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Northern Gas Pipelines is your public service 1-stop-shop for Alaska and Canadian Arctic energy commentary, news, history, projects and people. It is informal and rich with new information, updated daily. Here is the most timely and complete Arctic gas pipeline and northern energy archive available 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 suggest others existing before 2001.

 

4-16-14

16 April 2014 7:49am

On the online opinion pages of The Oregonian, David Holt, Lake Hood, CEA, Consumer, Portland, Alaska oil, Photo by Dave HarbourDavid Holt (NGP Photo) explores why west coast states will benefit the most if the U.S. utilizes Alaska energy resources.   ...  According to the EIA, Oregonians spend more than $9 billion on petroleum products each year. Energy consumption in Oregon continues to increase, but Oregon only produces about one-third of the energy it uses.  ...  The state has therefore been highly dependent on the Trans-Alaska Pipeline System (TAPS) and would be highly vulnerable should the pipeline cease operation. More than 80 percent of the crude oil eventually used in Oregon originates in the Alaska North Slope oil fields.  (More here....)


The Global Economic Forecast and Alaska’s Outlook

by

Katie Bender

From his presentation at Northrim's Economic Luncheon, Guest author Bill Conerly (NGP Bill Conerly, Northrim Bank, Alaskanomics, Photo by Dave HarbourPhoto) gives his reflection on the global economic forecast and Alaska's outlook.

The national and global economy offer moderately positive news for Alaska, though risks are significant. The four key elements of the big picture that are important to Alaskans are consumer spending, federal spending (especially defense), the global economy and energy prices.

Consumers across the country have been increasing their spending about in pace with income gains. They are not stretching, using a great deal of credit to extend their spending. Neither are they crawling into a hole, cutting expenditures to a minimum, as they did in the darkest days of the recession. One of the bright spots for consumer discretionary spending is how people feel about their houses. Home prices have risen nicely in the past year and buyers are scouring many markets hoping to find one last deal. In that context, consumers feel good about their finances. Their homes are not so valuable that they can justify an Alaskan vacation simply based on housing appreciation. However, if their income justifies the vacation, then the housing market is no longer an excuse to stay home.

Federal government spending has to tighten in the so-called discretionary category, because our path for entitlements spending is pretty staggering. Medicare expenditures by the federal government are poised to rise at a staggering pace, thanks to baby boomers turning 65 and getting new hips and knees and drugs. Taxes are likely to go up, but also defense spending will probably drop.

Defense spending has declined 11 percent since mid-2010. Unless a major new war breaks out, expect further reductions. Alaskans should keep in mind that at some point, across-the-board spending cuts turn into base closing. When that happens, most bases will be unaffected. But those that are affected may be totally eliminated. That’s a key risk to Alaska.

The global economy impacts Alaska through international tourism and international trade. The outlook is for better growth this year and next, though risks continue. The European financial crisis could flare up again—those weak countries are not totally safe yet. The Russia-Ukraine problems could turn into war, which would be very bad for the economy. (The folklore of war being good for the economy is false in general, though some sectors do benefit.) In addition, China’s deceleration may continue, though the mainstream economic forecast is for steady growth at a moderately good pace.

Finally, the energy market is probably the greatest long-term threat to Alaska’s economy. The lower 48 states are in an energy boom thanks to fracking and other new technologies. That boom has not yet extended to foreign countries, whose oilfields are mostly controlled by state-owned oil companies. Eventually, though, political in-fighting and bureaucratic lethargy will be replaced by greed. When that happens, exploration will blossom in many countries. As new production comes to market, oil prices will drop significantly. Global economic expansion will use up some of the new supply, but not all of it. Thus, prices will fall. Not this year or next, but in the coming five to ten years, look for significantly lower revenue per barrel of oil.

Before coming to a conclusion, understand the limitations of this commentary. It is about the world external to Alaska. A wise business leader will add to this information knowledge internal to Alaska: oil taxes, native corporations, the attitudes of small business owners and a host of other local factors.

This global and national economic environment is moderately positive for Alaska, but it contains risks that families, businesses and government must consider.


Town Hall, by Michael Whatley Michael Whatley, Keystone XL, Trans Alaska, Photo by Dave Harbour(NGP Photo).  If there were any doubt about the importance of pipelines to national security, it ought to have been erased by recent events in Crimea and Ukraine as the Russian Bear has pawed away the former from the latter. Europe is vulnerable because 16% of its natural gas comes through Ukraine. It is a powerful reminder of why the Keystone XL Pipeline is critical to our own national security.  ...   With the vast majority of Alaskan oil feeding into West Coast refineries, it is critical to keep the TAPs pipeline flowing for the benefit of the entire United States....  -dh)

 

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

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4-14-14

14 April 2014 7:58am

This Morning at 8:30 a.m. Alaska Time (12:30 EST), the House Finance Committee met for its gas pipeline/oil production tax hearing.  


U.S. Sen. Lisa MurkowskiLisa Murkowski, LNG Export, Nikiski, Alaska, Photo by Dave Harbour, ConocoPhillips (NGP Photo) today commented on the Department of Energy’s (DOE) announcement that ConocoPhillips’ non-Free Trade Agreement (FTA) liquefied natural gas (LNG) export license has been approved.

“I’m glad ConocoPhillips will be able to add to Alaska’s 40-year history of supplying natural gas to Japan,” Murkowski said. “Today’s announcement by DOE also highlights the growth that’s occurring in Cook Inlet, where there is now ample gas supply to both meet local needs and help out our friends overseas.”

In February, DOE approved ConocoPhillips’ application to ship the equivalent of 40 Bcf of natural gas as LNG over a two-year period from its plant on the Kenai Peninsula to countries which have free trade agreements with the United States. 

Murkowski is the ranking Republican on the Senate Energy and Natural Resources Committee. 

-dh

TODAY'S LATEST ON HYDRAULIC FRACTURING FROM ENERGY IN DEPTH:

Washington Times, Editorial. At 8 percent, the California unemployment rate is higher than in all but three other states. The Legislature apparently likes it that way. The lawmakers are on their way to banning a technology that could create 200,000 jobs and inject millions of dollars into the state’s economy.   Glenwood Springs Post Independent, LTE. As a recent letter to the editor exemplifies, activists have been trying to push the claim that shale development will cause widespread birth defects and cancer, but those claims (and activists) have been debunked time and time again. The latest example can be found in a recent Colorado School of Public Health report. The report was highly criticized for its faulty methodology — most notably by Dr. Larry Wolk, chief medical officer of the Colorado Department of Public Health and Environment (CDPHE).  Reno Gazette-Journal. In a state world-famous as a gold producer, Houston-based Noble Energy Inc. is looking deep underground to make big bucks from previously untappable oil deposits, spending up to $130 million to identify the possible rewards.  Star Tribune. North Dakota’s oil boom has lured thousands of new workers to the state, but it still needs more. Minnesota’s neighbor to the northwest is on the verge of a new national advertising campaign that it’s calling “Find the Good Life in North Dakota.” The hope is to lure enough warm bodies — and skilled workers — to fill 25,000 jobs now vacant, and another 76,000 that it expects to see by the end of the decade.  Wheeling Intelligencer. Fossil Creek Ohio is signing Utica Shale leases in Marshall County, with plans to start sinking wells in the near future. The company said each well will cost up to $22 million to drill, compared to about $7 million that some companies have publicly said they are paying to drill in the Marcellus.  Athens News, LTE. It is time to get fracking here in Ohio. Former Obama Secretary of Interior Ken Salazar this past February said that hydraulic fracturing is safe....  ? Houston Chronicle. "The boom is in all areas of Texas' oil and gas industry. I have been watching the oil and gas industry for 40 years and I have never seen anything like this. This boom is the biggest thing to happen in Texas since Spindletop in 1901," said Bernard Weinstein, assistant director, Maguire Institute, Cox School of Business, Southern Methodist University.   
Latest Texas oil boom creates population surge. Longview News-Journal. New census data show a population surge as the oil boom draws workers and families to oilfields around the country. Some of the nation’s fastest-growing communities include Midland and Odessa in the Permian Basin and three cities near North Dakota’s Bakken Shale field: Williston, Dickinson and Minot.  Corpus Christi Caller Times. Eagle Ford Shale growth is driving a nearly 25-percent revenue growth spurt at the Port of Corpus Christi, port officials said.  San Antonio Business Journal. The number of oil and gas wells in the Eagle Ford Shale reached 1,110 in the first quarter, down 61 wells — or 5 percent — from the final quarter of 2013, according to new data from oilfield-services giant Baker Hughes.
 

4-13-14 Skagway: A New Oil Terminus For Canadian Oil?

13 April 2014 12:48pm

ADN.  Alaskans know Valdez as the state's oil port of choice, but an independent Yukon oil producer is planning to make Skagway No. 2 on the list of Alaska oil ports.  Last week, Skagway Mayor Mark Schaefer announced that officials from Northern Cross Yukon are interested in using the port of Skagway to export crude oil to a refinery in Washington state.

4-12-14

12 April 2014 10:16pm

Journal of Commerce/AP by Becky Bohrer.  The House Rules Committee on April 8 advanced legislation that would allow out-of-state residents to serve on the board of directors of the Alaska Gasline Development Corp.

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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

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