Category Archives: Published Commentaries

Earlier this year, the Institute of the North announced that it was organizing a policy trip to Norway, among other things to enable a closer look at the system Norway uses to encourage oil and gas development in the country.  Given the timing — the trip was originally scheduled to occur during what became the month that the Legislature was in special session — and the participants — the delegation included several Legislators — the trip received a fair amount of press.  The trip also received extensive criticism from Paul Jenkins and other so-called “conservative” commentators.

The trip later was rescheduled and takes place toward the end of this month.  While Jenkins’ and other’s similar criticism of the effort unfortunately may have caused some to change their plans, I am continuing to go — at my expense — because I believe that Norway’s oil policy potentially has something significant to offer Alaska and warrants a closer look. Continue reading →

The Alaska Dispatch today carries a story on the North Slope employment study commissioned by the Senate Finance Committee last week.   According to the story, the study is to analyze “North Slope oil field hiring practices in an effort to figure out whether it’s true that the coveted jobs are not going to Alaskans and why.”

The study may produce interesting data, but the story raises a concern about how at least one Senator intends to use the data the study produces.  The article reports that the study and related hearings that Senator Dennis Egan (D-Juneau) plans on holding are  “aimed at getting oil industry officials and workers to shed light on the existing situation [the apparent underemployment of Alaska workers on the North Slope] and how it can be improved. Otherwise, it makes no sense for the state to give away state money when it is getting no new jobs in return, he said.” Continue reading →

Shortly after the start of the current Legislative session, Senator Lesil McGuire introduced Senate Concurrent Resolution 4, which would establish an “Alaska Oil and Gas Competitiveness Review Task Force.” If adopted — as it should be — the resolution has the potential to become one of the most significant pieces of long-term legislation passed this session. Continue reading →

As the campaign for governor enters its final days, both candidates are focusing on the future of Alaska oil. That is a good thing, because as Gov. Parnell admits, “oil remains the backbone of Alaska’s economy” and that backbone is weakening rapidly.

By now, most are familiar with the basic statistics. Oil provides roughly ninety percent of state government general fund revenues and is responsible for one-third of the Alaska jobs.

Most also are familiar with the fact that oil production from the North Slope is down more than two-thirds since its peak in the late 1980s, and continuing to decline at a fairly rapid rate.

What many are not aware of, however, is how rapidly the decline is occurring. Continue reading →

Let’s start with a basic fact. For various purposes, government agencies, securities analysts and oil and gas producers often measure oil and natural production and reserves on a common basis — barrels of oil equivalent (BOE). Based on energy content, 5.8 Mcf’s (thousand cubic feet) of gas equals one barrel of oil. As it turns out, that is a critical statistic to understanding Alaska’s future.

First, that statistic helps to provide some sense of the relationship between volumes of oil and gas. Currently, Alaska is producing roughly an average of 600,000 barrels/day of North Slope oil subject to state production tax. On a BOE basis, 3.5 Bcf (billion cubic feet)/day of gas equates to about the same amount of oil. Coincidentally, that is roughly the same amount of gas which some suggest would be moved to the Lower 48 through an Alaska pipeline. Thus, if focused only on volume, an observer could argue that Alaska will not be harmed if gas supplanted oil as the primary source of revenue for Alaska.

A second, and more important, application of the statistic proves that conclusion false, however. Continue reading →

As the current legislative session heads into the home stretch and the electoral season approaches, Alaskans increasingly hear the slogan “It’s our oil (and gas)” as justification for various proposals and positions.

While the slogan makes for good rhetoric, it is important Alaskans keep in mind that, although it’s our oil and gas, it’s the oil companies’ money that discovers, develops, produces and markets, and — hopefully — will continue to explore for new resources. Without their investment, our oil would still be in the ground, and according to Scott Goldsmith of UAA’s Institute for Social and Economic Research, Alaska would look a lot like Maine, with high state income and sales taxes, no dividend, and a very small local economy.

Theoretically, the development of Alaska’s resources could have been handled differently. When oil was discovered in the Norwegian sector of the North Sea, for example, the government established and funded a state owned corporation (Statoil) that put the country’s money in the ground alongside private industry. While the effort required significant capital and exposed the government to substantial financial risk, the net result today is that Norway has an entity capable of taking the lead in exploring new areas if private industry is hesitant to do so. Some other countries follow the same model with varying degrees of success. Continue reading →

There is no doubt that the long-desired pipeline to carry gas from Alaska, through Canada, to the Lower 48 — the so-called “Big Line” — is in significant trouble.

To be sure, the Parnell administration has attempted to convince Alaskans otherwise to justify the state government’s continued $500 million subsidy of TransCanada’s project under the Alaska Gasline Inducement Act. However, the observations of as diverse a group as the highly respected Potential Gas Committee, the federal Energy Information Administration and long-time and widely regarded consultant (sometimes to the Alaska government) Daniel Yergin clearly demonstrate the gravity of the situation.

In a November article in The Wall Street Journal that summarized the effects of what Yergin terms the shale gas “revolution,” he concluded, “[a]t current levels of demand, the U.S. has about 90 years of proven and potential supply — a number that is bound to go up as more and more shale gas is found.” Against those numbers, is it realistic to think that producers will risk the $25 billion to $30 billion necessary to build an Arctic pipeline to attempt to penetrate an already oversupplied Lower 48 market? Not really. Continue reading →

The centerpiece of next year’s political debate, beginning with the legislative session in January, needs to be Alaska’s economic future. To those who have studied Alaska’s economic fundamentals, that future is bleak. If the next Governor and legislators do not alter Alaska’s present course, the second fifty years of statehood will be much, much more difficult than the first.

The future currently is bleak because of the trajectory of Alaska’s oil industry. Oil accounts for 90 percent of state general fund revenues and one-third of Alaska jobs. No other industry comes close to having the capability to generate the same level of wealth for Alaskans. As James Carville – who repeatedly reminded the Clinton team during the 1992 election that “it’s the economy, stupid” – would say if he looked at Alaska today, “it’s the oil, stupid.”

The future of Alaska’s oil industry is in significant doubt. From a high of over 2 million barrels per day, North Slope oil production – the lifeblood of the Alaska economy – is down to 700,000 barrels per day. Absent continued investment, the existing sources of production (and oil’s contribution to state government revenue and jobs) will decline at a rate approaching 10 percent per year in the coming years. Because the trans-Alaska oil pipeline is not designed to handle low flow, knowledgeable people talk about the need to shut down the trans-Alaska oil pipeline when production reaches roughly 300,000 barrels per day. Continue reading →

Building a gas pipeline to the Lower 48 has been a dream of Alaskans for over 30 years. I have been involved in or observed the efforts to bring that dream to reality during most of that time. There is a common thread that has run through those efforts that is present again today. We should be concerned.

The common thread is that market conditions in the Lower 48 at first create a great deal of excitement around Alaska gas. In short order, a proposed gasline is scoped to bring Alaska gas to the Lower 48. The project in due course then runs into political problems, which delay progress until, finally, the conditions in the Lower 48 gas market evolve to the point that Alaska gas is no longer needed and deferred to “another time.”

The first time this sequence occurred was in the 1970’s and early 1980’s. In the early 1970’s, the Lower 48 began experiencing severe natural gas shortfalls. During the winter of 1976, industrial plants and even schools closed periodically during the winter months as demand outstripped supply. Moving Alaska gas from the newly discovered Prudhoe Bay field to the Lower 48 became a national priority and Congress ultimately passed a law paving the way. Continue reading →

A recent New York Times article should make Alaskans think. The headline was “The Oil Industry is on a Roll This Year with New Discoveries.”

The first sentence captures the thrust: “The oil industry has been on a hot streak this year, thanks to a series of major discoveries that have rekindled a sense of excitement across the petroleum sector, despite falling prices and a tough economy.” The article reports 200 significant discoveries so far this year in dozens of countries, including Australia, Brazil, Norway, Ghana and Russia.

Alaska receives mention only as a historical footnote. Continue reading →