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Commentary

5-9-14 Alaska Mining Day

09 May 2014 5:45am

You likely read it here first:

Pedro van Meurs, unconventional, world fiscal systems, oil and gas, taxes, Photo by Dave HarbourReport Card For Legislators and Governor Released Today; Today...White House To Review oil export ban; REI gets $240k for Alaska LNG study; Pedro van Meurs (NPG Photo) seminar on World Fiscal Systems for Unconventional oil and gas, June 4-6; preliminary bid results, Cook Inlet and Alaska Peninsula oil and gas lease sale.


Steve Butt, Exxon, AGDC, Gas Pipeline, Alaska, Photo by Dave HarbourADN by Pat Forgey. Exxon Mobil Corp. and its partners in the Alaska natural gas export pipeline began work on its summer field season this week....  Exxon's Steve Butt (NGP Photo), now reassigned to the AKLNG project, met Wednesday with the Alaska Gasline Development Corp., the state agency through which some of the state's interest in the project will be managed.  (More....)


Today Is Alaska Mining Day!

(Before The Meeting; See After the Meeting Report)

Before the oil and gas industry's rise to prominence following Richfield Oil's 1957 Swanson River discovery and Atlantic Richfield's 1967-68 winter discovery of Prudhoe Bay, the mining industry was an economic backbone of the state.

Today's miners are providing new power to Alaska's economy and are celebrating their past this morning in downtown Anchorage.

Cathy Giessel, Alaska Mining Day, AMA, SB1, Photo by Dave HarbourThe Alaska Miners Association and friends are celebrating Alaska Mining Day and the 75th Anniversary of Alaska Miners Association today with a breakfast program featuring: Senator Cathy Giessel (NGP Photo), sponsor of SB1, an Act establishing every May 10 as Alaska Mining Day; JP Tangen, AMA Director Emeritus, on Mining Law of 1872; Ed Fogels, DNR Deputy Commissioner, on the future of Alaska's mining industry; Dave Heatwole, a look back at 75 years of Alaska Miners Association.  Deantha Crockett: will unveil AMA's new logo and later today that logo may be seen on a public service sponsor ad on this website.


GAS EXPORTS: Interest from Japan propels another Alaska LNG project  (Wednesday, May 7, 2014)

Margaret Kriz Hobson, E&E reporter

A Japanese business consortium has secured Alaska support to study construction of a medium-scale liquid natural gas export terminal that would ship Alaska's Cook Inlet gas to energy-hungry Japan beginning in 2020.  Resources Energy Inc. (REI), which represents Japanese businesses, utilities and government units, recently received $240,000 from the Alaska Industrial Development and Export Authority for a prefeasibility study on the proposed LNG export project.  Under that agreement, the Japanese group will repay 75 percent of the cost of the study, which is expected to be completed by March 31, 2015.


Northern Miners Celebrate History and Prepare For Future

(Reference: Fraser Institute Report)

(Event Photos Here)

Last Thursday in Anchorage, Alaska’s mining community celebrated one of Alaska’s oldest wealth producing job sectors. 

Jason Brune, Mining Day, Alaska Miners Association, Photo by Dave HarbourJason Brune (NGP Photo), chapter chairman of the Alaska Miners Association (AMA) launched the business meeting breakfast with the admonition that, “’No On 1’ is one of our most important issues, because without a strong oil industry we don’t have a strong mining industry.”  This referendum is referred to in next Monday’s column and is one of the many ties drawing the various industries together in Alaska to face economic opposition of various types.  (We note that while almost all oilfield tools come from mined sources, all mines require energy to power vehicles and equipment.  All alternative energy sources require both carbon fuels and mined minerals for manufacturing and operations.)

Cathy Giessel, Senator, Alaska, Mining Day, Alaska Miners Association, Photo by Dave HarbourBrune introduced Alaska State Senator Cathy Giessel (NGP Photo) who sponsored SB 1 a year ago, creating Alaska Mining Day in the state.  In the same year, Giessel introduced and the Governor signed into law, SB 2, authorizing Alaska’s full participation in the Interstate Mining Compact Commission, a sister group to the Interstate Oil & Gas Compact Commission, of which Alaska is also a JP Tangen, 1872 act, Attorney, Lawyer, Alaska Mining Association, Mining Day, Photo by Dave Harbourmember.  Giessel acknowledged longtime mining advocate and leader JP Tangen (NGP Photo) with providing her with the background so critical to passage of both laws.

In his presentation, Tangen said that, “The mining law of 1872 is what we really celebrate today.”  He then provided a brief history of the 1872 law (earlier slide pack) and how its provisions have provided so much economic benefit to Alaska and the nation.  Then he quoted one of America’s most beloved Presidents.  A few years before the 1872 law was passed, Tangen said, on the last day of his life before the evening assassination at Ford’s Theater (NGP Photo), President Abraham Lincoln (NGP Photo) paid tribute to the nation’s mining industry and its ability to rejuvenate the wealth of a war-beleagured nation.  “"Tell the miners from me, that I shall promote their interests to the utmost of my ability; because their prosperity is the prosperity of the nation, and we shall prove in a very few years that we are indeed the treasury of the world."

In response to those urging repeal or anti-mining amendments to the 1872 act because of its 142 year age, Tangen recalled that those same advocates would never advocate repeal of an 1872 act creating Yellowstone National Park.

Ed Fogels, Department of Natural Resources, Alaska Miners AssociationAlaska’s Deputy Commissioner of the Department of Natural Resources, Ed Fogels (NGP Photo), congratulated the Legislature on the SB 2 legislation in 2013 authorizing his agency to represent Alaska in the Interstate Mining Compact Commission.   That participation, he said, has confirmed that Alaska is consistent with all other mineral producing states in its views of federal government overreaching jurisdiction. 

He briefed the group on Alaska’s enormous minerals and resulting wealth and job potential for the state and nation.  “If Alaska were its own country,” he said, “it would be wealthier than most countries of the world.”

Fogels stressed the importance of streamlining the permitting process, saying the department had a “culture of continuing permit processing improvement” in the Department of Natural Resources. 

“We have huge mineral resources that can only grow”, he said, as more areas are mapped and explored.   (Reference: Fraser Institute Report)

Karen Matthias, Alaska Miners Association, Council of Alaska Producers, Canadian Honorary Counsel, Photo by Dave HarbourCouncil of Alaska Producers Executive Director, Karen Matthias (NGP Photo), emphasized the importance of public perceptions affecting the ability of producers to be successful.  She pointed that most of Alaska’s new residents are not aware of Alaska’s six large mines along with the local jobs and taxes that benefit so much of Alaska.  To affect public perceptions, she advocated more robust use of social media.  Citizens need to know, she said, “…that we can do it right .  In Alaska we are doing it right!”

In the 1980s when Atlantic Richfield Company had acquired David Heatwole, Anaconda, Atlantic Richfield Company, ARCO, Alaska Miners Association, Mining Day, Photo by Dave Harbourthe Anaconda Company, your writer had the pleasure of representing both companies as ARCO’s Director of Government Affairs.  In the course of that assignment, Dave Heatwole (NGP Photo) became a trusted friend and client as manager of the company’s mining activity in Alaska.  He was a superb manager with government relations and communication skills that contributed to the excellent reputation ARCO/Anaconda enjoyed at that time among the general public and government officials as well.

Heatwole is a former Chairman of the Alaska Miners Association and the Alaska State Chamber of Commerce.  He closed the meeting with a number of stories – including our encounter with then Secretary of Interior Cecil Andrus.  That encounter, among others, may be one reason why he reaffirmed Matthias’ focus on public perceptions.

“I hope that my message is that we do need to be engaged,” he said.  “The public needs to know that we are small miners and larger miners and we speak with the same voice,” he said.

So while the miners and those supporting them celebrated a proud history, they were also preparing for the challenges of an uncertain future.

Event Photos (High Resolution Images Here):

Alaska Miners Association, Mining Day, Jason Brune, Photo by Dave HarbourAlaska Miners Association, Mining Day, Bud Cribley, Jason Brune, Photo by Dave HarbourAlaska Miners Association, Mining Day, Ed Fogels, Dan Sullivan, Steve Borell, Deantha Crockett, Jason Brune, Photo by Dave Harbour

 

 

 

 

 

 

Alaska Miners Association, Mining Day, Deantha Crockett, Photo by Dave HarbourAlaska Miners Association, Mining Day, Deantha Crockett, Photo by Dave HarbourAlaska Miners Association, Mining Day, Deantha Crockett, Karen Matthias, Senator Cathy Giessel, Photo by Dave Harbour

 

 

 

 

 

 

Alaska Miners Association, Mining Day, David Heatwole, Mike Heatwole, Photo by Dave HarbourAlaska Miners Association, Mining Day, Dave Heatwole, Anaconda, ARCO, Photo by Dave HarbourAlaska Miners Association, Mining Day, Mead Treadwell, David Heatwole, Photo by Dave Harbour

 

 

 

 

 

 

Alaska Miners Association, Mining Day, Lesil McGuire, Photo by Dave Harbour

 

Categories:

4-17-14

17 April 2014 7:13am

National Ocean Policy CoalitionComment: We have long held that the White House Memorandum and Executive Orders establishing and implementing a new "Ocean Policy" was one of the Administration's first acts of federal overreach.

Comment: The "Rule of Law" subject appears when we discuss "Ocean Policy", but arises as a theme wherever federal regulatory powers are exercised--including with an Alaska mining project on state land.  -dh

Last week Pebble CEO Tom Collier spoke at the Alaska Miners Association conference in Fairbanks, updating attendees on the status of the Pebble project, discussing next steps, and addressing a major federal overreach by the U.S. Environmental Protection Agency. Collier expressed his confidence that although it has had setbacks, Pebble remains viable, saying  “I would have stayed in Washington, D.C., if I thought John Shively, Pebble Project, Photo by Dave Harbourthis was done.”

Chairman of the board John Shively (NGP Photo) concurred: “Is it going to be difficult? Sure, but there aren’t a lot of easy projects left.”

Here is the link...

Journal of Commerce/AP by Becky Bohrer.  The U.S. Environmental Protection Agency is taking the first steps toward possibly restricting or even prohibiting development of a massive gold-and-copper prospect 

First.  It created a broad new policy that threatens the economy of the country without Congressional approval or oversight.  

Second.  It caused this expansive and expensive new policy to be undertaken by usurping existing federal funding for programs that had been previously approved by Congress for lawful purposes.

In response to this overreach, citizens and companies created an National Ocean Policy Coalition (NOPC Logo, above).

That group has generally tried to responsibly react to the White House initiative by providing input, testimony and meeting with Administration officials.

Our readers know, however, that we have shown this Administration to be unconcerned with responsible comment about its programs.  It goes through the motions of holding public hearings before proceeding to do what it wished to do from the outset.

This is one of many reasons we consider the Administration to have broken faith with Americans by violating the rule of law.  When the citizens no longer trust in the rule of law, confrontation between those governing and the governed becomes more likely.

Today, we received a special report from the National Ocean Policy Coalition -- which includes several Alaska public interest organizations.  Its extensive reports include: I. NOPC Submits Mid-Atlantic Ocean Planning Comments, RPB Announces Meeting; II. New Request for Proposals Seeks Additional Assistance for Northeast RPB; III. New England Fishery Mgmt. Council Meeting to Include Northeast RPB Update; IV. NOAA Proposes Nearly Tripling Size of Two Marine Sanctuaries Offshore CA; V. MPA Federal Advisory Cmte Seeks Nominations, Announces Meeting.

The White House: On June 12, 2009, President Obama sent a memorandum to the heads of executive departments and Federal agencies establishing an Interagency Ocean Policy Task Force and charged it with developing recommendations to enhance national stewardship of the ocean, coasts, and Great Lakes.

We testified at the initial Ocean Policy Task Force Public Meeting in Anchorage on August 21, 2009

The Task Force released interim reports for public comment in September 2009 and December 2009, and received and reviewed close to 5,000 written comments from Congress, stakeholders, and the public before finalizing its recommendations. 

President Obama signed an Executive Order on July 19, 2010 adopting the Final Recommendations and establishing a National Policy for the Stewardship of the Ocean, Coasts, and Great Lakes.

 

Read the Final Recommendations of the Interagency Ocean Policy Task Force

We compliment supporters of NOPC for their hard work but urge readers to be more suspicious than ever of the motives of an overreaching federal government.  After all, when fully implemented, a national ocean policy could make virtually all human activity subject to government oversight -- since it is designed to regulate activities affecting the oceans and Great Lakes and the watersheds feeding them (i.e. the whole country).

Can you imagine the new bureaucracy that will be recruited from the ranks of the 'faithful' to fully implement a program to control the rest of us?   

Farmers, parking lot owners, contractors and municipalities are especially at risk, for the water flowing from these sources -- and every rooftop -- will likely carry something worthy of regulation into a body of water that is, ultimately, ocean bound.

This is why we urge NOPC and every other citizen who takes an interest in this matter to cease cooperating with the concept and begin to fight for its outright demise!  White House organizers will scoff at suggestions they will overreach.  But if citizens and Congress let the Administration put the bureaucracy in place, the deluge of future controls and regulations will be impossible to contain.

It is an environmental activist's dream come true--or a tyrant's.  -dh

Categories:

4-15-14 Alaskanomics

15 April 2014 7:38am

 

Joe Balash, Natural Resources, Commissioner, Alaska, ACES, AGIA, Palin, Photo by Dave HarbourKTUU.  In this year’s legislative push to approve an all-Alaska natural gas pipeline, the driving force has been state Department of Natural Resources Commissioner Joe Balash (NGP Photo).

"It's kind of like a big boulder," Balash said. "Once you get it moving, you want to keep it moving."

Alaska Economic Update: Interest Rates, by Katie Bender.  As readers review this, consider the effect of interest rate increases on Alaska state budget debt, on the cost of debt to fund state projects and on the effect of higher interest rates on the metrics of capital purchases for a gas pipeline, a bridge or a hydroelectric dam -- and on future inflation.  -dh

...since the end of 2012 interest rates for all maturities longer than one year have risen.  The 10 year bond is highlighted.  It rose 1.26% in 2013.  Expectations are for rates to continue to rise as the Fed tapers it’s purchasing of longer maturity bonds and mortgage backed securities now that the unemployment rate has hit their target goal of 7%.  At 6.5% they have signaled that they would start pushing the overnight Fed Funds rate up, which would create separation on the left side of the graph.  It has remained at the historically low 0% - 0.25% target rate since December of 2008.  This is unprecedented accommodative monetary policy for an extended period of time.  It is likely that any rate Fed Funds rate increase would come at a slow and measured pace.

Interest Rates Graph

Categories:

4-11-14 LNG Jobs For Alaskans In BC?

10 April 2014 5:39pm

Joe Beedle, Northrim, Alaska, Economics, Oil and Gas, Dena'ina, Photo by Dave HarbourNorthrim Bank and its President, Joseph Beedle (NGP Photo), hosted a packed house economic briefing yesterday at the Dena'ina Convention Center in Anchorage featuring Economists Mark Edwards and Bill Conerly.  We'll have more for readers by Monday.  -dh

Opportunity For Alaskans In Canada?

Petroleum News: British Columbia Premier Christy Clark, supported by a delegation of top cabinet ministers and petroleum leaders, has persuaded the Canadian government to declare that the LNG sector is a potential “nation-builder” which could create 100,000 jobs.

Although the accord signed in Ottawa earlier in April is non-binding, it includes a commitment to promote the active use of temporary foreign workers, TFW, which could ease one of the deepest concerns among investors in the industry.

 


CBC News.  Comment: The Northwest Territories government hopes to bury a high speed, 1,100 km fiber-optic cable from Fort Simpson to Inuvik.  

It proposes using the Mackenzie Valley Pipeline route and much of the pipeline filing data to justify a light, environmental review.

What is the practical difference between cleared rights of way, using the same real estate, for a buried gas pipeline or fiber cable?  We are sure that this question will arise during the permitting process and that the answer will not be very satisfying to Inuvik citizens, small businesses and aboriginal corporations that, for two generations, fought for and failed to have approved the routing for a Mackenzie Valley Gas Pipeline.  

Countless hopes, dreams, and lives of every NWT and YT resident were affected by the loss of the pipelines' opportunities--one way or another.  

Hopefully, an easier permitting process awaits a buried cable using the same right of way.

Perhaps the lessons of gas pipeline failure and fiber-optic cable success will not be lost on more logical, future decision makers.  -dh

The Publisher and the Professor Opine: You Decide!

SitNews, Ketchikan Alaska. Reprint of Dave Harbour's editorial, "Does Alaska's Pension Liability Threaten Gas Pipeline Viability?"  (Original here).  See reader comment and our response below:


Reader Comment:  A highly accomplished university professor, a friend for over 20 years, sent this comment in response to the above editorial on Alaska's underfunded pension program, which we are delighted to bring to you below, along with a response.

Dave: As usual a sound analysis of the underfunded pension liability.  

However, I read that you suggest that we return various spending or taxing to the Median levels of other states.  That point is where 50% of the states would lie above and 50% below.  

Would those states above the median in spending and taxing be obviously thwarting business growth and profit?  I doubt it.  

Stability is probably the key in my mind.  Also, corporate America charges us more or it cost us more to acquire those goods and services.  Kids who depend of “welfare” to eat, go to school on a bus, or get health care don’t eat 50% of the meal, ride halfway there or only get kinda well.  And if our “bureaucracy” is more expensive, I am not surprised.  

I wonder if you checked to see how much higher engineers, doctors, accountants, oil execs, etc. earn compared to those in “median states”.  I suspect they would howl in indignation if you suggested that they all get less.

But your analysis of the problems created by the underfunded pension liability is well stated and I wish we had more leaders in our legislature who understood the realities of our financial system as well as you.

Professor B.

(Note: I don’t think we pay our bureaucracy enough.  We ask someone making $100k to negotiate with and regulate industries and executives making millions, with staffers and lawyers making outrageous salaries as well.  And maybe if we paid the Legislators more, we could find some independent minds who could work in everyone’s best interest, including the oil industry.)


 

Harbour's response to the Good Professor's comment above.

We appreciate the good professor's two observations: his compliment for our view on the underfunded pension liability of the state; and, his thoughtful comment on why the remedies to Alaska's unsustainable budget which we offered are, in his opinion, wrong.

This is why we followed our recommendations for solving Alaska's fiscal challenges, with the further acknowledgement that, "Of course, there are as many suggestions as there are people with opinions."

Professor B. did not offer his own suggestions for solving Alaska's fiscal challenges; he only attacked our recommendations.

His further comment was that Alaska should spend more money on executive salaries so that those who "negotiate with and regulate" industry could, presumably, more ably do so.

The beauty of a oil & gas lease sale is that the private market produces for Alaska the highest value for a natural resource that the market will pay.  The highest.  

Most of our current investment climate problems occur as a result of changing the rules of the game for investors after a lease sale has taken place.  Politicians are tempted to greed once they see that an investor is profiting from a lease sale bid that he had first put at risk.  They are tempted to relieve the investor of the profit "reward" earned by the lease sale investment, subsequent exploration, capital investment and development (i.e. because the investor is 'greedy, makes outrageous salaries, etc.').  The point of investor success is where the good Professor would hire high priced bureaucrats to extract even more from investors than their own due diligence had determined valid at the time of the lease sale.

This is why we have always held that Alaska should spend within its means -- so that the temptation to change the rules for investors is not exacerbated by a desperate need for cash to cover undisciplined spending. 

If Alaska, as we have editorialized, becomes a state where "a deal is a deal", then decision makers will spend and tax with prudence and restraint.  Life will be simpler.  The need to demonize investors will diminish as will the temptation to discriminate against them.  Since lawmakers won't tolerate rule changes after investor commitments have been made, there will be no need for a new cadre of highly compensated bureaucrats to "negotiate and regulate" in ways that extract more from investors than they themselves thought prudent when investment decisions were made.

The good professor argues for 'stability' for government beneficiaries.  While beneficiaries of taxpayers (i.e. including educators) will always want the guarantee of stable taxpayer income, it is easy to forget that those who risk their own money tend to invest more and more confidently when they work in a 'stable' tax and regulatory climate.  

We appreciate reader comments, especially from those who are highly educated and thoughtful about the issues -- and, especially when they disagree with us.  It gives us a chance to reevaluate our own logic and conclusions.

In this case, we emerge from the additional thought and dialog more convinced than ever that Alaska's real secret to a bountiful future is learning to treat investors as we wish to be treated when we are considering a personal investment.

Hold a lease sale for natural resources to VOLUNTARILY extract the highest value from investors that a competitive bidding process will yield.  Then, try to MINIMALLY interfere with -- and even safeguard -- the metrics upon which an investor based the lease sale bid, for the life of the project.

It is the Golden Rule applied in a different way than we normally do ... but the principle is the same.  And it is that principle that will most likely lead to sufficient investor confidence for a multi-billion dollar gas pipeline investment to be made.

That is why, for years, industry has told the state and its residents that big investments require assurance of "Fiscal Clarity".

Rejection of the Golden Rule of treating others as we would wish to be treated can only lead to a life of misery and greed...and a lower likelihood of significant investments.  

Can anyone dispute that this enduring principle applies to states as well as it does to families and individuals?  -dh

Categories:

4-10-14 Hostility Toward Alaska's Major Investors

10 April 2014 2:40am

COMMENTARY: "Alaska Should Never Become Like Hostile Argentina!

In this video of yesterday's Senate Resources Committee meeting a minority senator (i.e. Hollis French {NGP Hollis French, Senator, Alaska, Photo by Dave HarbourPhoto} of Anchorage) proposes that witnesses be required to testify under oath.  This unprecedented (or at least rare) action is sure to further convince investors that Alaska is a risky place to do business.  Some might say, "Well, we have the statutory right to interview witnesses under oath."  Our concern with that clever response is, "Fine, then why not interview all witnesses under oath?  Why just interview major investors under oath; why not interview major beneficiaries of state spending to testify under oath?"  In short, treating the oil industry witnesses differently than education, union, health care, municipal and non profit witnesses contributes to an atmosphere of hostility and discriminatory treatment.  Hostility toward investors cannot encourage investment.  The only question is how much damage such hostility will reap on investment decisions.  The answer to that question, unfortunately, is that we will never know how it would have been the other way.  We do know that after Cathy Giessel, Senate Resources Committee, Alaska, oil, Photo by Dave Harbourone Alaskan investor's experience in Argentina, investors will be all the more wary now about hostile rhetoric that always precedes increases in tax and regulatory burdens -- and even expropriation of property.  We compliment Committee Chair Cathy Giessel (NGP Photo) on her smooth handling of a difficult situation.  -dh


Globe & Mail by Jeffrey Jones.  CALGARY'S STRONG ENERGY SECTOR!

Washington Times / AP by Becky Bohrer.  The House Rules Committee on Tuesday advanced legislation that would allow out-of-state residents to serve on the board of directors of the Alaska Gasline Development Corp.


Office of the Alaska Gas Pipeline Federal Coordinator, by Bill White.  (Comment: An analysis issued yesterday that could bode well for an Alaska gas pipeline/LNG project -- if the state of Alaska can convince investors of its new-found reliability as a stable fiscal regime.  -dh)

Anxiety is rising in the liquefied natural gas business over the slow rollout of North American LNG export projects. Anxiety about supply. Anxiety about pricing.

The worry was simmering at the big Gastech Conference & Exhibition held March 24-27 in Goyang, South Korea, as LNG buyers and sellers fretted that the world's constrained supply could last beyond the next few years.

"Despite all the rhetoric and hubris that our industry generated, LNG will be shorter for longer than most people are imagining," said Martin Houston, a recently retired chief operating officer of the U.K.'s BG Group, a global LNG supplier.

More....

Categories:

4-8-14 What Do Underfunded Pensions Have To Do With An Alaska Gas Pipeline?

08 April 2014 9:07am

Remember this announcement, 5 years ago today?  ANCHORAGE, April 8, 2008 - BP [NYSE: BP] and ConocoPhillips [NYSE: COP] today announced they have combined resources to start Denali - The Alaska Gas Pipeline. The pipeline will move approximately four billion cubic feet of natural gas per day to markets, and will be the largest private sector construction project ever built in North America. The project combines the financial strength, arctic experience and technical resources of two of the most capable and experienced companies in the world.


Globe & Mail.  The U.S. Energy Information Administration reported last week that Canadian oil exports to the United States are the highest in at least four decades. 

Today, CongressmanDoc Hastings, ESA, Photo by Dave Harbour Doc Hastings' (NGP Photo) House Natural Resources Committee held a Full Committee legislative hearing on four straightforward bills to update the Endangered Species Act (ESA) for the 21st century and improve species recovery.   This effort works in the favor of Alaska's and America's economy without diminishing reasonable support for protecting truly endangered species.  -dh


Does Alaska's Pension Liability Threaten Gas Pipeline Viability?

(See SitNews Ketchikan Reprint)

by

Dave Harbour

Alaska spends more than it takes in.  To that extent must investors worry about when -- and not if -- the next tax proposal will creep over the horizon toward THEM.  

Below is the link to an Op-Ed wherein mayors (i.e. whose own retirements are at risk with underfunded pension liabilities) urge lawmakers to support the Governor's proposal to reduce the $12 billion unfunded pension liability by $3 billion.

Bill Corbus, Juneau, State Spending, Mine, Electric Utility, Photo by Dave HarbourToday's Juneau Empire Op-Ed.  See long-time Alaskan utility and natural resource expert, Bill Corbus' (NGP Photo) related opinion.  -dh

To do that, lawmakers will have to remove $3 billion from state savings accounts at a time when their deficit spending level requires use of depleting savings.

Oil production from Prudhoe Bay is declining, upon which 90% of state spending is based.  Oil revenue could continue its dramatic, annual production decline putting more reliance on savings accounts to balance an unsustainable state budget.

See Alyeska Pipeline Service Company President Tom Barrett, Alyeska Pipeline, oil, taxes, production, TAPS, Photo by Dave HarbourTom Barrett's (NGP photo) response to yesterday's Alaska state revenue forecast.  We believe that better than projected production decline rates are due to the passage a year ago of SB 21, which reformed Alaska's oil production tax.  -dh

Paying off the entire pension liability is impossible since Alaska doesn't have $12 billion in total savings available.  (4-10-14 Note: See "Understanding Alaska's Budget".  Some might say we have over $20 billion in savings available; but since political reality prevents expenditure of most of these sources for "government pension fund liabilities," they should not all be considered available.) 

Gas pipeline investors have to be wondering, "If I commit to a portion of a $40 - 60 billion gas pipeline/LNG export project and the state continues running out of money, how safe is my investment from predatory tax policy?"

Alaska has a track record of taxing for more than it needs to operate and, to add insult to injury, taxing the oil industry retroactively.  It has built the highest cost per capita bureaucracy in the nation.  Now, in the face of rising costs and diminished revenues it is urging oil companies to invest in a mega gas pipeline project so that revenue from that project a decade from now can fund the state's spending appetite.

Link to our reports and commentary on LNG competition, here.

Energy advisor, Keith Kohl, says in his communique today that, " Like us, Canada's National Energy Board has approved seven LNG export license applications — but unlike us, the first project slated to start tapping the Asian LNG markets as early as next year."

Meanwhile, dozens of pending LNG export projects in the the US and Canada are all romancing the same Asian energy consumers.  Experienced observers know that profit margins will likely be thinner than they hope for.  Asian utility managers are not stupid.  They will want the lowest possible "ship or pay" cost for LNG energy in return for their own "take or pay", long-term financial commitments.  (Some good, Lower 48 researchers are excited about Alaska's prospects, but may not be fully aware of investor concerns or competitive pressures from other export projects that we have covered in these pages.  -dh)

The LNG project that offers the lowest, competitive price to an Asian utility in return for a 20-year, firm contract, cannot afford to risk company solvency on "assurances" that Alaska will not create new energy taxes out of thin air and even apply them retroactively--thus altering project metrics and risk.  The risk that the contracted delivery price of LNG to an Asian market could be lower than the cost of delivering the LNG -- under a "ship or pay" arrangement, may be an unacceptable risk to a responsible investor.

So the final question that any gas pipeline investor might be asking now is, "Can Alaska assure my company that today's gas pipeline investment is safe from future tax increases when unfunded pension liabilities, run-away budgets and diminishing oil production pose a dreadful danger in spite of Joe Griffith, In-state gas, gas pipeline, electric utility, MEA, CEA, Photo by Dave Harbour, ANGDA, CWNany politician's soothing assurances and best intentions?"  

As our friend, utility manager Joe Griffith (NGP Photo), has often said, "Hope is not a strategy."  We all hope for conditions that will enable sustainable budgets and projects to supply both the jobs and the financial resources of the future.  But hope alone will not achieve that goal.  

What then is an answer to this Gordian knot of intertwining politics and energy policy?  Cut public spending to be consistent with income.  Cut welfare/entitlement spending to be consistent with median welfare spending of all other states.  Business taxes should not exceed median of business taxes in other states.  Institute new taxes only on new investment, not on prior investment.  Never tax retroactively.  Cut tax and regulatory burdens to essential and responsible needs.  Avoid state investment into private sector projects--which always involves politicians risking "Other Peoples' Money".  Of course, there are as many suggestions as there are people with opinions.

So is some combination of these and other responsible remedies too difficult?  

If workable solutions are "too difficult" they will not be undertaken and undisciplined, unsustainable economic policies will ultimately result in involuntary compliance with economic realities.

Parents warn children that this is called, "learning the hard way".            

   


​Fairbanks News Miner, by Mayors John Eberhart, Luke Hopkins and Bryce Ward​.  

Gov. Sean Parnell’s budget includes a $3 billion line item to reduce the Public Employees Retirement System (PERS) and Teachers Retirement System (TRS) unfunded liability, which is about $12 billion. The mayors of Alaska, through the Alaska Conference of Mayors and the Alaska Municipal League, fully support the governor’s initiative to stop the can from being kicked down the road.

The state has attempted to make inroads in regard to this huge liability, but so far hasn’t had success. Every year the deficit has increased. The governor has stepped forward to address this issue in a responsible way.


Comment: Yesterday, April 7, 2014 the Alaska Department of Revenue issued its Spring 2014 Revenue Forecast.  We believe it provides a brighter outlook for a future, sustainable economy, if decision makers continue to support the sort of tax reform to which the increased production may be Tom Barrett, Alyeska Pipeline, TAPS, state revenue forecast, alaska, throughput, tax policy, Photo by Dave Harbourlargely attributed.  But for future years, a sustainable economy based almost entirely on the back of one industry needs serious, objective attention and problem solving.

Note that the forecast includes improved North Slope production and projects a lower decline than has been anticipated.   The following is from the office of Alyeska Pipeline Service Company President Tom Barrett (NGP Photo).  -dh

Barrett issued the following statement this morning:

“The Department of Revenue’s forecast is great news for TAPS.  This much needed upward shift in throughput is critical, because moving less oil through TAPS creates significant challenges for the men and women who work to keep the pipeline operating safely and reliably. Every barrel in TAPS counts and the prospect of thousands of additional barrels moving down the line is welcome news.” 

“We understand that Alaska depends on us to safely deliver the oil that funds so many state services.  That’s why Alyeska and the TAPS Owners have aggressively pursued solutions to declining flow.  But, as I have often said, ‘the best and most direct solution for TAPS is more oil.’”

“I applaud the Governor and the Legislature for fostering an environment that encourages more development.  The forecast reflects that the investments being made by the producers should pay off soon for Alaska.  That’s good news for TAPS and for everyone in the state.”

More information about the challenges of declining throughput is available at http://www.alyeska-pipe.com/TAPS/PipelineOperations/LowFlowOperations

About Alyeska Pipeline

For more than 36 years, Alyeska has operated the 800-mile Trans Alaska Pipeline System (TAPS), safely moving oil from Prudhoe Bay on the North Slope of Alaska south to the Port of Valdez, the northernmost ice-free port in the United States. The pipeline traverses three mountain ranges, permafrost regions and 34 major rivers and streams. Alyeska personnel work in Anchorage, Fairbanks and Valdez and at pump stations and response facilities all along the pipeline. They also operate the Ship Escort/Response Vessel System (SERVS) for Prince William Sound. Alyeska was created to construct, operate, and maintain TAPS for owner companies which today are BP Pipelines (Alaska), ConocoPhillips Transportation Alaska, ExxonMobil Pipeline Company and Unocal Pipeline Company

For more information, visit http://www.alyeska-pipe.com or follow Alyeska on Facebook or on Twitter at http://www.twitter.com/AlyeskaPipeline

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