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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

2-9-15 Alaska's Oil Tax Reform Is Working Well

09 February 2015 9:59am

Tim Bradner, Alaska Journal of Commerce, Anchorage Dispatch News, SB 21, Photo by Dave HarbourADN 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:



2-2-15 "Alaska's Challenge of Cash & Energy Shortage: Part I"

02 February 2015 1:30am

 "Alaska's Challenge of Cash & Energy Shortage: Part I"

See Part II and Part III

Additional references and historical background In "Alaska LNG Challenges"


Dave Harbour

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 Buzz Otis, Fairbanks, energy shortage, Alliance, HiPow, Photo by Dave Harboura 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 Scott Goldsmith, Institute of Social and Economic Research, Dave Harbour Photodiscipline 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.



Buzz Otis, Fairbanks, energy shortage, Alliance, HiPow, Photo by Dave Harbour

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.


Buzz Otis


1-30-15 NWT Reviews Another Mackenzie Pipeline Option As Financially Strapped Alaska Moves To Purchase A City Utility

30 January 2015 10:15am


Bob McLeod, Premier, NWT, McKenzie Valley Pipeline, oil export, Dave Harbour PhotoIn conspicuous contrast to President Obama and environmental extremists on both sides of the border, Northwest Territories Premier Bob Mcleod (NGP Photo) joins Alberta Premier Jim Prentice, as a longtime proponent of prudently constructed and managed pipelines.  

In fact, McLeod sees pipelines for oil and gas as being one way of increasing the wealth and stature of his people as well as the NWT's economic independence from Ottawa.  See story below.  -dh

Toronto Sun by , The Northwest Territories announced Thursday it will begin a feasibility study that could be the first step towards construction of an oil pipeline along the Mackenzie Valley to the Arctic Ocean.

The study will be done with the backing and co-operation of regional aboriginal governments, according to N.W.T Premier Bob McLeod in a speech, the text of which was provided to reporters ahead of the announcement.

"Our resources have been stranded for too long.

After reading the commentary below, be sure to review our 3 part series on the Interior Energy Project (IEP)

Alaska Governor Bill Walker, budget crisis, ten milllion per day deficit, Photo by Dave HarbourBelow: See our Friday Commentary regarding Dave Stieren's KFQD interview with Governor Bill Walker ​(NGP Photo) and today's Fairbanks News Miner story on the current, confused status of converting Fairbanks from fuel oil home heating to natural gas.   More here....  -dh

Globe and Mail by BILL CURRY AND SHAWN MCCARTHY.   New Brunswick Premier Brian Gallant is aiming to ease provincial concerns over the proposed Energy East pipeline during his first premiers’ summit at a time when other provinces are pushing for agreement around a national energy plan focused on climate change.  Even with the price of oil’s dramatic plunge, Mr. Gallant said there is still a strong business case for the pipeline that would deliver western crude to New Brunswick refineries and ports for shipping abroad.  

TransCanada Commentary


Dave Harbour

Both TransCanada's Energy East oil pipeline, converted from an underused gasline, and TransCanada's Keystone XL would move Oil sands production into the world market.  

To the extent that oil prices remain low, all transportation projects are fiscally strained.  But consensus is seeming to build in Canada -- with notable exceptions of gas utility managers who perceive a loss of gas transport options through conversion of the existing gasline -- for the Energy East project.  (Although, we are sure they would not like to ask their customers to reimburse TransCanada for maintaining surplus gas pipeline capacity.)

At the same time, President Obama seems intent on defying the will of the people, the will of Congress and the economic needs of America.  He seems also willing to sacrifice or dilute the friendship with our greatest trading partner and our formerly outstanding diplomatic, social, economic and military relationships, by continuing to block the Keystone XL project.

Apparently, the President's Keystone XL blockade is just fine with his environmental allies and middle eastern OPEC friends.   The one wants no US economic development and the other wants to minimize North American competition. 

If low oil prices remain and provide sufficient economic feasibility to support only one new exit conduit for oil sands crude, and if Obama does not relent on Keystone XL, the Canadian economy and TransCanada might still be still be winners with Energy East.  

The good news for the U.S.: America's greatest trading partner will benefit from another export project that also could supply its east coast refineries...and, unemployed U.S. workers with pipeline expertise might find a few job opportunities by leaving their homes and taking their expertise to Canada.  

This week we have reviewed the White House abuse of authority, overreaching jurisdiction and war on Alaska.

Actually, this, and the numerous other examples of executive overreach demonstrate a federal government assault on America, not just on the 49th state.  -dh

Fairbanks News Miner by Matt Buxton.  The state’s plan to buy Fairbanks Natural Gas and its parent company answered the question of “what’s next?” after a state bid to build a processing plant on the North Slope fell apart, but it’s also raised a whole new slew of questions.

Dave Stieren, KFQD Radio, Governor Bill Walker Interview, State Budget Crisis, Alaska, Photo by Dave HarbourFriday Commentary


Dave Harbour

Listen to Dave Stieren's (NGP Photo) recent Radio interview with Governor Bill Walker.  

In it, Walker places appropriate priority, we believe, on gaining control of state spending and a daily revenue drain of $10 million.  

Then, Dear Readers, consider the Governor's initiative to buy a privately owned utility in Fairbanks, within a Borough where his Chief of Staff once served as Mayor.  The Fairbanks North Star Borough was a paying partner in the Alaska Gasline Port Authority's (AGPA) proposed LNG project that paid attorney Bill Walker before he was governor to turn the project into reality.  Against "baseless" criticisms, Borough Mayor Jim Whitaker has defended walker.  Sadly for sponsors, no pipeline project appeared.  (i.e. 'Sadly for the sponsors since they would have reaped the reward of millions per year in gas pipeline property taxes.)

Then consider the misgivings noted in today's Fairbanks News Miner column.  Those misgivings include questions about why the state should be competing with private parties to buy a utility, what the State's $52.5 million purchase price would actually purchase, various misgivings of Legislative leaders, and at least a dozen 'unknowns' we could list if necessary.  

We give the Administration the benefit of the doubt, accepting that its motives are noble and that there really are no conflicts.  However, political figures need to be very careful about the optics, the 'perceptions of impropriety'.  A slip up of this nature so early in the life of a new Administration could injure the productivity and effectiveness of an entire four-year term.  

We know that Walker heavily courted Fairbanks and Interior Alaska during the campaign.  We know that energy for Interior Alaska was a major platform issue.  We just find it odd that now, when a nearly $10 billion public employee pension unfunded liability is being augmented by a $10 million dollar per day deficit, Walker's new austerity strategies would even permit considering the purchase of a gas utility to serve a market of unknown size, at an expansion cost of an unknown amount, in competition with the private sector.  Perhaps all this can be explained, but to some it could look shady without further transparency and explanation.

This is not to say that all government owned monopolies are inefficient.  It is to say that Alaska's financial position can hardly afford additional spending--even when that spending is funneled through a so-called 'independent public corporation of the state of Alaska'.  

Actually, if the corporation, the Alaska Industrial Development and Export Authority (AIDEA), has a surplus of $52.5 million available to pay cash for a city utility when the state is operating in the red, the Legislature might consider an AIDEA contribution of $52 million to the state treasury to be more prudent; after all, it could counterbalance 5 days of state deficit spending.

If, on the other hand, AIDEA, would finance the utility purchase by acquiring new debt for itself with revenue bonds, we believe the Legislature would have to consider whether or not adding debt to the state and its 'independent' corporations at this time is a good idea.  Even though an AIDEA revenue bond debt does not technically commit the full faith and credit of the state, any bond attorney will likely opine that a state corporation's revenue bond default could sure affect rating agencies' evaluation of a state's credit worthiness.

We hope above all that the Legislature and new Administration can be successful in avoiding the traps and snares that could compromise an otherwise successful effort to face Alaska's budget challenge.

To that end, we urge other citizens to join us in pointing out potential advantages and disadvantages of the various state policy decisions coming before us at a fairly rapid rate.  

We also encourage courteous and respectful exchanges of ideas and concerns, for our best chance of resolving tax and spending issues lies in cordial debates and interpersonal communication.

As Homer, Alaska's late Brother Isaiah would say, "Peace, Brothers and Sisters ...."

*     *     *

Note: The author is publisher of this webpage, former Chairman of the Alaska Council on Economic Education and former Chairman of the Regulatory Commission of Alaska whose duties involved adjudication of city utility rate issues and pipelines.

Please email your thoughtful additions, corrections or observations to: harbour@gci.net.  Through your feedback, we strive to preserve the most accurate possible archives.  Your comments will be considered for publication unless you request that they be regarded as personal communications.



1-19-15 Optimism Amid Challenges

19 January 2015 3:16am

Essay: Maintaining Optimism In A Challenging Environment

An essay to assist both Alaska citizens and our thousands of readers abroad in understanding the critical circumstances now confronting the 49th state.


Dave Harbour

(Send us your comments, and scroll up for tomorrow's related commentary!)

America invented the term, “Keep a stiff upper lip”, exactly two hundred years ago in a book entitled, "Massachusetts Spy".  The Brits adopted the term and now oil producers throughout the world are repeating it to stay calm in the face of what may be a prolonged period of low oil prices.

Alberta Premier Jim Prentice, Minister, Pipeline, Oil Sands, Pipeline, Photo by Dave HarbourWe will first sympathize with Alberta’s new Premier, one of the best and brightest elected officials in North America.  Jim Prentice (NGP Photo) inherited a southern neighbor whose president is guided more by political debts to environmental extremists than the public interest.  

Prentice also entered office just as oil prices began to plummet, putting his Province in a similar but much less severe fiscal crisis than Alaska faces (See box, lower left).

Alaska's situation is more critical than Alberta's,  because its budget is over 90% dependent on its declining oil production vs. Alberta's 10% dependency on oil sands royalties.  Note in the link above the decisive steps Premier Prentice is considering.  With a much more dire fiscal challenge, will Alaska undertake decisive measures this legislative session, as Alberta seems to be doing, or will Alaska fund deficits with the remaining state savings?

Note to: Elected Officials

Subject: Responsibility

We hope there is not one elected official in Alaska (i.e. Governor, Mayor, Assembly or Council or School Board member) who has had a conversation at home with a significant other, like this:

"Honey, you know the situation is dire.  We have had deficit budgets for some time now.  But with 50% lower oil prices, we'll burn through the savings in a couple years.  And still, we have almost a $10 billion unfunded PERS/TERS liability. (Though if worst comes to worst a bankruptcy court would order the permanent fund to keep our state pensions whole, I think).  Hopefully, we'll see another boom in discoveries or in prices...but if not, we have to make plans.  So I'm thinking we just stay in office through 2017, keep a low profile, then make our move.  Are you O.K. with that?"

Surely no elected official would swear an oath of office and decide to do nothing requiring courage or sacrifice to confront the fiscal shortfalls -- like cut capital projects, operational spending, even matching government programs and even entitlement programs.  

We realize that these challenges are not fun for politicians.  

But we hope we elected statesmen and not politicians, for the latter care too much about pleasing constituencies and guaranteeing reelection.

Statesmen will be willing to be vilified and defeated in order to make decisions that best serve the public interest.

So now, we suggest that all those who wanted to serve and are serving will meet their moments of truth in short order.

Will they take the easy road and keep all beneficiaries of state spending whole -- subsidized by remaining savings, then split...?

Or, will they lay it all on the line for their fellow citizens knowing that their 'thanks' may well be the disdain of thousands of constituents who wanted and did not receive money transfers from government.

We truly do sympathize, Honorable Elected Officials...just as we sympathize and respect military veterans who have served their country and been willing to give it all for the rest of us.  

Thank you, in advance, for your service.


Exacerbating President Obama’s delay and perhaps an ultimate blockade of TransCanada Corporation's Keystone XL oil pipeline --designed to move stranded oil sands oil in Northern Alberta to America’s gulf coast -- is a second negative development.  Environmental groups and utility interests in Quebec are trying to block the converting of an old gas pipeline into an oil pipeline, through which TransCanada could ship Alberta’s oil to European markets (See our commentary).

Then we have TransCanada’s effort (i.e. along with that of dozens of companies and governments) for a half century to move stranded Arctic gas from Alaska and the McKenzie Delta to Midwestern markets via a number of projects.  We could certainly sympathize with TransCanada shareholders and those paying tariffs on its existing pipelines, for they have been sporting stiff upper lips for a long time.

Surging oil and gas shale technology less than a decade ago, evolved into a true energy revolution.    The extended and expanded reach of shale production on mostly private lands touched almost everyone.  Consumers have experienced lower prices for gas fired electricity, home heating and gasoline.  Manufacturers depending on low cost energy began expanding North American operations.  Investors launched several dozen American and Canadian LNG export projects.   Job growth has been phenomenal.  European energy markets began to envision a day when Russian producers could not control their destinies through price and supply manipulation.  Finally, Asian markets used to paying premium prices for imported LNG began to see a softening of consumer prices.

The Canadian provincial and federal governments were supporting energy development in spite of significant environmental activism.  Oil prices supported the relatively expensive production of Northern Alberta bitumen.

In the US, the last few years saw production on private land cause economic rejuvenation in many pro-energy states, in spite of Federal government support of environment activism aimed at killing projects on both private and public lands.  Ironically, the Administration has gone on to claim credit for the economic improvements, even as it intensifies EPA opposition to energy specifically and job development generally.

As economic cycles would have it, all is not well in the world.  The shale revolution was not just good for consumers; it was GREAT.  So great that with supply increasing oil & gas prices began to retreat along with commodity values.  That, in turn, has brought many shale operational revenues beneath or close to the cost of production.  Combined with Canada’s inability to export necessary volumes of Alberta oil, North America’s two great economies are now facing giant economic challenges.

Federal, provincial, state and local governments throughout the US and Canada are now engaged in cutting or plans to cut government services in response to the diminishing production of energy wealth.

*     *     *

Alaska may be facing the single greatest economic challenge in the free world for many reasons that, together, compose a perfect storm of economic hurdles, including:

  • With its operating government budget over 90% dependent on oil income, along with over a third of its entire economy, Alaska is the most dependent of North America's state or provincial governments on oil revenue— now down by 50% over the last few months.
  • Alaska is the U.S. producing area most dependent on high prices.  High oil prices help compensate for some of the highest oil taxes, the harshest climate, the highest labor costs, its remoteness and distance to the markets and the additional cost liability of having to move its oil via an expensive, underused and ageing 800-mile pipeline to tidewater where it has to be loaded onto seagoing tankers capable of transporting it thousands of miles to markets.  In stark contrast, its biggest competitors produce oil mostly at tidewater, mostly in temperate zones, mostly in lower labor cost areas, with lower logistical costs and cheaper transport to their market areas.
  • Alaska’s nearly 40-year-old Trans Alaska Pipeline System (TAPS), has already moved the lion’s share of Prudhoe Bay oil.  It once transported the greatest share of America's domestic production (i.e. But has now fallen behind North Dakota, Texas and California) at the rate of about 2.1 million barrels per day.  That production rate has since sunk by over 70%.
  • Governor Sara Palin’s (NGP Photo) administration Alaska Governor Sarah Palin, Vice Presidential Candidate, lipstick, oil taxes, progressive production tax, IOGCC, Photo by Dave Harboursucceeded, nearly a decade ago, in attaching high, progressive production taxes on Alaskan oil in spite of what was then a pattern of annual 5-7% declines in TAPS throughput.   That economically suicidal action dried up new investment even though producers needed to hire more people and initiate more projects just to maintain the decades-old production and transportation facilities.  Two years ago, the Legislature saw the error of Alaska’s shortsighted ways and passed SB 21, modifying the production tax.  Talk quickly spread around the industry that new investment and exploration was now possible and being planned – hundreds of millions of dollars’ worth.  Unfortunately, opponents of SB 21 and environmental groups undertook a voters initiative to repeal SB 21, inserting dark clouds of caution over the investment climate.  After spending millions of dollars to combat the initiative Alaskan citizens and businesses defeated it last August.  Still, investors are left with the nagging knowledge that in Alaska, “A Deal May Not Be A Deal”, since a few guys and gals with a volunteer lawyer and dozens of activist organization volunteers could initiate a new voters initiative at any time.
  • "If"

    If Alaskan citizens and their leaders summon the faith, humility, wisdom, cooperation, sacrifice, initiative and diligence required by GREAT ACCOMPLISHMENT, the future can still be bright for this generation and those to follow.  

    This is where optimism is to be found.


    One must add to this mix the fact that Alaska’s huge resource potential has been slowed or stopped at almost every turn by a hostile and overreaching federal administration whose cheerleaders are activist environmental groups that in the last 3 decades have implanted some three dozen anti-development campaign offices around Alaska.

  • Alaska’s North Slope gas remains stranded.  Several projects over the years – all involving TransCanada – have endeavored to free that energy wealth since the early 1970s.  All of the projects have failed after having met the wrong end of unforeseen economic or technological forces.  When natural gas prices exploded at the turn of the century, producers again began eyeing the economic feasibility of “monetizing Alaska North Slope gas”.   After spending a hundred million dollars to update studies, they affirmed one of the critical requirements for investment to be, “fiscal certainty”.  This meant that investors couldn’t justify building the largest construction project in history with the chance a “sovereign” state government could enact massive new taxes after a multi-billion dollar, high pressure gas pipe was buried into the frozen tundra.  Then, just as feasibility was looking promising, came the Palin Progressive Production tax.  Today, following the passage of SB 21, producers and the State of Alaska have dramatically changed the gas project.  Because of shale, the gas is not needed in the Midwest.  So now, with falling revenue and fading economic hopes, the state, producers and TransCanada are endeavoring to prove out the feasibility of an Alaska LNG export project …targeting Asia…just as gas prices are falling and over a dozen LNG projects (i.e. see map) throughout the US and Canada are mostly vying for the same markets.
  • Map, Alaska overshadows Lower 48Alaska defends its high cost of government because of its enormous size (i.e. 20% the size of the entire US), its low population (i.e. less than a million), and logistical costs.  But excuses don’t matter in a world of competition and excuses cannot erase the facts:
    • Alaska spends more per capita than any other state.
    • Alaska’s debt is larger per capita than that of any other state or the federal government.
    • Its per capita education costs are the highest.
    • Alaska government and citizens fund the most non-profit organizations per capita.
  • Alaska’s anti-business legislators and activist groups normally seek higher taxes to meet the challenges rather than restrain government spending.  The republicans locally, as nationally, are generally in support of a sustainable economy.  But just as all democrats are not socialists, all republicans are not prudent guardians of other people’s money and often let spending/entitlement increases slide through in exchange for capital projects, constituent tax breaks, etc.
  • Alaska’s legislative session is now beginning and the previous governor’s budget under consideration is now several billion dollars short.  This requires a possible tapping into about $3 billion of nearly $10 billion in savings.   Any second grader knows that’s not sustainable for long.  But to make matters more interesting, rating agencies are noting that Alaska also has an unfunded liability to its retirement program of almost $10 billion.  The obvious way to fund that deficiency is to tap Alaska’s $50 billion permanent fund.  The permanent fund was created two decades after statehood to fund ‘rainy day’ budgets but has been traditionally used to pay citizens an annual allotment, last year approaching $2,000 for each man, woman and child.  It has become sacred income to voters.

Alaska Governor Bill Walker, oil taxes. sb 21, budget crisis, Photo by Dave HarbourLast November Alaskans elected a new governor whose primary constituencies were rural Alaskans, democrats, and labor.  So far, Governor Bill Walker (NGP Photo) has ordered a slowing of spending on capital projects but has not, at this writing, undertaken serious cuts to state government operations or entitlement programs.  We'll hear more this week as he delivers separate state of the state and budget speeches.

Some hope, through stiff upper lips and gritted teeth that another boom of some sort will appear just in time to facilitate continued high state spending.

Others believe that Alaska’s unparalleled rise in oil riches has come to an end and that serious, adult decisions must quickly be made.

Still others believe that Alaska’s 1959 Statehood Compact has been mortally wounded; they believe that federal regulation has so exacerbated the scenarios described above that only the most brilliant, persuasive, intelligent, savvy and charismatic leadership can now save the “Last Frontier” from federal hostility and its own tax and spend decisions.

So join us now in observing the tensions that will surely appear over the next four months of Alaska’s legislative session as, together, we witness leadership rising to the occasion, or not.

Meanwhile, keep a stiff upper lip!


Dave Harbour is Publisher of Northern Gas Pipelines.  A former Chairman of the Regulatory Commission of Alaska, he also served as Chairman of the Gas Committee, Western Conference of Regulatory Utility Commissioners.  Harbour is former Chairman of the Anchorage Chamber of Commerce and the Alaska Council on Economic Education.  He has served in executive positions with three producing/pipeline companies and as a board member and officer of a number of non-profit corporations.  His articles have appeared in hundreds of magazines, newspapers and on-line publications.  He has delivered hundreds of speeches throughout North America and chaired oil and gas programs and conferences from Houston to Calgary, Edmonton, Anchorage and Inuvik.  Contact the author.


1-3-14 Will We Make Our Children Proud?

03 January 2015 4:34pm

Brad Keithley, University of Virginia School of Law, Hall Estill, Jones Day, Perkins Coie, Alaskans for a sustainable economy, It's our future, Regulatory Commission of Alaska, In response to our commentary yesterday (scroll down), we are pleased to provide a related Facebook discussion below from Brad Keithley's (NGP Photo) page, Alaskans For A Sustainable Budget



  • Greg L Kisor Best article on the subject I've read.
    22 hrs · Unlike · 1
  • Steve Pratt Good piece. My own analysis a few years ago indicated the PERS liability to be about $5 Bill. more than the $10B. In any case, it is going to be interesting.
  • Andy Holleman Dave, I find one part confusing....you say " The piece quotes some who contend that those supporting SB 21, Alaska's oil tax reform law, misled the public. Any Alaskan who trumpets blame undermines cooperation and defies the public interest. "

     no question that some of the supporters of SB 21 mislead people. There's no question some of the opponents of SB 21 misled people.

    Why is seeking clarity on that in defiance of the public interest?? Especially when you close with a warning against false prophets.

    Would it not be in the public's best interest, going forward, to know who was truthful and who was not?

    And for the record, I'm not talking about folks that made predictions that were labeled as such, but people that implied things that weren't true.
    3 hrs · Like
  • Dave Harbour You raise valid points, Andy. I should have more clearly stated my intent: "in this critical year we should focus on cooperative solutions rather than who did what to whom in the past. While investing our full energy to find solutions in 2015, we should distinguish between actors seeking personal gain from those seeking the best outcome for all Alaskans." Thank you for the nudge to clarify.
    1 hr · Like · 1
  • Dave Harbour Good comment, Steve. In fact, over the years I have referred to your analysis a number of times, until later information replaced it. I believe that as of 2012, the unfunded PERS/TRS liability was in the $11.8 billion range following some annual payments in the $250-300 million range. Then, in the last session the liability was 'paid down' by $3 billion. I'd hesitate to guess at today's actual number -- especially when state offices are closed right now -- but believe it is likely to be between $8.5-9.5 billion. Next week, I'll try to run the current -- or latest available -- number down. In any case, the number is big and offsets most of the hope some may have for state savings accounts (i.e. Probably valued in the $12.5 range today following the $3 billion payment to PERS/TRS). If Alaska burns through savings to subsidize unsustainable operating costs, the only way it can keep 'full faith and credit' with retirees is to dip into the Permanent Fund to satisfy unfunded liabilities. That's why I think all of us reading this blog believe this year is so critical. If big and cooperative decisions are not made to change the trend line now, and absent the appearance of one or more economic miracles, the day of reckoning surely lies just around the corner. With that mission and challenge in mind, one can see the tensions growing (i.e. interests of operating fund constituents vs. state retirees; interests of subsidy beneficiaries vs. taxpayers; interests of today's citizens vs. their childrens' interests; interests of obtaining higher short term taxes from oil, mining, tourism, fishing, etc. companies vs. provding a secure investment climate that invites their investment and job creation over time.) This is why I do not envy the Governor or Legislature or Mayors or Wealth Producers or Government Program Beneficiaries; for 2015 is sure to be a historical transition to a new Alaskan economy. A year from now, it will be interesting for us all to consider these challenges and weigh them against our successes. Hopefully, we will have made our children proud. Dave

1-2-15 Is Alaska Beginning A New Year Of Acrimony--Or Accomplishment?

02 January 2015 8:39am

Today, we ponder Alaska's 2015 challenges below -- including less capability to fund energy projects.  We also sympathize with our Canadian friends.  The Calgary Herald's Deborah Yedling said of TransCanada's Russ Gurling that, "three fronts consume Girling’s time and energy — the Energy East file, an activist shareholder and, of course, the Keystone project."

Governor Bill Walker, Governor Sean Parnell, State Budget, Alaska, Oil Price, Trans Alaska Pipeline, Photo by Dave harbour

Governor Sean Parnell, Governor Bill Walker, State Budget, Alaska, Oil Price, Trans Alaska Pipeline, Photo by Dave harbour

Is Alaska beginning a new year of acrimony or accomplishment?

Yesterday's Alaska Dispatch piece by Dermot Cole pretty well summarizes the​ difficult budget issues and political pressures faced by North America's most economically dependent oil & gas producing state.


Dave Harbour

As the new year begins, so does the start of what may soon evolve into a contentious, new Legislative session.   

Politico by Hillary Flynn.

Alaska runs on oil — its economy is more dependent on it than that of any other state. With no sales or personal income tax, the bulk of state revenue is tied to natural resources.

At the same time, the state woefully misread the direction of oil prices, predicting they would remain at over $100 per barrel for fiscal 2015. They are now below $60.

For now, they are counting on $14 billion in rainy day funds — double those of any other state. But rating agency Moody’s Investors Service, financial analysts and others

Gunnar Knapp, University of Alaska, oil prices, taxes, government budget, Photo by Dave HarbourNY Times by Manny Fernandez & Jeremy Alford...“The crunch is coming,” said Gunnar Knapp (NGP Photo), a professor of economics and the director of the Institute of Social and Economic Research...."

Washington Post by Niraj Chokshi.  ...Alaska, more than any other state, is threatened by the low prices. Moody’s Investors Services, the credit rating agency, on Tuesday revised its outlookfor the state from stable to negative, noting that the drop in oil prices “now threatens to rapidly and significantly reduce the state’s budgetary reserves.”

“Alaska is far more vulnerable than any other U.S. state...."

On January 31, 2012, Governing asked, "Will the good times last?": "High oil prices are a boon for Alaska, whose credit rating recently went up to the coveted triple-A level. But waning oil production, unpredictable prices and looming pension costs remain challenges."  (Comment: Politicians ignored the obvious.  -dh)

Readers may also track this issue on Alaskans for Sustainable Budgets....

During the session, beginning on January 20, lawmakers and the new governor face an unexpected decline in the value of oil upon which is based about 90% of Alaska's state operating budget.

Constituents -- not just government -- feel the impact, too.  Over a third of the entire economy rests upon dependency upon and unstable foundation of volatile, world oil prices. (Note our belief that government dependency on commodity prices is more dangerous than private economic dependence on commodity production.  The former typically makes up for lost taxes by increasing taxes -- further inhibiting economic investment and vitality -- while the latter makes up for diminishing revenue by undertaking efficiency measures.)

Soon, one can expect rating agencies to begin auditing state and local governments, along with publicly traded companies in Alaska.  Financial analysts throughout the investment world are preparing new reports for their clients.  Agencies of government dependent on revenue bonds and general obligation bonds -- at certain, low interest rates and favorable 'coverage' requirements -- will be under increased scrutiny that could affect consumer costs in a number of areas, including state capital projects, municipal services and monthly utility rates.

Alaska's multi-billion dollar deficit overshadows losses occurring in all other oil and gas producing states and provinces in North America, which could stimulate rising political acrimony.

Elected officials, as we have seen nationally and locally, tend to err on the side of overspending.

National overspending leads to printing fiat paper dollars that taxes citizens by ultimately devaluing their money as prices rise.  State and federal overspending causes overtaxing temptations.  Both overspending and overtaxing in local governments tax the future of citizens as politicians strive to fund today's wants.

Unlike Washington, local governments cannot create new money out of thin air.  They must collect it in direct taxes or by borrowing it and agreeing to pay lenders interest rates influenced by rating agencies, upon whose expertise investors must rely.

Alaska is seeing the confluence of these issues today as its unsustainably high budget -- the highest per capita in America, twice as high as US federal per capita spending -- is under attack by low oil prices.  This income deficiency leads to higher deficits, a rapid depletion of government savings accounts, and a sure-fire appointment with insolvency. 

Will Alaska leaders this year create new taxes, cut spending or kick the can down the road again, bringing savings accounts down to new lows?   Or, more likely, will they try to create a combination of the above?

The republican-led legislature, with the former Governor, passed legislation to reform and moderate one of the most onerous oil tax regimes in the free world.  Added to Alaska's tax disincentive to invest are Alaska's high labor rates, difficult climate, proximity to markets and logistical handicaps.  The objective of the tax reform, adopted under provisions of Senate Bill 21 (i.e. SB 21) was to increase investment leading to higher production over time and a more sustainable fiscal regime.  Unfortunately, not much was done to moderate spending, contrary to the suggestions of a state university think tank, the Institute of Social and Economic research (ISER).

Some democrats, though out-voted on SB 21 tax reform, decided to work with activist environmental and other constituencies to promote a voters initiative that would do an end-run around legislative action, and repeal oil tax reform.  Last August, they came close, but lost as voters narrowly decided to stay with tax reform.  

Obviously, any enthusiasm investors had for SB 21 tax reform and political stability in the 49th State had to have been diluted by efforts to repeal that reform.  

Today, investors must be left with a troubling 4-fold reality that:

1) While oil tax reform passed and survived an Alaska voter's repeal initiative, a new initiative could reappear any day; and

2) Alaska's long-term sustainability depends on the unlikely ability of politicians to cut generous state entitlement programs, not just a few capital projects; and,

3) Alaska's state employee retirement program's unfunded liability of almost $10 billion pretty much cancels out the value of its "rainy day savings accounts".  We believe this leaves the State morally--if not technically--incapable of subsidizing the operating budget without tapping the sacrosanct, $50+ billion permanent fund, which, itself, is not the answer to a sustainable government; and,

4) even if those thorny problems are solved, Alaska's wonderful natural resource investment potential still faces volatile natural resource prices and worldwide competition from areas with lower labor rates, more temperate climates, closer proximity to markets and simpler logistical challenges. 

Governor Bill Walker, Governor Sean Parnell, State Budget, Alaska, Oil Price, Trans Alaska Pipeline, Photo by Dave harbourGovernor Sean Parnell, Governor Bill Walker, State Budget, Alaska, Oil Price, Trans Alaska Pipeline, Photo by Dave harbourNow, Alaska has a new Governor, Bill Walker (NGP Photo-L), who opposed SB 21 tax reform and courted democrat constituencies to win the election against republican incumbent Governor Sean Parnell (NGP Photo-R)​.  Of course, we wish Walker well, but we also realize the difficult policy decisions he must surely see in the path before him.

The ADN news/editorial piece yesterday highlights what could be a coming year of acrimony absent an abundance of courtesy, good-will and recognition of the common challenge we all face.  

The piece quotes some who contend that those supporting SB 21, Alaska's oil tax reform law, misled the public.  Any Alaskan who trumpets blame undermines cooperation and defies the public interest.  The piece also quotes SB 21 advocates who point out that the passage of tax reform takes time to manifest itself into multi-year, multi-billion dollar investment decisions and new projects.  (Critique: A reader in another blog later pointed out that to understand the source of the problem we should discuss 'fault'; and, I admitted that I could have been more clear.  My point was not to stifle free speech or honest critique but rather, "in this critical year we should focus on cooperative solutions rather than who did what to whom in the past. While investing our full energy to find solutions now and throughout 2015, we should distinguish between actors seeking personal gain from those seeking the best outcome for all Alaskans."  -dh) 

What's The Answer?

Our first hope is that other oil producing states/provinces will learn from ​Alaska that a sustainable economy is, first, difficult but, second, possible.  (Subscribe to Petroleum News Bakken)

It is difficult because officials elected by human beings tend to want to promise and deliver more than they should.  But sustainable oil economies are possible when the voters demand responsibility.

Spending could be limited by a constitutional mandate using an effective population, CPI formula with a savings requirement and an emergency spending provision.  Spending could also be restrained if contitutional reform limited industry sector tax revenues to some per capita or operating budget percent limit...again, with reasonable savings and emergency spending provisions.  

If government signals investors that it is committed to a reliable, capped amount of tax revenue from various tax-vulnerable industry sectors, tax paying investors can more freely invest with a reasonable guarantee of long-term returns.  

In short, competitive governments should be entities guaranteeing that their jurisdictions are places where, "a deal is a deal".

The primary beneficiaries of responsible government policies, the citizens, may then have confidence that their own taxes, jobs, reasonable but restrained government programs and economic dreams can be sustained with honest, hard work.

Some Alaskans may hold out hope that the state's ponderous, per-capita government could survive by virtue of a quick reversal of oil prices.  But there is a problem with that hope.  The fundamental  problem is that even with last spring's higher prices, Alaska's oil-dependent operating budget still needed billions from savings when that budget was based on $105/Bbl oil. 

So what is Alaska's current, best hope for a sustainable economy?  That's the job of elected officials.  That's why they were elected.  Do we see among them public spirited, dedicated, unselfish, peace makers who will work cooperatively with each other to solve a common problem?  Or, will we see them take up arms and seek to use the state's economic problems to leverage political self interests as a fragile economy crumbles?

We offer for our readers' consideration a possible solution, a concept, in the box to the left.  But, as with all great undertakings, the outcome depends on the integrity, courage, creativity and diligence of real leaders -- which points to this wise counsel of old:

Matthew 7:15.  "Beware of false profits, who come to you in sheep's clothing, but inwardly they are ravenous wolves.  You will know them by their fruits.  Do men gather grapes from thorn bushes or figs from thistles?  Even so, every good tree bears good fruit, but a bad tree bears bad fruit.  ...  Therefore, by their fruits you will know them."

Amen, dear reader....

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