|See Consumer Energy Alliance's Friday Energy News Links, here.|
ALERT - ALERT: Anchorage readers should PLEASE attend Bureau of Ocean Energy Management (BOEM) meeting on Monday. We hope that the Governor's Office and Legislators are represented--since the subject pertains to keeping the Trans Alaska Pipeline System (TAPS) viable AND assuring the sustainability of South Central Alaska gas supplies! Details here.
|As Russia moves to cut Ukrainian gas supply, we wonder why the U.S. does not come smartly to the rescue with energy and weapons supplies! -dh|
We urge our gentle readers to review Wednesday's posting; we cannot remember -- in well over a decade -- posting a more useful, relevant and actionable commentary for our Alaskan, Canadian and Lower 48 readers. -dh
by Mark Edwards, Alaskanomics.
Posted: 26 Feb 2015 11:40 AM PST
In Part I, I outlined the background of Alaska's economy in relation to the price of oil and how the current price is affecting the economy. Today, I will show the root causes for the recent decline and will wrap up on Friday with the reasons we should be optimistic for the future.
What are some of the major root causes of the recent price decline?
Our agency has a public scoping meeting in Anchorage Monday night. Rather than glaze your eyes with a bunch of jargon I thought I would just try to really clearly lay out what it is about.
1. The Bureau of Ocean Energy Management (BOEM) is responsible for managing oil and gas resources on the Outer Continental Shelf.
2. As part of that, BOEM is required to develop a five-year schedule of lease sales designed to best meet national energy needs.
3. BOEM has started developing this plan for the years 2017-2022. A DRAFT of the plan is available here: http://www.boem.gov/2017-2022-DPP/ [PDF]. This draft proposes holding three lease sales off the coast of Alaska -- one each in the Beaufort, the Chukchi, and Cook Inlet.
4. BOEM now needs to prepare an Environmental Impact Statement (EIS) to analyze the potential environmental impact of the draft plan.
5. On Monday, March 2, from 3 p.m. to 7 p.m. at the Anchorage Marriott Downtown Hotel, BOEM will hold a public scoping meeting to get public input as to what the scope of this EIS should be.
In other words, agency analysts are looking for input like:
* "When you prepare the EIS, be sure to take a close look at the impact on species X"
* "In the draft plan, we see that such-and-such an area would be open to leasing. Be aware that part of that area is an important subsistence use area for local residents"
* "I believe that areas [A,B and C] should be removed from consideration for exploration, for the following reasons..."
Everyone is invited! We hope to get a good mix of input from environmental groups, industry Alaska Native organizations, etc.
Much more information about this is available at: http://boemoceaninfo.com/
Thanks! And, of course, I am happy to answer any questions about this you may have.
BOEM Public Affairs
Alaska OCS Region
The federal government would like your input. Regulators are writing an environmental impact statement to look at the potential impacts of future offshore oil exploration. On Monday, from 3 to 7 pm, they will host a public meeting at the Marriott Hotel in Anchorage. Everyone is invited. More information is available at: boemoceaninfo.com [B-O-E-M ocean info dot com]
Today's weekend energy links from Consumer Energy Alliance:
What's next for Keystone XL?
|We urge our gentle readers to review yesterday's posting; we cannot remember -- in well over a decade -- posting a more useful, relevant and actionable commentary for our Alaskan, Canadian and Lower 48 readers. -dh|
Alaskanomics by Mark Edwards.
Over the next couple of days, I will post a three part series about the current oil price environment in Alaska.
It is well known that Alaska’s economy is highly sensitive to the price of oil. Billions of dollars in investment capital flow into the state each year as energy companies both explore for new oil and maintain their existing fields. This activity has an enormous positive multiplier effect on the rest of the economy as major service industries including trucking, construction, finance, legal, engineering, retail and countless others see a direct benefit from the contracts and employment required to support this massive effort. Read more....
We Are Optimistic That Good Intent Will Win The Day Over Daunting Challenges!
A tale of two pipelines and two chief executives: President Barack Obama and Governor Bill Walker
Dave Harbour (Note: By Friday more links, references and other minor modifications will be added for archive purposes.)
We must be optimistic! After all, who wants to even contemplate the bankruptcy of Alaska or the destruction of America's way of life?
So in our Churchillian way, we will never, never, never, give in to pessimism and will fight to the bitter end…and overcome!
In doing so, like in actual war, we must count on our countrymen, the ones on either side of us sharing wet foxholes and stale food; the ones who watch as we sleep, with whom we share intimacies; the ones who would defend us then die or watch us die before each other’s eyes...and, the ones we have chosen to lead us.
So as Alaska strains to regain a sustainable economy, we believe that the best intent of our leader and his actions will pave the way to happy days again.
And we can see a brighter future ahead for the United States as we and our fellow countrymen feel our way through the morass of: anti-energy rhetoric, stifling regulations, oppressive taxation, wildly expensive litigation at every turn, unpayable debt, coffers filled with fiat currency, diminished morals, a flatulent economy buoyed up on false assumptions and its declining military capability.
Our Alaska leader is a charismatic speaker and compelling character. He was born in the state, is of humble and self-made background. He is a survivor of the 1964 earthquake and Valdez Tsunami and successful attorney. No one can doubt his singular focus on producing income for his family while following a lifetime dream to create a (Preferably government controlled) gas pipeline and LNG export project. Readers might research the history of Organization for the Management of Alaska’s Resources (i.e. OMAR) and the Alaska Gasline Port Authority (Dubbed the “All Alaska Gas Pipeline”). Walker’s history cannot be distinguished from the development of these organizations: cloaked in patriotic “all Alaska”, sometimes anti-Canadian, often anti-producer terminology, proudly plodding a path independent of the traditional business community, political parties and natural resource investors.
Governor Bill Walker speaks of Alaska as an "Owner State", hearkening back to Governor Walter J. Hickel's (NGP Photo) terminology. We are convinced along with a majority of Alaskans that these two men have both had the state's best interest in mind. Others reasonably think of "Owner State" as a socialist concept involving control from the top elite, redistribution of wealth, big government, high business taxes, and hostility to business owners (i.e. bourgeoisie).
To those doubting his intent, the newly elected governor famously said in one of his first public speeches to a business gathering, as governor-elect, “I am not your enemy”. He added, somewhat reassuringly, “You can’t be anything but pro-oil development in this state to be a successful governor in this state.” We do see the point that while some may view the “state” (i.e. however that is defined) as the primary beneficiary of public policy, others might be concerned that “freedom of the citizens” should be the highest public policy priority—and not secondary to the “state”.
Governor Walker seems to be a man of intuition. He acts on what he believes at the time out of good intent: to lead an Owner State. This quality of flexibility led him to first file for public office as a republican, then gather a large democrat constituency by switching to an independent affiliation. It was a crafty move that won him the governor’s office. Walker had much of his original republican support base plus new, liberal voters who liked his pro-oil tax rhetoric, pro-government ownership theme, pro-social program expansion (i.e. Medicaid).
He campaigned on cutting the state’s budget to a sustainable level, but facing the realities of office promoted only modest cuts to the Legislature. As a campaigner, he generally supported the larger AK-LNG project involving the state, producers and TransCanada while opposing a smaller, Alaska Gasline Development Corporation (AGDC) alternative created by the Legislature and supported by Governor Parnell. Once in office, he replaced highly experienced AGDC board members with inexperienced citizens saying that their major qualification for service was that they were, “Alaskans”. He then proceeded to switch his support, proposing a strengthening of the 100% government owned AGDC alternative as a competitor of the joint AKLNG project consortium which included the state.
We would note that while Walker qualified his inexperienced gas pipeline board appointees by dubbing them, “Alaskans”, he might also have said the same of himself.
With his youthful experience as Mayor of Valdez and most of his legal career devoted to promoting an “All Alaska” gas pipeline, it could be said that his major qualification for leading thousands of state employees, governing wisely, representing Alaska to the world, negotiating in good faith with lawmakers and investors alike, is that he, too, is “an Alaskan”--
We have also written fairly extensively about a government controlled effort to finance and build for the community of Fairbanks a natural gas utility supplied by LNG from the Alaska North Slope. During the campaign, Walker opposed the project of the previous administration. At about the time of the election, the major contractor reported that the scheme to bring LNG from the North Slope via LNG trucks to be regasified and injected into a to-be-constructed, Fairbanks gas distribution system was uneconomic.
After he was elected, the government agency responsible for developing the failed Fairbanks LNG project, announced that, “In conjunction with Governor Bill Walker…,” the Fairbanks LNG project would be refashioned into another Fairbanks LNG project, this time obtaining its gas source from the Cook Inlet area. No one explained why using the Agency (i.e. Alaska Industrial Development and Export Authority “AIDEA”) that created a failed Alaska North Slope LNG project for Fairbanks would be successful in designing and constructing a feasible Cook Inlet LNG project serving Fairbanks. Neither AIDEA nor the Regulatory Commission of Alaska, to our knowledge, has considered the potential negative impact a Fairbanks LNG project would have on Anchorage natural gas consumers as competitive demand for the limited Cook Inlet gas supply will undoubtedly lead to higher Cook Inlet gas prices.
Earlier this week, we wrote that while we wished the new governor well we, “….hoped there was not a screw loose somewhere.”
On the bright side, we can see how dogged determination and flexibility led Bill Walker to the governor’s office. On the other side, we could be concerned about the wisdom of his decisions affecting the future of both the big Alaska LNG export project and the government coordinated Fairbanks gas utility experiment.
Here, Walker seems determined to have the government-owned AGDC project control the destiny of Alaska North Slope gas. Over there, he seems determined to have the power of government force feed the economics of a small, interior Alaska city gas utility. Between the two efforts, billions of dollars are at stake along with the economic health and future of the state.
These scenarios are playing out at a time when Alaska is the highest per capita spending state in the nation and the highest per capita debtor state in the nation. One might say, “Well, but Alaska has few people and a lot of territory to cover.”
That excuse for high per capita metrics might be convincing when there is plenty of money. But Alaska’s operating budget is 90% dependent on declining Prudhoe Bay oil production as is over a third of the state’s entire economy. Even with high oil prices last year (i.e. Over $100/bbl), the state was balancing deficit spending from its savings accounts. The low oil price environment now finds the state’s savings, this coming summer, to be in the $9 billion range whereas its Alaska state employee retirement account has an unfunded liability of almost $10 billion.
The governor’s campaign focus on cutting operating budget spending to a sustainable $5.2 billion has faded and the majority of legislators seem unwilling to become the champions of spending restraint—even as the fiscal cliff approaches. We regard this lack of leadership to flow from moral weakness: fear of loss of future legislative leadership positions, popularity, support, elections.
Yet, we must remain optimistic that out of a republican led house and senate there will arise true leaders, true diplomats, true patriots who will work with (or, against) the Governor to create a sustainable spending plan—no matter the political or personal fallout!
The low oil prices have also put a squeeze on oil production. Naturally, oil companies worldwide are spending less on capital projects with oil at $50/bbl than they were when it was twice as valuable. That phenomenon will exacerbate the drop in Alaska revenue from taxes and royalties over time, hastening Alaska’s coming day of fiscal reckoning.
We are left with no choice but to be optimistic. Yes, we are realistic and understand the challenges. But a majority of Alaskans elected Bill Walker to lead them out of the wilderness of insolvency to a new day of prosperity.
We must be optimistic that our “All Alaska” governor has the insight, courage, wisdom and grace to be both humbled at the challenges he faces and capable enough to overcome them. We are also optimistic that Walker’s propensity to be flexible will enable him to reverse course if he sees the ship of state headed toward rocky shoals.
Just as we are optimistic about the good intent of Alaska’s leadership to overcome daunting challenge, so are we optimistic that the citizens of the United States can overcome the debilitating policies and actions of the person they elected as their president, twice.
Some say that the lawyer, professor, politician, community organizer who became President of the United States is incompetent. On the contrary, we have followed his administration closely and believe him to be highly competent in achieving his goals.
When he first ran for office, he promised to engage in “Fundamentally transforming the United States of America”. We believe that none of his armies of excited supporters ever asked, "transform into what"? A campaign slogan was, “Change we need”. What kind of change? To his constituency, these were powerful, emotional draws, though ill defined, similar to Governor Walker’s reliance on “All Alaska” themes. Obama also admitted that his plan would cause utility rates to “Skyrocket” but we think most of his constituency may have felt shielded from those by 'LiHeap' and other federal subsidies.
Killing the Keystone XL Pipeline project is a good, contemporary example of "redistribution of prosperity."
This project was supported by a majority of citizens. It had regulatory support from the Obama State Department, since it would cross international boundaries. It also had support from a few but not all unions.
And, it had the dedicated opposition of the entire, North American environmental community.
Killing Keystone meant killing 40k free enterprise jobs while creating six years worth of enormous fundraising cash flows for coffers of environmental activists.
In past years, the State Department professionals would have a legal record that supported approval and that would have been that: it was, simply, in the public interest.
But this administration's strategy of "prosperity redistribution" left no room for a public interest decision.
This is why the current administration is also presiding over the corruption of America's traditional reliance on an even handed rule of law!
Since taking office, virtually every White House action has been carefully engineered to “redistribute prosperity” for political gain.
The Administration has designed its programs to create prosperity for those supporting a big government, liberal regime and to pull the floor out from under those depending on private sector employment.
This is not incompetence. It is a highly competent operation designed to increase wellbeing -- and numbers-- of political supporters and undermine the wellbeing -- and numbers -- of political opponents.
The President has faithfully executed his campaign promise of, “Fundamentally transforming the United States of America”.
Today, we think it might be difficult to impossible, for even the White House's most fervent supporters, to discover more than a couple of major White House initiatives which have actually been designed to support traditional American values, culture, and the rule of law.
Following are a few examples of the harmful changes to America’s values, customs and even the rule of law in support of the “redistribution of prosperity” strategy described above:
- Energy and Environment
- White House failure to approve Keystone XL pipeline in spite of overwhelming public support, greater energy independence, tens of thousands of private jobs, a positive environmental report from the State Department, improved relations with America’s largest trading partner, Canada.
- Refusing to negotiate a favorable outcome and being 100% inflexible concerning the Keystone XL and other energy projects while negotiating weak US positions and outcomes against Russian imperialism, Islamic Terrorists and countries supporting them.
- EPA acting unconstitutionally, to preemptively disapprove an Alaska mining project being planned on Alaska state leased lands before the project had completed a mining plan or filed for even one mining permit with state or federal agencies.
- USFWS acting with the White House to, de facto, apply wilderness status to ANWR’s 1002 area, designated by Congress for potential oil and gas exploration, without an act of Congress (i.e. violation of ‘no more’ clause of ANILCA).
- BLM acting with White House support to restrict half of the Nation’s petroleum reserve in Alaska from petroleum exploration and development.
- Corps of Engineers and EPA acting to block ConocoPhillips from reasonable infrastructure development in accessible portions of NPR-A.
- Federal Government failing for decades to clean up federal government oil spills created by its own operations in the NPR-A…then demanding special funding from Congress to clean up messes as it should have done decades earlier.
- Unrestrained and unreasonable application of the ESA throughout the western United States primarily aimed at blocking energy projects.
- Creating a ‘war on coal’ which six years ago provided 40% of the nation’s electricity and the lowest cost electricity for American consumers.
- BOEM and many other agencies providing ‘community outreach’ and other support to the White House’s Ocean Policy Task Force, thus unlawfully using money designated by Congress for one purpose to another purpose not approved by Congress.
- Designating Critical Habitats under the ESA when species were not ‘endangered’ and whose populations were increasing (i.e. Steller Sea Lions and Polar Bear)
- Using the EPA’s flimsy application of the CAA to stop Shell’s Arctic exploration of lawful, Federal leases
- Sending EPA armed storm troopers into interior Alaska to look for non-existent CWA violations in mining camps
- Using the Corps of Engineers to forward White House environmental agenda in conjunction with the EPA in on-shore areas (i.e. CD-5, Yukon River Bridge, etc.), rather than providing citizens with simple, agenda-free access to due process.
- National defense
- Using the U.S. Coast Guard to forward White House environmental agenda in Alaska’s waters when other Arctic nations are using their military forces to expand and protect Arctic jurisdiction for an area containing 20% of the world’s remaining oil and gas reserves.
- Creating false ultimatums (i.e. red lines) for Syria and for Iran’s nuclear programs while ignoring the cries of mercy from Christians and other minorities under attack by ISIS.
- Disrespecting White House military aids
- Culling the ranks of loyal Generals and Flag Officers
- Denying Purple Hearts for those killed or injured on base by Islamic terrorism
- Giving aid and comfort to the enemy (Article III, Sec. 3, U.S. Constitution):
- Engaging in treacherous and one sided terrorist prisoner exchanges resulting in unjustifiable release of some of "the worst of the worst".
- Giving citizen rights to incarcerated terrorists
- Publicly announcing plans for military operations
- Publicly announcing plans for retreat from Iraq and Afghanistan
- Releasing some of "the worst of the worst" terrorist detainees by executive fiat when the administration expects at least 30% to return to the battlefield, seeking to kill Americans and their allies.
- Threatening the Ukraine’s destruction by failing to provide military aid or energy support to the NATO candidate.
- “Fundamentally transforming the Internet” by having the FCC promulgate rules in secret to create government controls over that traditional, ubiquitous medium of free expression. (We appreciate the courage of our friend, Democrat FCC Commissioner Mignon Clyburn (NGP Photo), who has second thoughts and could be the swing vote on this massive overreach orchestrated in large part by an overreaching White House. The five commissioners vote tomorrow.)
- IRS targeting of opposition, not-for-profit groups
- Federal monitoring of AP
- Federal targeting of Fox News
- AG dropping charges against voter intimidation by black terrorist group
- Federal non-enforcement of immigration laws
- Irresponsible release of thousands of detained and incarcerated illegal aliens, a significant number of whom are convicted murderers, rapists or felons in general.
- Irresponsible seeding of illegal aliens, including children, into cities throughout America without regard to educational, social, financial or communicable disease impacts on citizens.
- Stimulus spending projects designed to funnel hundreds of billions of dollars into the coffers of the administration’s corporate and labor supporters
- Unrestrained and unsustainable spending
- Devaluation of U.S. currency over time (i.e. although in a world of QE, the dollar is the best of the worst currencies, for a time at least)
- Continual stimulation of racial unrest in black communities by the AG and the President (i.e. Sharpton’s dozens of White House visits.)
- Transformation of College Loan Program from private sector management to federal bureaucratic management.
We could go on and on. And, we suspect our faithful readers could as well.
However, we now wish to end on our optimistic note: that the pent up power of freedom, of the determination of America’s people to ‘do or die’ will overcome a breathtakingly competent socialist takeover of America’s government, culture and political structure.
Since optimism leads to action which leads to success, we also encourage our dear readers to carefully consider the old analogy. The frog put in a pan of cold water does not realize he is cooked while the water temperature is slowly increased to boiling. America is entering the boiling stage now. Will citizens even realize the change that has enveloped their constitutional republic?
Or will complacency lead to inaction, acceptance and a slow but sure end to our way of life?
We are optimistically betting that, soon enough, our collective psyche will awaken both to Alaska’s daunting challenges…and the duty to recapture America’s values, culture and rule of law traditions.
TransCanada's Keystone XL:
Our Northern Gas Pipeline (NGP) friends will want to tune in today to Alaska legislative video conferences dealing with
1) AIDEA financing of an Interior Energy Project (10:15 ADT), and
2) Hilcorp discussing Cook Inlet gas/North Slope projects and operations (12 Noon, ADT)
Letter from a reader: Dave: Thank you very much for having provided the opportunity to present to the public the example of injustice that the Orange Hill Taking exposes. Your description of the “War On Alaska’s Future” is excellent. More here (2-24-15)....
Yesterday, we opined that, We continue to wish Alaska's new governor well, but hope there's not a screw loose somewhere....
Today we decided to further refine the story and that will take us another day.
In preparing to critique it, we urge our gentle readers to review yesterday's references and to those we add two more today:
1. Please review our earlier commentary, "It's Our Oil And We Are Sovereign, By Golly!"
2. One of our most astute readers is a natural resource investor from Down Under--not associated with the large Alaskan producing companies.
Being a private, individual investor interested in Alaska and being a firm believer in "due diligence" he has rigorously analyzed Alaska as an "investment climate" for several years.
Last night, our friend penned his own commentary (right hand column) which we appreciate his having shared with us.
His unsolicited, personal views may reflect a number of sophisticated investor views everywhere.
We hope that by honestly and publicly discussing these matters Alaska's new governor may yet become successful and and that the state can avoid any critical, politically caused, train wrecks. -d
A commentary written by our Australian investor friend to his friends and colleagues in Alaska (Please read in conjunction with our 3-1-12 commentary):
I was minded to put fingers-to-keyboard by your Governor’s recent comments on the Alaska LNG and Alaska Gasline Development Corporation projects (AKLNG and AGDC, Aka., ASAP).
They sounded very much like one hears all the time in developing nations: “We are the owners, blah, blah, blah."
Of course, he misses the point here: the State is the freehold owner but it has leased its rights to extract to others on a long term basis, sufficient for those others to book reserves and contingent resources in connection with those extraction rights.
In developing nations it is often easy to understand the motivations of the political leaders who say such things.
Their statements are usually a combination of not being well educated in international commercial and legal matters (and who can blame them) and because they see an opportunity to personally profit from a State’s resources.
I would strongly presume neither motivation applies to Walker, who no doubt is merely (i.e. in his own mind) undertaking a minor political tactical play in connection with appointees to AGDC, etc.
However, does he not realize that LNG projects compete on a global basis and although AKLNG has leapt up the league tables over the last 18 months, its chances of achieving FID are reduced by playing petty politics? (See our commentary on LNG global competition: 1, 2, 3 -dh).
It is of course a complete joke to think that the State of Alaska could by itself somehow “procure” (expropriate?) gas from the Producers and then sole fund, build and market its own LNG project. That's the sort of thing the Government of Mozambique might say.
Anyway, I expect the Producers to just sigh and get on with things - with however another minor reservation in the back of their minds.
(Signed by our Australian friend....)
ADN Commentary by Tim Bradner (NGP Photo). It’s been months since Alaskans voted to retain the new oil production tax system, but we still hear grumbling that this was a big giveaway to industry.
Time to pound a stake into this zombie.
Bloomberg by Jeremy Van Loon. Alberta is in discussions with Alaska about shipping oil-sands crude through the U.S. state to the Pacific as approval for the southbound Keystone XL pipeline languishes in Washington.
The Alaska plan would involve constructing a pipeline along the Mackenzie River valley and then west to existing ports on the U.S. coast, Alberta Premier Jim Prentice said Friday in an interview at Bloomberg’s headquarters in New York. Alaskan ports have been staging points for maritime crude shipments for decades.
Our state government is facing staggering reductions in revenue -- about 50 percent from last year -- because crude oil prices have dropped through the floor. Our state finances about 90 percent of its budget with oil money. We’re now looking at a deficit of $3.5 billion but that could grow by the end of the fiscal year on June 30.
Next year looks to have a similar deficit. Luckily, we have big savings accounts to ride us through this.
But the fact is that the deficit would have been a lot worse had the Legislature not made the oil tax change. Sen. Peter Micciche, R-Kenai, says that had the old tax remained on the books there would be $1 billion less revenue last year and this year. More here....
Today's relevant energy links from the Alaska gas pipeline office of the Federal Coordinator:
- Proposed gas pipeline to Petronas LNG plant in B.C. now at 560 miles
- LNG hopefuls urge Canada to allow accelerated depreciation
- Eastern Canada LNG projects lack local gas supply — and pipelines
- Japan reportedly ready to restart nuclear reactor early summer
- Tokyo Electric, Chubu may combine power plants under joint venture
- Yamal LNG nears 25% completion mark, energy ministry says
- Most of Gazprom’s LNG from Yamal will go to Europe, South America
- First passenger flight lands at new airport to serve Yamal LNG
- Falling LNG price in Asia cuts into European re-export trade
- Cheaper LNG prices in Asia send more cargoes to U.K.
- Lack of cargoes hits short-term LNG charters
- Ichthys LNG still on target to start production December 2016
- China’s oil and gas companies pull back on deals
- Low-cost gas will help U.S. petrochemicals industry retain advantage
- B.C. developer completes purchase of land for LNG project
- TransCanada plans to join oil-by-rail business
- Rail-to-marine oil terminals proposed for Washington coast
"Alaska's Challenge of Cash & Energy Shortage: Part I"
Additional references and historical background In "Alaska LNG Challenges"
First, there is the Challenge of Cash Shortage.
In the early 1980s, Alaska was feeling its oats.
Second, there is the Challenge of Energy Shortage, which we shall more fully address tomorrow in Part II, and it involves gas pipelines, distribution systems, state funded project competition and more....
To begin that discussion, below is a letter from one of a number of good, long-time Fairbanks friends, Buzz Otis (NGP Photo), and my initial response. In Part II we will examine a State Energy Shortage issue in more detail and provide what we hope are useful questions for decision makers to answer in their quest for solutions. Read more....
Elected officials were sitting on a cash dowry created by a decade of about a dozen tax increases levied on Alaska's infant oil industry.
The tax increases were primarily aimed at the unbelievably productive Prudhoe Bay oil field -- a 2 million barrel per day elephant field, the largest in North America.
But concerned citizens throughout the state were not unaware of this new phenomenon and where it might end if not properly handled.
State leaders and the citizens had in 1976 created the Alaska Permanent Fund in partial response to the question of, "What if we encountered a rainy day". Since that time the fund has been largely thought of as a source of annual payments to Alaska citizens of a Permanent Fund Dividend rather than a rainy day fund. The thought of actually using it for the purpose it was created -- to fund government operations on a "rainy day" -- is an anathema to most citizen beneficiaries and their elected representatives.
In the early 1980s a number of business, social, academic and political leaders from all regions of the state assembled for the most important forum of that day, called "The Challenge of Plenty". There citizens discussed the possibility of a constitutional amendment to control spending based on a population growth/CPI formula, and other ways of wisely preparing for the future.
Your writer played a role in organizing that conference and it was truly heartwarming to see all political parties and regions of Alaska participate courteously, collegially and in a true spirit of joint problem solving.
Suffice to say that while the highly cooperative leaders agreed upon the problem and potential solutions, they were never able to obtain legislation as the group recommended (i.e. though there was a constitutional spending limit effort in the early 90s which fatally eliminated or diluted the most critical provisions; and another effort by a minority of far-thinking legislators in the late 1990s.)
While Challenge of Plenty participants were highly concerned about unsustainable state spending, they also focused on the Federal Government's actions since statehood to steadily remove from the reach of citizens, access to resources on federal lands -- best illustrated by passage of the Alaska National Interest Lands Conservation Act.
A series of federal governments also succeeded in using various environmental Acts of Congress (i.e. ESA, CWA, CAA, NEPA, etc.) to restrict reasonable and traditional multiple use -- and wealth production -- on federal lands as well as reasonable ownership activity on private land.
Readers can thus appreciate how Alaskans have been caught between the charybdis of over spending and scylla of shrinking opportunity for natural resource revenue generation. -dh
Like Joseph of old interpreting the Pharaoh's dream to compel saving during years of plenty for the coming years of drought and famine, Alaska's political leaders were not unaware of the challenge. Like Pharaoh, they created a "Joseph"--the Alaska Permanent Fund--so savings during good times could allow for a sustainable economy during the lean years coming.
But the constantly changing demographic profile of voters and elected officials could not enforce management of the savings in modern times as the dictator, Pharaoh did in his era.
The University of Alaska-Anchorage's 50-year-old Institute of Social and Economic Research (ISER) has studied the importance of a "safe landing" for Alaska's economy and the discipline required to make that happen. Professor Scott Goldsmith (NGP Photo) has led this effort for over two decades, issuing "Fiscal Policy Paper #1" on August 1, 1989. That first paper states what has now become a long term, perhaps economically fatal challenge: "Alaska faces a problem that will be very tough to solve but is easy to explain: state government is spending more than it collects."
The challenge of sustainability has worsened over two and a half decades: for, as Prudhoe Bay production declined, spending never sufficiently declined to reach a sustainable equilibrium and, now, oil commodity prices (i.e. at half what they were last summer) are exacerbating the challenge for this highly oil-dependent state.
ISER's most recent analysis of the situation shows how to obtain a sustainable glide path for the Alaskan economy, but so far elected officials have found it impossible to convert that wise counsel into sustainable reality. (Other Fiscal Policy Papers in archive here)
Alaska now has the greatest debt per capita of any state and the greatest per capita spending along with the greatest dependence on a volatile commodity and the most expensive oil and gas operating area in the country. Some have tried to make these facts the fault of an oil industry whose productivity has provided Alaska with the opportunity to make its own wise or unwise taxing, debt and spending decisions.
But state leaders are now seriously facing the cash shortage issue as a matter of imminent, not theoretical, danger. ISER has clearly demonstrated that the cash flow runs into default in a few years, without dramatic budgetary changes.
Furthermore, from a balance sheet viewpoint, the picture is somewhat more bleak when citizens realize that the unfunded state employee retirement fund is short just under $10 billion, balancing out a similar amount of non-Permanent Fund savings accounts acting as subsidies for annual operating budget deficits.
So, in effect, the day of reckoning is not a few years 'down the pike', but is here TODAY.
In Parts II and III (Scroll up), you will be considering whether increased state government debt (even AIDEA revenue bond debt) or use of depleted savings for a Fairbanks gas utility is either rational or necessary.
Email received yesterday, 2-1-15, from Buzz Otis, Fairbanks businessman and community volunteer:
On Feb 1, 2015, at 2:33 PM, Buzz Otis <buzz@xxxxx> wrote:
Morning Dave, I wrote this late last night.... Any suggestions are welcome. With respect, Buzz
Good evening Dave,
(Answering Buzz's email, received yesterday. How can anyone with a heart not be drawn to his heartfelt and articulate description of Fairbanks' Energy Challenge? Tomorrow, we'll go into much more detail, in Part II.)
You've written a thoughtful, compelling piece. Thank you for sharing it with me. I will run your message Monday.
As a former regulator I try to look at all sides of issues like this and believe my best role is to help educate fellow citizens without becoming an advocate or project opponent before all the facts are known.
I also urge you and our very smart mutual and respected friends there to think strategically about the long term, and answer to your satisfaction every possible question--including those both identified and inferred in the News Miner article. I'll try to help by providing some of my own questions in Part II, tomorrow.
I will make two more observations to you and my Golden Heart friends.
1. I completely understand the gravity of the situation. We agree that where possible the private sector is best equipped to respond to economic supply and demand issues. While Alaska has many examples of failed government projects, it also has a number of public facility projects that are in the public interest. Bradley Lake Hydro, certain roads and bridges come to mind--although a stable energy supply project like hydro is hard to compare to an energy supply governed by commodity pricing and variable costs subject to regulatory 'cost of service' reviews.
2. The trick for those requiring (and may I even say, "desperately needing") a successful Interior energy project not fully appreciated by private investors, is to make sure government applies the same due diligence discipline as you would apply to a new company project before you stake family and company money on it. The questions the News Miner and I and others have raised seem mostly like simple due diligence questions to me. They are the type of questions your banker might ask you about your proposed project. And, they are the type of questions th which the Governor and Legislature will likely wrestle as the initial and continuing due diligence phase begins.
That said, we all agree Fairbanks is in dire need of an efficient energy remedy. Many would also agree that the solution could merit government assistance. In support of these propositions, it might be helpful if:
1. Project advocates approached all questions and concerns as you have: eagerly, positively and non defensively. Successfully doing one's homework, cheerfully and knowledgeably answering all concerns would avoid conflict and best prepare for statewide consensus. Having the other party's (Hilcorp's) concerns quickly addressed are probably also in Fairbanks' interest due to that company's significant investment in production that supplies gas (for both heating and power generation) to both South Central and to Interior Alaska consumers in household, business and commercial sectors.
2. As questions are answered, it might be well to encourage public forums -- not for the purpose of beating the drums for or against the project--but for the purpose of helpfully answering all reasonable questions and concerns.
I join others who would love to see Fairbanks' longstanding energy needs responsibly met, quickly. If it is wholly or partly done with public funds, I am sure Fairbanks would agree that those in charge of turning the dream into reality will best encounter public consensus when they've done sufficient due diligence to face the public confidently, with well studied answers.
Since the due diligence stage is not complete, it would be to everyone's advantage if the questions that are answerable at this early date -- and future mileposts -- are timely addressed.
Sent from my iPhone
I do hope this finds you and your family well. I appreciate your correspondence on a regular basis and yesterday’s article that the state of Alaska, through AIDEA would purchase Pentex Alaska Natural Gas Company, LLC and its assets which include Fairbanks Natural Gas for 52.5 million.
I would like to applaud Governor Walker for taking such bold and quick action to address interior Alaska’s energy needs. Being a private businessman in the interior since 1976, this may come as a surprise to my friends and colleagues, so I will attempt to explain my position in the hopes that you and others can understand the strangle hold we have had on our economic neck with the outrageous costs of energy here in Fairbanks and the surrounding area.
First of all, I am a staunch private enterprise advocate and will continue to fight for the freedom that private enterprise gives to so many Americans until the good Lord decides it is my time to leave here. I have been proactive over the years, encouraging various plans, through my involvement in the Fairbanks Chamber, Fairbanks and North Pole Economic Development Corporations, and the Support Industry Alliance, that promised to lower the cost of energy in Alaska and particularly Fairbanks, to no avail.
When I worked on the Alyeska Pipeline in 1975 we were told the next big project was a gas line that would surely start within a year or two of the oil lines completion.
I remember many gas line projects starting and stopping as you have. I remember when Ray Latchem came to Fairbanks with Fairbanks Natural Gas, I remember touring Point McKenzie with Ray and looking at his small plant there and him telling me how we were going to have lower energy costs in Fairbanks as a result, and we did. However, that only lasted a short while and as the economics of shipping small amounts of gas north by truck, gas contracts renegotiated out of Cook Inlet, and the cost of doing business always having an upward bias, plus wanting to maximize profitability, our natural gas prices came up to par with fuel oil.
In the Fairbanks area, we are heating our homes 7 to 8 months out of the year. Up until recently, we were paying close to $4.00 per gallon for # 2 heating oil. Even today with the price of crude dropping 50 to 60 % our price of heating oil only dropped 25 to 30 %.
As a result, folks here are burning wood, coal, or pellets trying to make it by. Many of our residents are using state of the art wood or coal burning stoves or boilers, with clean dry fuel. Others aren’t doing that. Many oil fired boilers aren’t tuned correctly which when added together, and coupled with our geography, it puts Fairbanks and North Pole air quality out of compliance with EPA on certain days throughout the winter. Not particularly attractive for business or personal health.
I remember Bill Popp, at ADEC, telling me a few years ago that he likes to see a prosperous Fairbanks because it is great for Anchorage’s economy, after all, just about everything that comes to Fairbanks comes through the port of Anchorage! Bill Popp gets it!
* * *
Dave, on top of the high cost of fuel can you believe the cost of electricity for my small commercial buildings is over .21 per kilowatt hour?!
Unfortunately, private enterprise hasn’t delivered low cost energy to Fairbanks! Our energy costs are some of the highest in the nation. It is costing us economic opportunity and causing people to leave our community! We have a US Air Force base that we have had to fight to keep open on two separate occasions, in the past 7 years. Even though we enjoy an extremely strategic location, the military costs are driven by outrageous energy prices. Next month we will be doing our best to keep our Army troops here. I can’t help but believe that if we enjoyed low cost energy like our neighbors to the south we would be in a better position to grow business here.
Our past and present legislative members and past governors, many of which question Governor Walkers intentions, when he put forward the proposal to have AIDEA purchase Fairbanks Natural Gas, are the same individuals that have insisted that every barrel of crude oil is monetized, rather than using some of our royalty oil to ensure economic stability in Alaska. Fairbanks has a crude oil line and until recently had two refineries in North Pole and we pay some of the highest energy prices? Just think what a lower cost of refined product, done through proper negotiations with the refiners, could do for our industry here. Marginal projects become viable. Citizens have disposal income to spend elsewhere! Abundance and positivity would be on every business person’s tongue!
To sum up we need low cost natural gas to fuel our homes, businesses, schools, mines, and military installations while providing a lower cost for electrical generation. PRIVATE ENTERPRISE HAS NOT PROVIDED LOW COST ENERGY! WE CAN’T WAIT ANY LONGER Personally, I have built energy efficient buildings, burn coal at one facility and burn wood in my home and in my shop. These buildings also have oil backup for security. Without energy efficient buildings and burning alternative fuel sources our bottom line would be negligible.
This is no time to divide and conquer. We need your support. Please consider helping Interior Alaska find its way out of these high energy costs and support a more timely solution. I believe the only way forward in a timely manner, if at all, is with state participation. We don’t have such a fiscal crisis that we can’t invest in the future of Alaska. Please find a way to support the governor.