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.
Commentary: Yesterday, Alaska's Deputy Commissioner of Revenue, Bruce Tangeman (NGP Photo), provided updates on the, "More Alaska Production Act & Gasline Heads of Agreement". Here is the video and a link to the presentation .pdf. -- In a similar vein, yesterday we were queried by a Lower 48 oil and gas publication on challenges we perceive Governor Parnell faces. See our response, below. See EIA Comment. -dh
Juneau Empire Op-Ed by Rep. Eric Feige (NGP Photo). As Sen. Mark Begich and Rep. Andy Josephson have recently opined about the Pebble Mine, I offer some of my own thoughts in response to the rhetoric of politicians more interested in inciting fear and “us versus them” thinking over facts. (This Op-Ed is a responsible perspective on the "rule of law" issue that threatens all construction projects and violates constitutional protections, as we have long held. Kudos to Representative Feige. -dh)
Note: Over the years we have developed a high regard for the unbiased, professional and diligent work of the NEB. (We did not have that view of the NEB in the late 1970s, though that is another story.) While accidents and citizen response to emergencies can be disconcerting, responsible companies like TransCanada and agencies like the NEB have shown why the public interest is protected--even in the most challenging circumstances. -dh
National Energy Board Chair & CEO Gaétan Caron (NGP Photo) commented on recent media reports, this week. "I wish to correct some factual inaccuracies in a media story on the NEB’s investigation report into a 2009 pipeline rupture on TransCanada’s Peace River Mainline that was published on February 4, 2014." Read more, here. Reference this CBC story. -dh
Journal of Commerce by Tim Bradner. State legislative committees continue to work their way through Gov. Sean Parnell’s proposed natural gas pipeline deal with North Slope producers and TransCanada Corp.
FOX News yesterday ran a story on the surge in domestic oil production and the benefits of lifting the current ban on exporting U.S. oil. The story includes highlights from the Senate Energy and Natural Resources Committee’s recent hearing and Sen. Lisa Murkowski’s (NGP Photo) recent letter to President Obama urging him to lift the ban. Arguing against exports is Dan Weiss from the Center for American Progress, who was a witness at the Jan. 30 committee hearing on oil exports.
A note on Weiss’ claim that oil companies would reap big profits from exports: he conveniently forgets to add on the cost of transporting the oil overseas, which would more than make up for the roughly $10/barrel price difference. The reason the export ban needs to be lifted is because it provides an incentive for more oil production here at home. Without new markets, once U.S. refineries can’t handle any more domestic crude oil, producers will have no option but to stop looking for new oil. We suspect that’s really the outcome Weiss and the Center for American Progress want – and why they want to leave the antiquated ban in place.
Find the complete video of the FOX News segment here.
We received an email from an energy publication journalist friend this week: "Hi Dave: How’ve you been? Do you think Sean’s new plan will work? J....."
We replied this morning: "Good to see you’re still kickin’, J....
"The Governor has a difficult challenge. With a backdrop of falling production upon which over 90% of the state operating budget and nearly half the state’s economy is based, there are continuous pressures to increase the budget. Some areas of the state are facing crippling fuel oil prices and natural gas shortages, prompting cries for government subsidized energy projects. Meanwhile, the state has several billion in state savings accounts – money needed for subsidizing energy and other capital projects – balanced by over $10 billion in public employee pension fund liabilities. (Note: this does not include the some $40 billion in the permanent fund, which is not subject to legislative appropriation.)
"The Governor succeeded, with help from a republican controlled legislature, in passing oil tax reform last session to boost exploration and development. Soon after the session, democrats and environmentalists solicited sufficient signatures to put an oil tax reform repeal referendum on the ballot in the upcoming, August primary election. That jeopardizes more oil from state lands on the North Slope.
"When Shell postponed its Arctic OCS plans for this summer and when DOI closed off half of the National Petroleum Reserve – Alaska to petroleum exploration and development, throughput for the Trans Alaska Pipeline System (TAPS) from federal lands was further threatened.
"Solution: The leadership of the state needs to find a ‘golden mean’ that provides new TAPS throughput from state lands and new TAPS throughput from federal lands. It needs to do this while controlling spending, neutralizing the public pension fund unfunded liability and assuring that citizens in vulnerable areas do not suffer for lack of energy—among other challenges.
"Accordingly, we have great empathy for the Governor and Legislature right now, knowing that their challenges are more in the category of a Gordian knot than of a routine Legislative session.
"Keep in touch, and, thanks for asking!"
TODAY'S HOT ENERGY LINKS FROM CONSUMER ENERGY ALLIANCE:
The Roger Hedgecock Show: Michael Whatley (NGP Photo) Discusses the Keystone XL Pipeline
Houston Chronicle: Energy secretary backs mix of power sources
During a visit to San Antonio Thursday, Energy Secretary Ernest Moniz said President Barack Obama's push for use of all energy sources - his "all of the above" energy policy - is the best solution to meet the nation's power needs.
The Pebble Partnership (PLP) this week announced that Pebble CEO John Shively (NGP Photo) will assume the role of Chairman of the Board of Directors—a move that allows Shively to be a part of the strategic leadership team for advancing the project. With this move, PLP is appointing Tom Collier to the position of CEO for the company. (Read more here.)
VIDEO LEFT (audio link): Yesterday afternoon the state's gas pipeline leadership appeared before the Senate Resources Committee.
Representatives of Alaska's three major Alaska North Slope producers, TransCanada and the Alaska Gasline Development Corporation briefed lawmakers on the accord they have reached to further develop the Alaska LNG Project. The agreement is historical and this particular meeting encapsulates the understandings of the parties. Accordingly, we urge readers to bookmark the video and/or audio in their archives. -DH
See today's relevant Consumer Energy Alliance news links:
Politico Pro: For activists, a new open season on Keystone
The Consumer Energy Alliance is hoping to rally supporters of the project with a call to action through the Build KXL Now site where people can sign a letter lauding the benefits of the project. “President [Barack] Obama will make the final decision, but your support is going to be the deciding factor,” CEA President David Holt (NGP Photo) wrote to supporters. “Let’s make it absolutely clear that the American people support building the Keystone XL pipeline.”
|Calgary Herald by David Marsden. ... What we are quibbling about is the depths of Obama’s hypocrisy. The Keystone XL pipeline would not add to the United States’ consumption of oil.|
Today the House will act on legislation to provide relief to farmers and help return water flows to the Central Valley. (See our earlier story of the effect of national energy policy on California and Colorado food production. -dh)
Fuel Fix. Former U.S. Secretary of Interior Ken Salazar (NGP Photo) said Wednesday morning that he believes hydraulic fracturing is safe, and the energy industry should work to convince the public that it doesn’t pose a safety threat.
U.S. Sen. Lisa Murkowski yesterday secured a commitment from the nominee for Assistant Secretary for Land and Minerals Management, Janice Schneider, to improve the Interior Department’s permitting process and provide greater regulatory certainty for oil and natural gas exploration in the Arctic.
“I agree with you that business needs regulatory certainty and predictability. People, particularly when they are going to invest huge sums of money, need to understand what the rules of the road are…. If I am confirmed to this position, I am committed to ensuring that there is an opportunity for greater regulatory certainty, including the potential for offshore oil and gas exploration off of Alaska,” Schneider told Murkowski. (NGP emphasis added.)
Murkowski said she was disappointed, but not surprised last week by Shell’s announcement that it was canceling its exploration plans in the Chukchi Sea this summer because of the 9th Circuit ruling on Lease Sale 193 and Interior’s failure to provide regulatory predictability for the Arctic.
Murkowski told Schneider that the Interior Department needs to make a clear commitment to the responsible development of the oil and gas resources that exist in the Beaufort and Chukchi seas, and commit to a dual track for development in the Chukchi Sea in 2015 that both remediates the environmental impact statement that was struck down by the 9th Circuit Court and at the same time continues the department’s evaluation of the exploration plan so that Shell can proceed in 2015.
Schneider made her comments on Tuesday at her nomination hearing before the Senate Energy and Natural Resources Committee. Murkowski is Alaska’s senior senator and the top Republican on the energy committee. Complete video of Tuesday’s hearing is available on the energy committee’s website.
U.S. Sen. Lisa Murkowski (NGP Photo) yesterday firmly pressed the nominee for Assistant Secretary for Fish Wildlife and Parks, Rhea Suh on the Interior Department’s disregard for the needs and concerns of the people of Alaska. (See today's Energy Guardian report.)
Murkowski questioned Suh about whether the department was doing anything to ensure the safety of the people of King Cove after Interior Secretary Sally Jewell rejected, on Dec. 23, a proposed a life-saving road that would have connected the isolated community to an all-weather airport a few miles across the Izembek National Wildlife Refuge.
After Suh had no answer, Murkowski said her growing frustration with Interior goes well beyond just one issue.
“This is about more than just a 10-mile road,” Murkowski said. “This is about how many Alaskans feel this administration is treating us when we are far away at the other end of the continent and out of sight, out of mind.”
Tuesday marked the second time Suh, who if confirmed, would oversee the U.S. Fish and Wildlife Service and National Park Service; has appeared before the Senate Energy and Natural Resources Committee. Murkowski, the energy panel’s top Republican, called for a second hearing after being disappointed in Suh’s responses at her initial Dec. 12 hearing.
“I have serious reservations about not only what I perceive is your lack of knowledge of western lands issues, but also with your unfamiliarity with Alaska’s most pressing issues and unique governing statutes,” Murkowski said to Suh. “I’m not being overly parochial here – we have more than 70 percent of the National Wildlife Refuge System and two-thirds of the National Park System located in Alaska, so when you indicated in our meeting that you were not prepared to discuss any of my state’s issues in any detail – that concerns me.”
Murkowski pressed Suh on the development of the Arctic, King Cove, reform of the Land and Water Conservation Fund to address the national parks maintenance backlog, subsistence reform in Alaska.
“I firmly believe that the Fish and Wildlife Service is headed in the wrong direction and has lost sight of its responsibility to the American people,” Murkowski said. “This problem is most recently highlighted by the service’s role in the fundamentally flawed review process and rejection of the life-saving King Cove road, but it’s not limited to that single decision. My view is that the Fish and Wildlife Service is simply not considering the impact of its decisions on people across our country. That needs to change.”
After the hearing, Murkowski cast doubt on whether she would support Suh’s nomination, citing ongoing concerns with the lack of detailed answers to questions she has posed to Suh.