2-13-14 Jim Prentice Looks Beyond Obama For Energy Issue Coordination - Mystrom Comments On Alaska Oil Tax Reform
Canadian Press by Mike Blanchfield. It's high time Canada started looking beyond the Obama era if it wants to push economic integration with the United States to a new level, says former Conservative cabinet minister Jim Prentice (NGP Photo). ... New gas discoveries in both countries have transformed North America's economic landscape, said Prentice, who urged the federal government to set its sights on 2017 when Barack Obama's successor arrives in the White House.
Commentary. "Tis the season!" Yes, a legislative session in an election year tells us it's the season for discussion of the most important issues facing our state and nation.
As our readers know, we have consistently supported pro-free enterprise and reasonable economic development policies flowing from Washington and Juneau.
For several years, we have urged public support for oil tax reform, to correct a very predatory and anti-investor tax policy that was eroding economic strength and opportunity from Alaska's economy. We posted the last of many of our commentaries earlier this week. Even our commentary yesterday on LNG is linked to the issue of Alaska's investment climate and dependable tax policy.
Since then, we have received several opinion editorials. Former Anchorage Mayor Rick Mystrom (NGP Photo) wrote the one below, which we submit for your consideration. It deserves thought since Mystrom was elected to oversee the health of our largest city and since his family security depends -- like everyone else's -- on a state that can pay its bills and support the educational, social and business amenities everyone depends on in both rural and urban Alaska. -dh
"Why I Support The Current Oil Tax Reform Law: SB 21"
Few issues affect Alaskans more than the health of our economy. During the 42 years my family and I have lived here, we’ve experienced both good and bad economic times. As a two-term Anchorage mayor, as a businessman, as a parent and now as a grandparent, I know and appreciate the benefits of a thriving economy.
Since the beginning of Alaska’s partnership with the oil industry we’ve had long periods of healthy economic times accompanied by prosperity in both the private and public sectors of our economy. Schools have been built around the state, our university system has grown dramatically, and health and human services facilities have been built debt-free, all largely funded by the oil industry/State of Alaska partnership.
In Anchorage alone, we built the Sullivan Arena, the Loussac Library, the Alaska Center for Performing Arts, the Egan Center and the Dena’ina Convention Center—all without any debt. The partnership has worked well for Alaska and has given us an unmatched quality of life. All of this was accomplished with an oil tax rate that was more competitive and far lower than the old tax system, ACES.
In addition, that partnership has allowed us to accumulate over $76 billion in liquid assets including $50 billion in the Permanent Fund. The fund has paid every Alaskan who has lived here since its inception more than $35,000 in dividends—that’s $175,000 for a family of five. And that fund has nothing to do with taxes. It’s funded with 25 percent of Alaska’s fixed royalty. If production increases, our royalty share goes up. If production goes down, our royalty share into the Permanent Fund goes down.
But we’ve also had shorter periods of unhealthy economic times accompanied by hardship for tens of thousands of Alaskans. In the mid-80s when the price of oil dropped from $30 to $9 a barrel, the state, the oil industry and our citizens all suffered. Thousands of our neighbors lost their homes, businesses went bankrupt, banks closed and left the state and citizens left our state. Anchorage lost 13 percent of its population and 25 percent of its assessed value. The Interior, the Mat-Su Valley, the Kenai and the rest of Alaska suffered equally. But the State of Alaska/oil Industry partnership survived, and in the late 80’s we began a long period of sustained, gradual growth.
The continuation of our economic growth is now threatened. We’re facing a $2 billion deficit. This deficit is the direct result of lower oil prices and decreased production. The claim that this deficit is a result of the new tax structure is a myth. The deficit would be virtually the same under either the old tax structure (ACES) or the new tax structure now in place.
We can’t do anything about oil prices but we can do something about production. We can discourage it or encourage it. ACES discouraged production. We’ve watched our oil partners’ investments and oil service companies’ employees move to Texas, California, North Dakota, and other states who welcome their investment dollars and our employees. The tax structure now in place, created by Senate Bill 21, encourages production. Our North Slope partners have already committed to $4.5 billion in new projects since Senate Bill 21 was passed and signed by the governor.
Now comes another very important decision point for Alaskans—a decision that will determine Alaska’s future for years to come. In August we will vote on a ballot issue that asks whether we want to encourage our healthy partnership that provides 90 percent of our state government’s funding or discourage it. Do we want to keep the new tax passed by the Legislature last year which has already resulted in new investment and new jobs, or do we want to return to the failed tax of the previous administration that contained some of the highest taxes in the world and it did nothing to encourage production of a single, new drop of oil on the North Slope?
If we vote to repeal our current tax and return to the old tax, not only will our oil partner’s investments go to other states and our production continue its decline, but it would also be likely to end plans for a large-diameter natural gas pipeline and LNG plant to get North Slope natural gas to Alaska communities along a pipeline route and to profitable markets in Asia.
In August, I’m voting to keep our economy and our permanent fund healthy. I’m voting against repealing our tax structure. I’m voting “no” on Ballot Measure 1.
Rick Mystrom is a former two-term mayor of Anchorage, a former member of the Anchorage Assembly, and a successful businessman.
Alliance Profile: M-I SWACO a Schlumberger Company: From Drilling through Production, Focused on our Customers
Alaska LNG Project Faces Market Challenges...And Political Challenges
Alaska and Mackenzie Delta producers are eyeing LNG exports to Asia as this generation's best option for monetizing Arctic gas.
Previous generations were close: with the Arctic Gas project in the 1970s (i.e. including TransCanada); displaced by the Alcan project in the 1980s (i.e. vigorously opposed by TransCanada); and the Alaska Highway gas pipeline project given new life with higher gas prices and passage of the Alaska Natural Gas Pipeline Act of 2004 (i.e. led by TransCanada).
Evolution of Arctic gas projects continued with Governor Sarah Palin's (NGP Photo) support of the Alaska Gasline Inducement Act (AGIA, 2007), giving a subsidy to TransCanada just as the great North American shale gas phenomenon began eliminating that market for expensive, Arctic energy.
However, with subsequent support from the Legislature and Governor Sean Parnell (NGP Photo), TransCanada's project evolved into a duet consortium with ExxonMobil, and more recently achieved significant alignment of interests with the State's Administration, Legislature and other producers.
Meanwhile, the state's operating budget is increasingly unsustainable, depending as it does on drawing down savings accounts in response to its 90% dependence on diminishing oil production.
With the Obama Administration seemingly doing everything possible to prevent oil, gas and mining activity on federal AND state lands (i.e. Readers are welcome to challenge us on this accusation and we will be happy to document it), Alaska's economic prospects are at further risk.
To add to the lack of optimism, in a diminishing oil production environment, a coalition of minority activist and anti-business groups is promoting repeal of Alaska's oil tax reform law (See yesterday's commentary)--though the majority of Alaska's private sector leaders oppose repeal.
The Senate Bill 21 reform effort was passed into law less than a year ago after years of analysis and debate about how to increase investment and natural resource production, royalties and taxes. Repealing SB 21 would send a dramatic signal to the investment world that in Alaska, "A deal is not a deal".
Now, the state's economic hopes are focused like a falcon's gaze on hopes for a gas pipeline and LNG export project whose prime market would be Asian consumers.
However, just as changing domestic gas markets over the last 45 years have killed hopes and plans for monetizing the huge Arctic gas reserves, so now do the furies appear to be conspiring against Alaska's export hopes.
In Canada, a number of LNG projects have been approved or are in mature permitting stages -- by a supportive federal government -- and seem to be mostly targeting Asian markets.
Even though Japan's Fukushima tragedy resulted in more demand for LNG, Japan is also considering lower cost coal as a competitive alternative, which diminishes consumer appetite for more expensive LNG imports. We note that Japan has been one of the most prospective markets for Arctic gas.
Meanwhile, members of Congress who have studied the issue are telling the Administration that unless the Department of Energy increases the approval rate -- and decreases the backlog -- of LNG project applications, markets could be lost to other energy sources.
The Department of Energy's LNG export function -- under direction of Assistant Secretary for Fossil Energy, Christopher Smith (NGP Photo) -- seems to be increasing its approval activity.
|Fuel Fix. Oil industry and business groups have formed a new coalition to make the case for expanded exports of American natural gas.
The “Our Energy Moment” campaign, which is described as a grassroots organization, aims to counter the arguments of export foes, as the Obama administration weighs applications to widely sell liquefied natural gas overseas.
An increased approval rate for Canadian and Lower 48 LNG projects is certainly good for North American economies.
Logically, a larger number of LNG exporters means more competition for an Alaska project.
Most projects will be attempting to secure long term supply contracts with utilities and/or large industrial users. As those markets become satisfied with the growing number of current LNG projects, Alaska North Slope and Mackenzie Delta gas will surely have a more challenging time -- as later comers -- elbowing their way into market niches that will pay top dollar for long term contracts.
We suspect that one saving grace of current Arctic gas projects is the high degree of expertise focused on their successful outcome. In particular, we note that many if not most of the Alaskan and Mackenzie Delta producers have LNG experience and some affiliated interests with each other and even with Canadian west coast and Lower 48 LNG exporters.
Where does this leave Alaskan citizens and investors?
- In six months, Alaskans will vote on whether to stabilize or destabilize their investment climate. Depending on the referendum's outcome, we can envision either massive new investment in the state or massive withdrawals of capital investment plans, over time.
- If the August plebiscite favors investment, we can envision all parties attempting to fast track gas pipeline timetables. If the vote repeals tax reform, we see a gloomy end to this generation's plans for monetizing Alaska gas.
- In the next three years, the Obama Administration will either ease up on Alaska or continue its nearly perfect record of opposing, slowing and/or stopping every major development they can in the state. If projects can be sanctioned under the federal assault, more oil and gas can contribute to a sustainable economy. If federal pressures continue and even increase, prospects for more oil, gas and mining production are limited.
In conclusion, we cannot overstate the importance of the August referendum vote on whether to repeal Senate Bill 21.
This is because repeal of SB 21 would recreate an investment climate that has minimized what could have been sufficient investment to stabilize if not reverse waning, North Slope oil production.
As we have demonstrated above, Arctic gas LNG projects will have a challenging enough time finding a market niche even in the best of circumstances. But repeal of SB 21 will, in our view, totally emasculate the investment climate along with plans for a gas pipeline.
We would also offer this additional perspective on the highly lauded, state financed, in-state gas pipeline project, under control of the Alaska Gasline Development Corporation. That project was designed to meet growing demand for natural gas as a heating and power supply for the majority of Alaska's population.
But with 90% of the state budget depending on oil production -- along with a third of Alaska's economy -- repeal of SB 21 would result in growing job losses and a massive, lemming-like out-migration of citizens from the state over the next five years.
In such circumstances, existing natural gas supplies will be more than sufficient to supply the survivors without the need for or expense of a new, in-state gas pipeline.
Finally, we invite those seeking optimism to find it by joining us in seeking a stable tax environment and for more powerfully exercised state's rights in the face of an overreaching and predatory federal government.
For our Canadian readers: Want to become a temporary member of the National Energy Board in Calgary? Knowing several of the Members and the Board's mission, we can say it would be both a high honor and experience of a lifetime to serve! -dh
This morning, Keith Kohl wrote a column for Energy and Capital revealing that the Lower 48 may be looking more closely at Alaska. He said, in part, "We've become a nation of spoiled children when it comes to energy. This is particularly true for those of us living in the Lower 48, where we've enjoyed a shale and tight oil boom. Of course, I say the “Lower 48” because field output in states like Alaska (Note: see the EIA chart here and relate it to our commentary yesterday...scroll down) has actually declined 74% since 1988!" -dh
COMMENTARY: This morning, U.S. Sen. Lisa Murkowski (NGP Photo, NARUC, 2-4-13) is addressing the National Association of Regulatory Utility Commissioners (NARUC). Her major theme: “Whether here, in Alaska, or anywhere in between, our goal must be a grid that is more reliable and more affordable." She is releasing a white paper on electric reliability – Powering the Future: Ensuring that Federal Policy Fully Supports Electric Reliability – at the event as part of her blueprint for the nation’s energy policy, Energy 20/20: A Vision for America’s Energy Future. The paper looks at the impact of new environmental regulations on power plants that supply baseload electric generation, coupled with the influence of federal government preferences and subsidies, and the increasing usage of intermittent energy sources on the overall reliability and sustainability of the electric grid. Energy Committee staff member, Chester Carson, tells us that copies of Sen. Murkowski’s speech and white paper will be available on the energy committee’s website, here, this morning. For your convenience, we reprint her speech below.
Alaska Native News. (Reader Kaye Laughlin sends us this reminder of the increasing momentum toward the marketing of Alaska natural gas. -dh)
In response to a September 5th letter from acting Department of Natural Resources Commissioner Joe Balash (i.e. now, the commissioner), asking them to re-open their mothballed LNG plant on the Kenai Peninsula to resume exports, ConocoPhillip has applied for a two-year export permit to do just that.
According to the DNR, re-starting export of LNG will stimulate natural gas production in Cook Inlet and spur more natural gas exploration. The Nikiski export plant was closed down because of shortages of LNG for local consumption in the state and an expiring permit in 2012. Those local needs have now been met through 2018 by Hilcorp, who purchased gas fileds from Marathon and Chevron.
ConocoPhillips says that they applied for the new permit from the U.S. Department of Energy on Wednesday, but would not export any gas this winter because regional utilities will be given priority during the season when gas is in demand. But, the application requests a permit to export 20 billion cubic feet of gas as LNG per year.
The 24-year-old plant was begun in 1969 by Phillips Petroleum and Marathon Oil. Phillips merged with Conoco and then Conoco-Phillips bought out Marathon's shares to become sole owner.
As a former member of NARUC, your author has a special interest in the organization, having served as a vice chairman of its 'Gas Committee' and written a number of NARUC resolutions supporting northern energy policies--including one endorsing passage of the Alaska Natural Gas Pipeline Act of 2004.
We were also honored to serve as NARUC's Official Representative to the Interstate Oil and Gas Compact Commission (IOGCC), where we coordinated joint policy resolutions supporting Alaska in particular and sound energy policy generally.
We remain focused on NARUC because some of NARUC's resolutions, affect developing national policies in the Congress and Administration. NARUC deserves our scrutiny because members include not only regulatory commissioners from every state, including Alaska, but also federal commissioners from the FERC, FCC and even the Canadian National Energy Board. DOE's senior management participates in meetings as do Governors and members of Congress.
We, therefore, offer high praise to Senator Murkowski, who has addressed the organization several times, for exercising her national Energy Committee leadership with this key constituency. -dh
Today's Energy References:
BuildKXLNow.org: Alex Pourbaix Answers the Los Angeles Times
Facts matter. Activists certainly have their own opinions, but they are not entitled to their own set of facts. TransCanada, the builder and operators, of the Keystone Pipeline system recently wrote to the editorial board of the Los Angeles Times correcting the record on several claims made in their newspaper.
BuildKXLNow.org: Crossing the wrong line
The Washington Post editorial page raised its voice even louder among the broad coalition of Keystone XL supporters. WP: ENVIRONMENTALISTS HAVE drawn a line in the sand on the Keystone XL pipeline. It’s the wrong line in the wrong sand, far away from any realistic assessment of the merits — as yet another government analysis has confirmed.
Portland Daily Sun: Report: New England needs to add 2 billion cubic feet of natural gas pipeline
New England needs 2 billion cubic feet of new natural gas pipeline capacity to eliminate cost spikes and make New England competitive with the rest of the nation, according to a new consultant's study.
The Hill: Cruz looks beyond Keystone XL
Sen. Ted Cruz (R-Texas) is shifting his focus to the nation's energy policy, starting on Monday. At the Heritage Action for America's Conservative Policy Summit in Washington, D.C., on Monday, Cruz will make the case that, while President Obama should approve the Keystone XL pipeline, Republicans need to come up with other ideas to expand the country's energy production.
When the State Department issued its long-awaited environmental impact statement on the Keystone XL project earlier this month, one of its key findings was that if the controversial pipeline wasn't built, oil-laden rail cars would pick up the slack. "Rail will likely be able to accommodate new production if new pipelines are delayed or not constructed," it argued. As we noted recently, that rail transit is already underway.
If you love the environment, Sen. Ted Cruz says you should love the Keystone XL pipeline too. "If you're a Birkenstock-wearing, tree-hugging Greenpeace activist, you should love the Keystone pipeline," Cruz said at the Heritage Action's Conservative Policy Summit on Monday. Cruz, R-Texas, focused his remarks on a push to deregulate the controversial practice of hydraulic fracking and expanding offshore exploration, and in the process, appealed to any environmentalists listening in on his remarks.
The Hill: Canadian PM: Keystone XL 'inevitable'
Canadian Prime Minister Stephen Harper says building the Keystone XL pipeline is "inevitable" as the history and economics of a U.S.-Canadian relationship outlast a presidency. In an interview with Bloomberg News, Harper said economic forces determine whether projects like Keystone go through, not fleeting political calculations.
Shop Floor: Keystone Suppliers Pen Op-Ed
The Keystone XL pipeline represents a lifeline for American workers and the U.S. economy, and the longer we wait for approval, the longer the creation of thousands of high-paying manufacturing jobs for American workers is put on hold. That was the message from NAM Members Albert Huber of Patterson Pump Company and Peter Bowe of Ellicott Dredges in a recent op-ed.
No kidding. Canada doesn’t exactly tend to rile easily, but there are only so many years of flagrant abuse and neglect they can take when their interests are clearly being put on the backburner in favor of assuaging the well-monied environmentalist lefties that have managed to turn the otherwise innocuous infrastructure project into a political firestorm.
West Texas Intermediate crude gained for a fifth day, paring the discount to Brent on speculation that inventories in Cushing, Oklahoma, decreased last week and as Libya worked to restore supplies. WTI rose 18 cents to a six-week high. Supplies at the delivery point for futures may have dropped for a second time as the southern leg of the Keystone XL pipeline moved oil to the Gulf Coast. Brent dropped as Libya increased output after protests at the Sharara field ended, according to the country’s National Oil Corp.
Times Online: Corbett awards $750,000 grant to shale center
Gov. Tom Corbett Monday awarded a $750,000 Discovered in PA - Developed in PA grant to help launch the Shale Gas Innovation and Commercialization project, an initiative founded by the Ben Franklin Technology Partners of Central and Northern PA.
The brutally cold winter experienced by much of the Midwest and Northeast this year is partly to blame for higher propane prices and for making the fuel harder to come by in parts of the country. The Pennsylvania Propane Gas Association, or PAPGA, said other factors include a decreased capacity to get the fuel from one place to another.
The third annual national energy conference at West Virginia University will focus on new rules from the Environmental Protection Agency to regulate carbon dioxide emissions from coal-fired power plants. Featuring experts from government, the private sector and environmental organizations, the conference will explore how these new laws will be navigated and affect the power industry, states and communities.
Advances in drilling technology are expected to help North Dakota hit the 1 million barrel per day mark at some point this year. But it's Texas that still holds the leadership position in terms of oil production. Don't mess with Texas.
Pittsburgh Post Gazette: Washington County's Robinson to withdraw from Act 13 lawsuit
Newly seated supervisors in Robinson, Washington County, plan to withdraw the township from a joint suit against Act 13, the state law regulating Marcellus Shale natural gas drilling. Township attorney Alan Shuckrow said Monday night that the lawsuit nonetheless would continue to carry Robinson’s name, and the case would move forward with the remaining plaintiffs.
"From my opinion and from what I've seen...I believe hydraulic fracking is, in fact, safe. We know that, from everything we've seen, there's not a single case where hydraulic fracking has created an environmental problem for anyone." What right-wing, knuckle-dragging Neanderthal uttered that inanity?
Wall Street Journal: Secondary Sources: Death by Finance, Middle Class, Shale Gas and Housing
Dani Rodrik looks at how financial markets view emerging economies. “This is not the first time that developing countries have been hit hard by abrupt mood swings in global financial markets. The surprise is that we are surprised. Economists, in particular, should have learned a few fundamental lessons long ago. First, emerging-market hype is just that. Economic miracles rarely occur, and for good reason.
The Ottawa County Planning and Performance Improvement Department is hosting a three-part series of meetings about hydraulic fracturing, the controversial method used to improve production in oil and gas wells, also known as “fracking.”
Columbus Dispatch: Revised fracking-tax bill expands income-tax cut
House Republicans hope to roll out a revised fracking-tax bill this week with a slightly higher rate, a bigger income-tax cut and money directed to areas where shale drilling is most prevalent.
Extreme cold. Ice-clogged seas eight to 10 months every year. An ancient, indigenous people living on Alaska’s North Slope who hunt local Bowhead whale. Marine mammals, deep-sea coral and Greenpeace.
The Obama administration is quietly working on new greenhouse gas emissions targets to deliver to the United Nations, even as it struggles to craft regulations that will enable the United States to meet its current carbon-cutting goals.
Address for NARUC’s
Winter Conference Meetings
Sen. Lisa Murkowski
February 11, 2014
“Thank you for the warm welcome. Last year I was honored to release my policy blueprint, Energy 20/20, during this conference. As I said then, my report was intended as a conversation starter, with the goal of developing policies that would make our energy abundant, affordable, clean, diverse, and secure. I’m grateful for the response it has received. And I’m particularly glad that after asking you to read its 120 pages, you were still willing to invite me back again.
“The focus of my remarks this morning will be narrower than a new vision for our federal energy policy – I want to use this time to discuss what it means to protect the reliability of our electric grid. I’ve written a white paper on this subject entitled “Powering the Future: Ensuring That Federal Policy Fully Supports Electric Reliability.” Any moment now it will be available on our Energy Committee website. You don’t need to rush for the exits, though, as I will cover much of my thinking on this important topic here with you.
“Let me start by noting that I was pleased to see that your agenda dovetails nicely with the subject of electric reliability. You have scheduled multiple sessions that focus on this issue, including the Polar Vortex debriefing, the value of the grid, and the European experience of integrating renewables.
“I also want to explain why I care so much about this issue – why, out of all the challenges we face, this one stands out to me, and why I have given it so much attention in recent years. My reason is that, like all of you, I recognize the essential role that electricity plays in our lives. Too much of the developing world is forced to live in energy poverty, but whether we are at home, at work, or just about anywhere else, we have an expectation that power will flow instantly.
“Nearly always, that expectation is met. We flip a switch or push a button and electricity flows. That’s no small feat; it’s the result of countless hours of thinking, planning, engineering, construction, and maintenance. That work – often your work – makes our lives better, and it makes the world around us possible.
“The grid’s reliability has improved over the years, and it is now rare to incur an outage on the bulk power system of significant duration. But there are also new factors and forces at play that could fundamentally alter and even degrade our grid network.
“There may always be threats to our grid – at some level, and in some form. There may always be squirrels and storms that can take out a line and cause an outage. Last year I spoke with you the morning after the Super Bowl, which lost power for 34 minutes. This year we had a blowout, not a blackout – and as a Seattle fan, I’m fine with that – but the experience of a year ago still remains quite vivid.
“Something on our minds after the news of last week, about a coordinated attack in California last April, is sabotage – the possibility of a physical attack that disables key parts of the grid. Sabotage has always been a risk, and we must recognize the need to protect against it. As policymakers, we must include physical security as a key issue in our discussions. And, further, we must take measured steps to protect the grid – not merely sensationalize the threat.
“Based on what I have been told, industry and regulators are appropriately applying new lessons to improve the physical security of electric infrastructure. More may need to be done. But we can’t draw the wrong lesson here, either. It would be a shame if newly-realized fears about physical security drowned out a sober conversation about the broader risks that we now face. What we don’t need to do is stoke the drama, educate bad actors, and make copycats more likely.
“One of the key points I want to make today is that sabotage is not the only threat we face in protecting the grid. As we enter into an era of new environmental regulations on power plants, coupled with preference and subsidies for power generation and use, we must also recognize that grid reliability could well be impacted by the decisions of our own federal government.
“I am concerned, as we all must be, with maintaining the stability of the grid as more and more baseload plants come off-line as a result of both market forces and regulatory constraints. Clearly price is a major factor that owners of electric generating units consider to determine fuel sources, but it is not the only one.
“Our natural gas production is at record high levels and generally this has led to low domestic prices. The Energy Information Administration projects natural gas will become the dominant fuel source for energy production by 2040. In line with EIA’s projection, we are already seeing a major shift. Approximately 150 coal-fired generators were retired between 2001 and 2010. During that same time period, more than 1,000 gas-fired generators came online.
“As natural gas assumes a larger market share, we must be mindful of the need for additional infrastructure to accommodate its increased role in electricity production. A more extensive gas pipeline network is needed to support the shift to gas (See Forbes commentary, below). Thanks to Acting Chair Cheryl LaFleur and Commissioner Phil Moeller (Note: a former resident of Alaska. NGP Photo. -dh) – who started the entire discussion in 2010 – FERC has been engaging stakeholders on this topic. As we rely more heavily on natural gas, better coordination between the electricity and gas sectors is necessary to protect grid reliability.
“As we examine the issue of grid reliability and diversity of fuel, we must acknowledge that even record natural gas production may not be enough to avert price volatility at every moment of every day. For example, just last month we saw major swings in natural gas prices on the PJM system, which caused the RTO to seek price cap relief from FERC.
“Keep in mind that not a decade ago, natural gas prices were high enough to prompt what many thought would be a very broad renaissance for emission free baseload nuclear power. The nuclear renaissance has obviously not been as strong as many of us had hoped. Low natural gas prices, high construction costs, and uncertainty surrounding regulations in the nuclear industry have all been factors. Just last year, four nuclear reactors were closed and a fifth unit is scheduled to shut down in 2014. At least two of these facilities will close as a result of economic factors. Despite receiving license renewals from the NRC, they were unable to generate power in an economically viable manner.
“In addition to market factors, and vitally important for policy discussions because public officials have distinct responsibilities, we must also examine the cumulative effect on baseload capacity of federal regulations – particularly those from the Environmental Protection Agency. Now of course I recognize that EPA has an important job to do, but it does not regulate in a vacuum. In many instances EPA’s regulations will render generating units uneconomic, with compliance requiring retrofitting, the use of best available technology, and downtime for installation.
“As state regulators, you are all too aware that to maintain grid reliability, there must be a level of certainty in the power supply. For example, if baseload coal and the ancillary services it provides account for almost 40 percent of our power, and EPA sets greenhouse gas emission limits without sufficiently considering whether technology is commercially available to meet the required standards, the impact on grid reliability could be severe. I am greatly concerned that federal policies could result in a grid that is less stable than even two years ago. And I am even more troubled that EPA – which has conceded that a single rule may have “localized” effects – has not sought from FERC or NERC an analysis of the cumulative impact its rules may have on grid reliability.
“Already this year, much of the Lower 48 has had a taste of what life is like during an Alaskan winter – an event known as the Polar Vortex. It not only caused cold weather across the nation; it also caused 50,000 megawatts of power plant outages. The electric industry has an impressive history of learning and improving from these system challenges. Yet we also caught a glimpse of the challenge that lies ahead. What we learned from the Polar Vortex is that for one key system, 89 percent of the coal capacity that is slated for retirement next year because of an EPA rule was called upon to meet rising demand. That raises a very serious question – what happens when that capacity is gone?
“Our reliance on installed, dispatchable power generation during extreme weather serves as a shining example of why diversity of baseload capacity is necessary to secure grid reliability. It should serve as a wake-up call for policymakers as well as federal and state regulators. The same might be said for nuclear baseload that could be put at risk by rules intended to protect more fish from power plant cooling systems.
“Today it is uncertain how many plants will retrofit to comply with various EPA regulations or simply close. It is uncertain if there will be enough time – to say nothing of sufficient capital available for investment – to build new facilities or other forms of generation needed to ensure the reliability of the grid.
“Now I am very much in favor of clean energy, which I define as “cleaner” than the next most likely alternative. Various state and federal policies, such as renewable energy requirements and direct financial incentives, have compelled significant deployment of intermittent energy resources. And this has brought forth another unique set of challenges.
“With the introduction of distributed generation, the concept of grid management is changing. Although it is commonly believed that additional power onto the grid at any time is helpful, if you pose this question to a grid operator, you will get the true story—the injection of electricity without regard to consistency presents challenges to grid management, and it imposes costs.
“As you know better than I, many states have adopted net metering policies, which allow customers with rooftop solar or other distributed generation systems to accrue credit for any electricity they sell to the grid. Electric providers are often required to buy this power at the full retail rate. You are the experts, but as I see it, regulatory policy must not create windfalls.
“The grid provides transmission, distribution, generation capacity, ancillary and balancing services to everyone throughout the day, to every customer fortunate enough to be connected. As I have considered electricity issues, I have considered how good it would be if my own state of Alaska had a more extensive grid. On the cover of my white paper is a picture of major transmission lines in the United States. From it, you can see the limited infrastructure in my home state. Power costs in rural Alaska averaged more than 55 cents a kilowatt hour in 2012.
“Whether here, in Alaska, or anywhere in between, our goal must be a grid that is more reliable and more affordable. To achieve that, we need to recognize the central challenge of electric reliability in the coming decade: finding a way to replace retiring base load capacity, while managing an increasingly variable energy mix. While grid reliability is a difficult topic to tackle, it must be addressed.
“In the Energy Policy Act of 2005, Congress properly gave the FERC-designated Electric Reliability Organization – NERC – the role of primary guardian of grid reliability. FERC also has its own role, which is not only to engage government agencies to ensure federal regulations do not increase the risk of disruptions to the grid, but more broadly to enable investments in robust and reasonably priced energy infrastructure.
“I challenge the leaders in this room and beyond it across all sectors of the electric industry to speak out more consistently and more candidly about the challenges you see. My colleagues and I will be particularly interested in your critique of federal policy and what we can do to improve it. We must be mindful that the burdens of maintaining the grid are fairly borne, that complex and powerful regulatory laws are judiciously administered, and that a due regard for balance prevents undue discrimination. And we must do all of this, as I stated, while we ensure that electric systems maintain and even improve their reliability.
“Thank you for having me.”
Forbes (2/8/14) reports: “We know where the gas is. The giant fields in Texas, Louisiana, Pennsylvania and elsewhere. And there’s plenty of it. The problem is that despite the thousands of miles of gas pipelines crisscrossing the country, there just aren’t enough of them going to the places that need it most. The trouble seems to be most acute in New England, where gas prices have shot up the most and where the supply bottleneck has gotten so severe that even newspapers like the Concord Monitor are editorializing in favor of more natural gas pipelines. State and federal regulators need to encourage their construction. NIMBYists in New England need to get out of their way. The other problem across the country is that in the face of what has appeared to be endless supplies of cheap natural gas we as a nation have stupidly turned our back on coal. From 50% of our electricity supply just five years ago, coal now provides for just 35%. Utilities across the country have closed down coal-fired power plants in response to ever more draconian emissions restrictions dictated by the Environmental Protection Agency.”
Part I: Has Alaska Become A Place Where A Deal Is A Deal?
Today's Anchorage Daily News contains a 'news' article describing how Alaskan oil companies are "pouring" millions of dollars into an effort to stop repeal of the State's oil tax reform law.
Citizens should be applauding the companies for upholding a law approved less than a year ago by Alaska's Governor and a majority of the elected representatives of the people. A number of groups representing the bulk of Alaska's private sector economy are responsibly recommending a sound "No" vote to repeal tax reform.
1. Alaska's government operating budget is over 90% dependent on Alaska North Slope (ANS) oil production. Over a third of our entire economy would collapse without ANS oil. The Trans Alaska Pipeline System (TAPS) that carries ANS oil is 3/4 empty. It is becoming dramatically emptier: 6-8% per year. Massive new capital investment is needed to stem and reverse the production losses. In the most highly taxed, highest cost "oil patch" in the free world (i.e. and we would be happy to discuss Norway anytime, for it is a place where 'A Deal is A Deal'), our leaders last spring decided to reform the tax burden. Their objective was to increase capital investment, following several years of study and careful analysis.
2. The Constitution and our kids. Politicians are fond of quoting Alaska's Constitution requiring that natural resources be developed for the "maximum benefit" of the people. Trouble is, as we observed in this 2012 editorial, greedy constituencies want the "maximum benefit" of anything now...today...for themselves...and to heck with long term, wise decisions that provide a sustainable economy for their children. We see this disturbing trend played on the national stage as well as in Alaska.
3. Alaska's integrity is at stake. There is no citizen who thinks, "I want our state to be irresponsible". There is no investor who would say, "I would prefer to invest my money in an insecure area." But when Alaska began increasing its already high oil taxes nearly a decade ago (i.e. after investments had been made), future investment became less secure here. When Alaska made higher tax collections retroactive, Alaska became a riskier, less reliable place to invest. Now, when Alaska's leaders have concluded after years of study that reform is required to save Alaska's economy, special interest efforts to repeal that effort a year later would put a nail in the coffin of Alaska's reputation as a reliable place to do business.
4. The oil companies' fight is our fight. Without more investment TAPS throughput inches closer to a disastrous closing of the pipeline and Alaska's whole house of economic cards gets wobblier by the year. When the cards fall and TAPS oil slows to a trickle -- perhaps even causing closure of the pipeline -- every man, woman and child still here will suffer...a lot.
- The subsistence lifestyle in rural Alaska will become unaffordable as fuel, airport, social service, transportation, communication and public safety programs and subsidies evaporate. Over two hundred Alaska Native village corporations and their non profit affiliates along with Alaska Native Regional corporations should be defending tax reform--or live to see their own non profit efforts diminish as their profit making entities face the prospect of increased taxes and fewer contracts. Huge North Slope Borough, Fairbanks and Valdez oil property taxes can be collected only when oil property is present and viable. Less investment produces less local tax revenue.
- Subsidized health care from the smallest village to Alaskan cities will diminish in at least two ways: as direct subsidies diminish and as those with insurance coverage leave Alaska or lose coverage which, in part, pays for charity health care. Advocates for the poor, disabled and sick should be opposing repeal of oil tax reform with every spare spark of energy they can spare.
- Education will be one of the hardest hit areas, as state funding of local and statewide elementary, secondary and university programs decreases. School boards, superintendents and teachers should start appreciating and defending where their funding comes from, in our view.
We continue to be surprised at how few non profit organization leaders testify to the Legislature in support of oil companies, how few write letters to the editor. Yes, Non profits are professional, profligate writers of corporate grant requests, but how many stand up to support oil company investment -- which directly and indirectly affects their own prosperity?
Alaska has more non-profit organizations per capita (i.e. 6,000) than any other state. While a third of their funding comes from federal sources, much federal and foundation and corporate funding is given on a matching basis. Certainly, non-profits providing youth, arts, education, disabled and sports programs will be badly affected as business giving dries up--as we believe it will with repeal of recently passed oil tax reform legislation.
We do wonder at the motivation of those who argue more money will flow into Alaska's coffers by repealing oil tax reform.
Two years ago during a private luncheon with a well known liberal leader, she agreed that the state's economy was in peril. Then, she agreed that the natural result of an imploding oil industry and economy would be that Alaska could once again become a ward of the federal government where houses are cheap, the population diminishes and where the dozens of federal programs and environmental activist organizations would prosper. I know that she is well intended and believe her to be not evil, just wrong -- at least for my network of friends and coworkers.
A well intended citizen could oppose the tax reform law and support a political party's numbers simply because he or she is loyal to that party. In that case, the party's economic projections may be trusted on faith -- however rational or irrational they might be.
A not so well intended politician might simply think, "Hey, opposing tax reform as a 'give away' makes me popular with my constituencies, likely to be reelected, more marketable when I retire -- with an oil subsidized retirement check to boot."
On the other hand, one might think certain constituencies -- like Alaska Native oil field contractors -- that make more money when the oil industry makes more investments -- are biased.
Chambers of commerce throughout the state might be biased in favor of the law which they believe will result in more economic prosperity for their members.
In short, all participants in the growing SB 21 repeal effort -- not just supporters of repeal -- will be pursuing their own economic and social agendas.
Citizens will listen to the messages amid the din of rhetoric and vote one way or another, or not vote.
As for this editorial writer, free enterprise wins the argument at day's end.
We would like to see the 49th state adopt a new slogan: "Alaska, where a deal's a deal!" After all, Repsol's relatively new investment here results, in part, from an expectation of tax reform. We therefore align ourselves with the majority of our elected officials who are charged with protecting the public interest.
We further align ourselves with the major employers and taxpayers of Alaska, who have certainly paid their dues, in spades, and at least deserve to operate in a state that establishes and defends fair and predictable tax and regulatory rules.
We will be voting "No" on the August primary ballot measure asking for repeal of Alaska's oil tax reform legislation.
We believe Alaska's future will dramatically depend on the outcome of that vote. And in August, the world will know whether Alaska has matured into a place where a deal is a deal.
Lansing State Journal: Editorial roundup: Obama should approve Keystone - The State Department has given President Barack Obama cover to approve the Keystone XL oil pipeline, despite stubborn objections from environmentalists. He should use it. The president asked the department to assess the carbon impact of allowing Keystone to be built. The answer: None. And, in fact, the study concludes that constructing the pipeline is the most environmentally friendly way to carry heavy crude from Alberta oil sands to Gulf Coast refineries.
Washington Post: Ted Cruz: GOP needs to ‘think bigger than Keystone’ - President Obama should allow the construction of the Keystone XL oil pipeline, but Republicans need to start coming up with other ideas to boost the nation's energy output, Sen. Ted Cruz (R-Tex.) plans to argue Monday.
Wilkes Barre Times-Leader: COMMENTARY: RICH LOWRY Obama quick to stall Keystone plan - President Barack Obama has urged that we make this a “year of action,” and he is going to do his part by acting with vigor and dispatch to continue to study the proposed Keystone XL pipeline project.
National Geographic: Keystone XL: Is It the Right Fight for Environmentalists? - Last Monday night, when environmentalist activists staged 280 candlelight vigils in 49 states to protest the proposed Keystone XL pipeline—in Washington, D.C., demonstrators inflated a giant black tube in front of the White House—many no doubt wondered if their long campaign to halt the project had reached a turning point.
Boston Herald: Pipeline demagoguery - The State Department’s final environmental study of the proposed Keystone XL crude oil pipeline from Canada almost forces any honest reader to conclude that failure of President Obama to approve the pipeline would be an act of incompetent demagoguery. The pipeline would carry 830,000 barrels a day (about 5 percent of current U.S. consumption) from the oil sands of Alberta almost 1,200 miles to a connection with pipelines in Oklahoma that would route the oil to refineries on the Gulf Coast, already equipped to handle heavy crudes like Alberta’s.
Rapid City Journal: FORUM: It’s time for White House to approve Keystone XL - The Obama administration has searched high and low for every reason possible to delay construction of the portion of the Keystone XL pipeline that runs through South Dakota, but last week’s State Department report on the project’s environmental impact should clear away whatever remains of the White House’s manufactured doubt.
Petroleum News by Eric Lidji (NGP Photo). For the fourth quarter, ConocoPhillips earned $555 million in Alaska, up from the seasonally lower third quarter, but down from the same period during the previous year on declining production. The company paid nearly $1 billion in obligations during the quarter, which vice president finance, ConocoPhillips Alaska Vice President of Finance Bob Heinrich attributed to the outgoing Alaska’s Clear and Equitable Share fiscal system.
“The fourth quarter of 2013 is similar to what we have seen historically under ACES where we pay about twice as much in taxes as we keep,” Heinrich said in a statement, attributing a planned increase in spending this year to recent tax code revisions under the More Alaska Production Act which went into effect Jan. 1. Voters will decide in August whether to keep the changes.
Bristol Bay Times by Jim Paulin. Royal Dutch Shell's new chief executive said last week that the company is shelving its Alaska exploration program, at least for this year, a move that will impact the economy of Unalaska/Dutch Harbor.
Unalaska served as Shell's base in 2011 and 2012, as the nearest port with year-round open water and well-developed port facilities, despite being about 1,000 miles from the offshore oil prospects to the north in the Arctic Ocean.
"It's a pretty substantial hit," said Tom Enlow, of Unisea, which operates the Grand Aleutian Hotel in Unalaska. Shell had planned to rent between 70 and 75 hotel rooms daily from April through September, at an average of $139 per day, he said Monday.
The oil company's pullout means a loss of not only hotel rental revenue, but also food and beverage expenses, for both Unisea and other local restaurants, as well as less money for the local marine support sector that provides parts and services to ships, Enlow said.
The city government will also lose out because of reduced fees and sales taxes generated by Shell's activity, said Enlow, who is also a member of the Unalaska City Council.