in U.S. shale formations willcut production by a record 570,000 barrels a day in 2016. That’s precisely the kind of capitulation that OPEC is seeking as it floods the world with oil to depress prices.
 
It’s a high-risk strategy, one whose success will ultimately hinge on whether shale drillers drop out before the financial pain within OPEC nations becomes too great. “You are going to see a pickup in bankruptcy filings, a pickup in distressed asset sales and a pickup in distressed debt exchanges,” said Jeff Jones, managing director at Blackhill Partners, a Dallas-based investment banking firm. “And $35 oil will clearly accelerate the distress.”
 
Worldwide overproduction creates uncertainty for oil prices
 
(Wall Street Journal; Dec. 29) - Surprisingly strong crude output in the U.S. and Mideast over the past year has pushed oil prices to their lowest levels in more than a decade. But for investors trying to determine if the oil market is close to bottom, the pace of production elsewhere in the world is a key source of uncertainty. Producers in Russia, Brazil and Norway pumped more oil in 2015 than the forecasters at the International Energy Agency and Energy Information Administration had projected.
 
Meanwhile, oil field investments made years ago when prices were higher are set to begin producing, even as exploration and drilling projects scheduled to bear fruit in the coming decades are being delayed or canceled outright. Investors’ increased focus on supplies from outside the U.S. and the Organization of the Petroleum Exporting Countries underlines uncertainty about the magnitude of a global oil glut that has erased more than 60 percent off the value of a barrel of oil in the past 18 months.
 
On the one hand, analysts say, low prices can cause oil wells to deplete more quickly, because companies spend less to maintain fields and enhance production from aging wells. On the other hand, producers have surprised investors in the past year with their ability to boost drilling efficiency and cut costs. Given the strength of production around the world in 2015, many investors say it’s unclear when the glut will start to recede. “We’re in untested waters,” said Judith Dwarkin, chief economist at RS Energy Group.
 
Saudi Arabia reduces energy subsidies to cut budget deficit
 
(Bloomberg; Dec. 28) - Confronting a drop in oil prices and mounting regional turmoil, Saudi Arabia has reduced energy subsidies in next year’s budget. Authorities have announced increases to the prices of fuel, electricity and water as part of a plan to restructure subsidies within five years. The government intends to cut spending next year and also gradually privatize some state-owned entities and introduce value-added taxation as well as a levy on tobacco.
 
The government said Dec. 28 it will raise gasoline to about 91 cents a gallon from 60 cents. In attempting to reduce its reliance on oil, the kingdom is seeking to put an end to the population’s dependence on government handouts, a move that political analysts had considered risky after the 2011 revolts that swept parts of the Mideast. The biggest shake-up of economic policy in recent history coincides with growing regional unrest, including the war in Yemen where a Saudi-led coalition is battling pro-Iranian rebels.
 
The collapse in oil prices has slashed government revenue, forcing officials to draw on reserves and issue bonds for the first time in nearly a decade. The government recorded a budget deficit of 367 billion riyals ($98 billion) in 2015. That’s about 16 percent of gross domestic product, according to the National Bank of Abu Dhabi.
 
Home prices fall in Alberta’s center of oil sands industry
 
(National Post; Canada; Dec. 27) - As a result of the collapse in global oil prices, there are fewer new oil sands projects planned for construction in the next few years around Fort McMurray, Alberta, fewer people working at existing projects and fewer homes selling in the once-booming city. By November, Canadian Real Estate Association data showed home prices in Fort McMurray had fallen more than 19 percent to about $519,000, while realtors, facing an absence of potential clients, were leaving town.
 
Forecasts don’t offer much hope that oil prices will rebound, either. One predicts prices will average no more than $40 to $45 a barrel next year — not enough to justify new oil sands developments. Another holds that “oil sands labor demand may never return to historical peaks.” But the city and region of 125,000 people have been through these boom-and-bust cycles before, and Mayor Melissa Blake thinks the region — the center of Canada’s oil sands industry — can manage through it.
 
“Friends and neighbors — and unfortunately, some former neighbors —  have all been affected by one of our toughest years in recent history,” Blake said during a state-of-the-region address. She said they will fight and “forge a new path toward prosperity” and expects to “see a pipeline or two approved – eventually.” The industry has been pushing for years for new pipeline capacity to move its production to market, particularly to coastal ports to allow exports. But environmental opposition has stymied those efforts.
 
Alberta oil patch waiting for answers in 2016
 
(Financial Post; Canada; Dec. 27) - There’s no rest for the weary. Canada’s oil and gas industry weathered one of its worst years in a generation, and there’s no guarantee it’s going to be any better in 2016 — especially if oil prices remain range-bound at their current level of $38 per barrel. But a number of developments are expected to unfold in 2016 that may determine prospects for the Canadian oil patch in the new year.
 
As soon as executives return to work in January, they will be greeted by a new report by the Alberta oil and gas royalty review panel. Industry fears that the expected provincial changes already have frozen investments in Alberta, especially as a carbon tax and new climate change polices have inserted uncertainty in the sector. In August, the government pledged the current royalty laws would remain in place to the end of 2016.
 
Barring any delays, in May the National Energy Board will release its recommendation on Kinder Morgan’s Trans Mountain pipeline expansion project to move more oil sands production from Alberta to a port on the B.C. coast. With TransCanada’s Keystone XL pipeline proposal nixed by the United States and little hope that Enbridge will build its Northern Gateway oil pipeline from Alberta to the B.C. coast, Trans Mountain is the industry’s big hope to reach global markets. The other hope is TransCanada’s Alberta-to-New-Brunswick Energy East oil pipeline, which the energy board will review in 2016.

 

 

 

A few odds and ends for our last note of the year. First, a few charts to put in perspective the notion that oil and gas prices are facing fairly great headwinds going into 2016 (not that anyone on the List needed the reminder, but the charts present the situation fairly dramatically.

(Note: our friend's charts are not included.)

The first two charts, on crude, note that there is a good chance that we have not yet hit a cycle low, and that interest rates are one of several hurdles over which higher oil prices (AND higher natural gas prices) need to jump. Another hurdle is the strong dollar (not show here, although we have done so recently). But interest rates and currencies have their own relations.

One thing to remember with respect to crude oil prices is that comparisons with the prior year quarter will be much less onerous in 2016 than they were last year.  Thus, from a psychological standpoint positive news will be easier to come by, going forward. This should also be true for the earnings of companies in the O&G sector.

We also included two stories to reflect some ancillary effects of depression in the Oil Patch.

  • The first story shows that, unlike other commodities, there is still a lot of money hanging around. This is reflected in the fact that the tanker business to ship (and store) crude oil is booming, while the dry tanker business for other commodities could scarcely be more depressed. The futures spread for January 2017 over January 2016 is $8.48 for Brent, which is thin, but possible given current low interest rates (funds on deposit in Europe cost money to sit there). We do not view either the strength of the oil tanker market (in part due to bargain hunting by China to add more strategic reserve storage) or the depressed dry index as being bullish for crude in 2016.
  • In the second story, the amount of taxes paid in a number of states will take a hit. Tax revenues which flowed in directly (severance and income taxes)  or indirectly (through payroll and spending) are being cut back significantly. Even a decent rise in commodity prices will do little to reinstate these losses. This is part of the headwind that offsets the supposed “tax cut” created by lower gasoline, heating, and power prices that we supposed to boost the economy. Here again, we do not see much changing for the positive with respect to this corner of fiscal revenue anytime soon

Happy New Year.


 

Our good biologist friend commented on yesterday's columns:

Thanks Dave,
 
Do you think that the volume of oil in TAPS is a critical point (in tandem with the low price of oil) for Alaska's fiscal woes?  I do.   Lately we only hear about the low price of oil, but wildlife obstructionism, onshore and offshore, has resulted in the steady decline of TAPS volume. 
 
It seems the state should  be focused on what it could  control: the volume of oil. 
 

In any event, have a good new year and keep up the good work.

(Comment:  Our friend is right and we have frequently emphasized the importance of improving state and federal policies that enhance TAPS throughput.  But column writers need to vary the message as time passes and there is not sufficient space in every column to address all of the important issue at stake.  And there are plenty!  -dh)


 

 

Categories:

12-30-15 Tomorrow is the eve of Alaska's great year of budget challenge

30 December 2015 11:58am

Tomorrow is the eve of Alaska's great year of budget challenge!

by

Dave Harbour

Our friends in Canada are not immune from fiscal challenges.  After all. spending too much may really boil down to 'human nature' issues that, to understand, require us to 'follow the flows of money and power'.  

Canada's leaders and

Rebecca Logan and a dedicated Alliance staff add perspective to Alaska's fiscal crisis.

Rebecca Logan, Ak-Headlamp, Alaska Headlamp, fiscal crisis, Alaska Support Industry Alliance, Photo Copyright Dave Harbour

 

 

 

 

Petroleum News.  No easy answer to Alaska's fiscal crisis.

environ- mental consti-tuencies are under-mining   eco-   nomic health   with 'Climate Change' policies;  attacks   on job   and wealth producing oil and gas pipeline projects; and, threatening continuing  productivity of oil sands work.  

Here is a Huffington Post update....  -dh


Friends:  Just be aware that Governor Bill Walker's faux hopes for a gas pipeline come too little and too late to help our pending fiscal crisis.  The government's equity position also requires the payment of operating subsidies at a time when the state itself is operating at a deficit.  (See the Journal's story.  We have concluded that Walker's unrealistic optimism for government ownership of an energy project seems to exceed his enthusiasm for making tough, fiscal crisis decisions.)

Furthermore, as we have oft reminded our readers, profits from equity ownership will be elusive whereas equity risk can result in more calamity for state budget planners.

-dh

In understanding Alaska's pending fiscal crisis, first review our commentary with links, earlier this week.

Second, note that in facing Alaska's huge economic challenge, Anchorage's pending municipal support for enviable union contracts sets a poor precedent.  The signal to all is that, "Alaskans are really not facing an economic crisis.  Ignore the doomsdayers.  Carry on with business as usual.  Our best days are ahead of us; spending restraint is unnecessary.  The fact that private sector non profit and for profit corporations are laying off employees, deferring raises and cutting work hours is not important; after all, the government costs and employee wages cannot be infringed."

Third, we have Alaska Headlamp's commentary this morning, thanks to Rebecca Logan (NGP Photo) and her Alliance staff.  We suggest that all Alaskans should be on high alert, watching for signs that in an election year public officials will:

  • ignore and try to kick the economic crisis can down the road (i.e. making crucial decisions even harder next year), or
  • courageously face the economic threat by taking action to first, cut expenses to the bone, before considering the imposition of more costs on the oil industry, our major creator of wealth--and other private sector sources.

Conclusion.  Based on Anchorage's union contract direction, we are less optimistic that wise leaders exist who will embrace workable solutions than we were a week ago.

Yes, our hope remains eternal.  We are encouraged by coalition efforts now underway to educate Alaskans about the high stakes involved and the need for action. 

Hard work by coalitions of dedicated Alaskans could lead to effective strategies for confronting Alaska's economic challenges.  

Rural Alaskans prizing their "subsistence lifestyle" are especially at risk by liberal tax and spending policies (i.e. created by elected officials of both parties) that have led to Alaska's epic, fiscal crisis.  After all, should modern rural education, health and transportation conveniences be lost, we could see migrations grow from rural to urban Alaska and Lower 48 destinations where the grass seems greener.   We hope our fellow citizens in rural Alaska are active in urban-led coalition efforts to undertake the hard but necessary decisions--which will require the adoption of many conservative principals that, heretofore, have not been widely embraced in much of the state's rural area.

We conclude by acknowledging that, hope and luck are not strategies to count on.  Only hard work, creativity, good planning, sacrifice and courage present the surest way to prevail over all epic challenges, including this one.

Yes, the next two days will be days of celebration.  But the celebration will only be looked back on if it led to heart felt resolutions of new behaviors.  Only new behaviors can produce new results that neutralize fiscal crisis.  Only new results and a robust new economy can produce a legacy worth passing on to new generations.

Wouldn't it be fulfilling if our kids celebrated our tough but successful decisions that removed our selfish debt burdens from their shoulders?  

Won't we question the value of our own lives and service if Alaska's economy continues its descent through malaise toward bankruptcy--with our support or acquiescence?

After all, "What can just one person do?"

*     *     *

(Question: What if veterans of our foreign and domestic wars had embraced the alibi of, "What can just one person do?")


 

Yesterday the state Department of Transportation had this to say about pending budget cuts:

“According to DOT spokesperson Jill Reese, the DOT could lose six snowplow and sand-truck drivers in the Turnagain Arm and Kenai Peninsula areas as a result of the maintenance budget reductions proposed in the governor’s fiscal plan for 2017.

The proposed cuts also include a reduction in overtime for remaining winter equipment operators as well 46 pieces of the department’s equipment fleet and purchases of maintenance supplies such as guardrails and equipment grader blades.”

So – would you rather see the state travel budget increase by millions of dollars, as proposed in the Governor’s budget, or preserve funding that allows us to maintain safe roads?

 

Categories:

12-28-15 Tax Policy, Spending Policy, Oil Policy and Gas Pipeline Policy Are All Related!

28 December 2015 2:44pm

Northern Gas Pipeline Readers Join Us In Commenting On Current State of Affairs

Bill Walker, Alaska Governor, bankruptcy, insolvent, state subsidy, tough times, 49th State, Photo by Dave Harbour

From a liberal friend, and our reply.  
Mark Neuman, Finance Co Chairman, Alaska Legislature, government spending, Photo by Dave HarbourPetroleum News.   House Finance Co-Chair Mark Neuman (NGP Photo) says if Gov. Bill Walker wants to generate new revenue, part of that solution needs to be removing regulations that could stifle {More....}

From Ak-Headlamp: 

The New York Times covered Alaska’s ongoing fiscal woes as oil prices continue to fall.

... although other resource-based economies are also seeing the long-term impact of declining oil prices, Alaska’s situation is unique as Governor Bill Walker (NGP Photo) must address new taxes and Permanent Fund issues as well.

While the [More…]

Hi Dave:

As you know, I have a poor opinion of politicians. They really only have one issue, ”re-election”.  

This then brings us to this year and the giant problem they face. Will they act in the best interest of the state or the best interest of themselves?

For that matter, what is the best interest for the State? The spectacle of taxing our citizens while paying them dividends is to me, incomprehensible.

The obvious solution is to use the permanent fund earnings for which they were intended, to fund state government, but eliminating the dividend  could be sure death for some politicians.

My prediction, for what it’s worth, is that they will do little more than talk, putting off any decision for as long as they can while hoping for a re-bound in oil prices. It’s going to be an interesting session.

Best regards and wishing you a Merry Christmas and happy new year.

Neil Bergt, Homer, Ak

Our Commentary:  Alaska faces formidable challenges.  

Its oil production is a quarter of what it was a quarter century ago.  

The state operating depends on oil for 90% of its operating budget and the entire economy is a third dependent on fossil fuel wealth production.  

Alaska's rate of spending is unrestrained by both logic and the reality of constituent demands for more spending, more money.  

Alaska subsidizes its lavish spending with available savings accounts (i.e. not including the constitutionally protected Permanent Fund) to the tune of $3.5-4 billion a year.  Those available savings accounts will be depleted within two years.  Thus, the legislative session beginning in January will be on of the most critical ever: with the pressures to spend facing the pressures of an insolvent government.

Government insolubility may not happen for another few years, assuming current spending practice, but -- note this -- the upcoming 2016 election will come sooner.  Will voters support those who support their spending requests?  Or, will voters support those who cut funding of their spending requests?  

Place your bets now; the cards will be turned up and revealed this next November.  -dh

From a liberal friend, and our reply:

Merry Christmas, Dave!

It now looks like oil will never recover quickly enough to save Alaska from financial hardship.  The more oil that moves through the pipe, the lower the price will be, so that won’t save us or the oil companies.  Barring some disruption in some other country that sends the market higher on the world stage, oil will probably languish at about where it is now: not high enough for anybody.  Oil companies will have a tough time with those places that cost a lot to drill (like Alaska) and shale oil looks doomed.

Our note: In the reply below, we did not comment much on the content of our friend's opinion since we have answered similar emails from him over the past few years.

We would note, however, that:

  • Higher past taxes, based on Alaska's history, would have produced higher entitlement spending, not a "bigger cushion".
  • Shifting tax gun sights on the mining, timber and fisheries industries, as my friend wishes would produce very little tax.  More tourist tax will produce fewer jobs and taxes.  What more tax would produce would be at the expense of jobs and economic wealth production in industries that are much more "people intensive" than is the "capital intensive" oil industry.
  • Liberal federal policies have already decimated Alaska's forest industry.
  • Sales taxes are the fairest taxes, but become predatory when combined with a plethora of other taxes and fees -- and little spending reform.
  • Suggest anyone who wants to sell California glaciers first get federal and environmental activist approvals before wasting the time and money.'
  • As to raising and selling cariboy and moose: same answer as the above...but add the Paris Climate Change objections to greenhouse gasses produced by flatulent herbivores.

In short, the legislature has no easy solutions, but clearly a major one is cutting the cost of spending!    -dh

So, what we should have been doing is taxing the hell out of oil when it was high so we would have a bigger cushion to fall back on.

Maybe you should begin shifting your newsletter now to the mining, timber and fisheries industries as Alaska will now have to look to them as the next cash-cow.  Cutting the state budget to the bone will only cause people to leave and you remember what happened when they did that back in the late 1980s!  We have to tax the resources or ourselves and we don’t seem to have the guts to tax ourselves.

Allan

PS.  What about these ideas, Dave:

1.     10% tax on tourists purchases.

2.     Sales tax in the summer only with rebates to Alaskans who actually live here.

3.     Eliminate the Permanent Fund altogether and call the rebate from #2 above “your dividend”.

4.     Sell the water from the melting glaciers to California before they melt anyway!

5.     Start state run moose and caribou farms and sell the meat to the lower 48 as “certified Alaska Wild”!

Merry Christmas to you, A......., and your dear ones.
 
I don't ask that you love the wealth makers among us.  
I only pray that the new year finds us all grateful for our comfortable lifestyles and aware of both their temporal and eternal origins and of their ultimate ends.
 
I further hope that we and our fellow citizens will  come to fully appreciate the timeless value of honesty and fair dealing: that Alaska should become the place where "a deal is a deal",  devoid of hostility and infused with good will toward all.
 
A stable, reputable state provides a predictable investment climate that begets yet more investor interest.  Such a place does not demonize those with whom it bargains.  
 
And may you find peace in your relationship with your Maker through His Son -- and the Holy Spirit He sends to sustain, direct, and protect us as we edge closer to the portal of eternity.
 
Thus, you have my prayer and wish for calmness and peace in your life.
 
Dave
 
P.S.  We did "tax the hell" out of oil investors and are about to do it to other industries to compensate for intemperate spending practices.  
 
We changed/increased oil taxes about 20 times after investments were made.  We created discriminatory taxes and even made some tax increases retroactive.  
 
The approach you advocate is well established in the 49th State and is one of the reasons we are where we are today.  You, I and our kids have both taught and studied in Alaska's lavish halls of education, made possible by men and women who supported our culture as they took multi billion dollar risks that we would live up to our bargained commitments and that they would find and market something that would produce returns both on and of their investments.  
 
That said, I realize how hollow this logic may seem if one is wedded to the notion that Alaska's government should own the means, manner and all location of natural resource production.  In that case, one would be advocating for socialism, a "fundamental change" in our system.  And that would require a different, "ends justify means", logic which I find abhorrent, and a harbinger of worse economies to come -- as socialist government throughout the ages have shown us.
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12-22-15 Wise Counsel from "Keep Alaska Competitive"

22 December 2015 8:04am

Wise Counsel from "Keep Alaska Competitive" (Caelus, et. al.)

Larry Persilyt, LNG, gas pipeline, Alaska, Federal Coordinator, Photo by dave HarbourLow LNG and oil prices threaten LNG projects and Alaska's economy....  dh

Alan Bailey, Petroleum News, Dave Harbour PhotoPetroleum News by Alan Bailey (NGP Photo).  

As oil prices tumble and with them the potential solvency of the state of Alaska's finances, a heated debate is emerging over both the extent of the problem and the means of putting the state's fiscal position back onto an even keel.

On Dec. 7, during Law Seminars International's Energy in Alaska c....

APRN by Rachael Waldholz.  This month, the state committed to another year of work on the Alaska LNG project. That’s the effort to bring natural gas from the North Slope to the Kenai Peninsula for export.

But natural gas prices have been plunging along with oil. In the Asian spot market, gas is selling for a third of what it did two years ago.

Should Alaska be worried Larry Persily (NGP Photo) says it’s true: the global market for natural gas is not so good right now.

“It’s wretched, it’s miserable, it’s lousy, it stinks,” he said. “There’s way more gas than there is demand…it’s like oil!”  Read more and play audio of interview....


Wise Counsel from "Keep Alaska Competitive"

More good news from Alaskanomics: a still stable unemployment rate.  

But, will it be sustained through the winter and the coming year?  

Part of the answer lies in how government policy faces the challenge of shortage: will government recognize its self-imposed reliance on oil to fund 90% of the operating budget and make appropriate operating budget cuts in wake of low oil prices.  

Or, will government avoid cutting its own operations and instead punish a struggling oil industry and private enterprises with new and/or increased taxes and fees that inhibit future investment?          

-dh

Despite challenging times, Alaska’s oil and gas industry is making significant investments in the state.

According to the Alaska Division of Oil and Gas, the industry spent $7 billion on North Slope assets in 2014. And in a climate of sub-$40 per-barrel oil, the state has seen far fewer capital and operating spending reductions than almost anywhere else in the world.      

ConocoPhillips announced that it would be cutting its Alaska capital spending by just 5 percent in 2016, compared to 15-30 percent cuts the company is making in other operations around the world. ConocoPhillips completed its CD-5 project and began producing the first oil from the National Petroleum Reserve-Alaska in the fall (see video below). The company also has plans to begin producing up to 30,000 barrels per day from another NPR-A field, the greater Moose’s Tooth unit, by 2018.

ExxonMobil continues to bring online the Point Thomson gas field west of Prudhoe Bay (see story below), and new, smaller players in Alaska’s oil patch, like Hilcorp, are investing in new projects (Liberty) and older fields on the North Slope.

Cook Inlet is also seeing renewed interest. Both Hilcorp and Furie Operations Alaska are investing heavily in reinvigorating legacy fields and exploring for new deposits. Furie announced it is bringing a jack-up rig to Alaska to begin drilling in its offshore Kitchen Lights unit. Since November, Furie has increased natural gas production from the unit from 2 million to 9 million cubic feet-per-day.

Casey Sullivan, Caleus Energy, Alaska North Slope, Alliance, Photo by Dave HarbourCaleus Energy’s plans for its $1.2 billion Nuna project depend largely on current state oil and gas tax credits. Nuna is located in the Oooguruk field, several miles offshore in the Beaufort Sea. Casey Sullivan, Caleus’s external affairs manager, told the Resource Development Council that the project could ultimately bring the state more than $1.2 billion in royalties and taxes over the lifespan of the project. He urged lawmakers in Juneau and the governor’s office to be careful making changes to the tax credit system as they look to find ways to fill a growing $3.5 billion state budget hole.

“This isn’t free money. We spend money in the economy, and no industry has a greater job-multiplier effect than oil and gas — about 9 to 1, meaning for every one job in the industry, nine other jobs are created indirectly by the spending,” Sullivan said.

 

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12-18-15 Alaska Gasline Development Corporation Leadership Changes

18 December 2015 4:18pm

(Scroll down or click here for yesterday's 12-17-15 editorial)

ADN by Nathaniel Herz.  ... the board of the Alaska Gasline Development Corp. made its acting chair, Dave Cruz, the permanent chair, with Hugh Short named vice chair.  The board also unanimously approved the appointment of Fritz Krusen, who was previously a vice president at the corporation, as interim president....


Bill Walker, Alaska Governor, Cook Inlet gas, LNG, Japan, Photo by Dave HarbourCourthouse News.  Alaska Gov. Bill Walker (NGP Photo) said Thursday his state extended its cooperation agreement with Japan-based consortium Resources Energy to develop natural gas fields in Cook Inlet.
     The state signed the original memorandum of agreement in September 2014. The extension with the Japanese consortium runs through 2017 and encourages the development of Cook Inlet natural gas ....

ADN by Pat Forgey.  Communities along the route of the pipeline from Prudhoe Bay to a liquefied natural gas export terminal at Nikiski have spent the fall negotiating with the state and other communities about how to divide up the estimated $15.7 billion in property tax revenues the project will produce over 25 years. The state has proposed a payment-in-lieu-of-taxes structure, hoping to avoid the contentious history of the trans-Alaska oil pipeline, and its associated lawsuits.


Julie Hasquet, BP Exploration Alaska, Photo by Dave Harbour, 2015 Alaska Hire ReportOur friend, Julie Hasquet (NGP Photo) at BP Exploration (Alaska) advises us that BP’s 2015 Alaska Hire report is out with some interesting stories and statistics.

"You’ll see that our Alaska Hire rate remains strong at 79 percent," she noted, "and our spending with Alaska companies is an impressive 72 percent  of total in-state spending - supporting 300 vendors."

She said that the company publishes Alaska Hire each year focusing on education, training and mentoring programs; designed to create more jobs for Alaskans in the oil and gas industry.

"In addition to the stories, spending and hiring data, there are also a number of great photos showing our BP Alaska business and people.

"A PDF of the publication is attached," she added, "and you can also find it on-line at  http://www.bp.com/en_us/bp-us/what-we-do/exploration-and-production/alaska.html."

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