Thoughts on Alaska Oil & Gas

For the past several years I have contributed a lot of money to a lot of candidates (often at the maximum level).  With the beginning of the current election season, the inevitable invitations to various legislative, gubernatorial and party fundraisers have started to appear again (by mail, email, Facebook, calls and in some cases even txt). Continue reading →

As is the right thing to do, Alaskans insist that the oil and other industries adopt global best practices when operating in the state.

But is Alaska itself,  particularly now that it has decided to become a co-investor in the Alaska LNG project, following global best practices in its dealings with the industry.  The answer may be no.

One of the most successful governments in the world in terms of maximizing benefit to its citizens from the development of its resources is Norway.   By partnering with industry, Norway has both successfully slowed the decline curve in oil and gas production and successfully developed a global gas and LNG industry.   In addition, Norway is maintaining a strong  exploration program at a time that, even under SB 21, Alaska’s continues to struggle. Continue reading →

As readers of this blog’s “Page Two” will know, during the last few days of the session — and on into overtime — I have been building and populating some Excel spread sheets to put the budget being worked on this session (for FY 2015) and the one previous — in other words, the two budgets passed by this (the 28th) Legislature) — in a historical context.

Although this session is not quite finished — as of this writing the conference committee required to finalize the FY 2015 capital budget has not yet met — at this point the differences appear to be in a small enough range so as not to materially affect the overall outcome.

While the posts on Page Two have examined the data in additional ways, for many readers the most interesting questions appear to arise when the data is broken down by Governor.  As a result, in addition to presenting the data by year, in the far righthand columns the following table also summarizes and averages the data over the term of each Governor. Continue reading →

Early last week I wrote a column, after the Senate surfaced its proposed FY 2015 Capital Budget, entitled “#AKbudget| The FY 2015 end game (and its not looking good) ….”  The column was not intended to start off a series but after some in Juneau attempted to defend the indefensibly high budget that the legislature is preparing to pass again this year as “fiscally conservative,” I responded with a second piece later in the week (“#AKbudget| A postscript to ‘The FY 2015 end game …“). Continue reading →

I have been told that some in Juneau think the column I wrote earlier this week on the current budget end game (“#AKbudget| The FY 2015 end game (and its not looking good) …“) is unfair because it does not properly recognize the cuts which have been made in spending over the last two years since the current so-called “fiscally conservative” Senate Majority took office (and, according to claims made at the time, finally positioned the Senate to work with an equally minded House and Governor to produce “fiscally conservative” results). Continue reading →

As this year’s regular legislative session enters its last few days, the outlines of the final FY 2015 budget are becoming clearer, and its not good for those concerned about Alaska’s future.

To bring readers current, the Governor started the bidding in December with an initial proposed budget advertised as $5.6 billion (in unrestricted general fund spending). That number, however, did not include a contribution toward the state’s retirement obligation (PERS/TRS), which exceeded $.6 billion in FY 2014 and previously was scheduled to be significantly higher for FY 2015, and also didn’t include money to cover so-called “legislative priorities,” the euphemistic phrase used to refer to legislative earmarks inserted annually by legislators in the capital budget for hometown projects.

Subsequently, last month in successive weeks the House, and then the Senate, announced their versions of the Operating Budget. The House included $5.075 billion in spending in its version, and the Senate $5.25 billion in its. Both versions, however, failed to address the PERS/TRS issue and, until today, both also lacked a corresponding capital budget. Continue reading →

I am addressing the MatSu Business Alliance today as part of their regular lunch forum.  The general topic for today’s forum is the “Amusement Park of Economics.”   As described in the invitation to today’s program, my role is to discuss “the economic wheel of the state budget” and, given my recent focus on the area as part of the Alaska House Sustainable Education Task Force, “provide individual conversation around education funding.”

As I have thought through it, I have divided the topic into three pieces:  where we are (on the state budget), where we are headed and what that means for Alaskans and the state’s economy.  My conclusions two months in to the current legislative session:

• The state budget is in for some rough – potentially very rough – economic seas ahead.  If oil goes to $90 (as some have projected), the situation will become seriously difficult.

• While the proposed spending levels currently being proposed for the FY2015 budget are lower than the last three years (and compared to three years ago, significantly lower) , they nevertheless remain at alarmingly high levels which are not sustainable and continue to spend the next generation’s money.  At these levels, the state is continuing down the path that the University of Alaska’s Institute of Social and Economic Research (ISER) previously has identified is leading to a “fiscal crisis [and] economic crash,” which in turn will lead to the need for the  “ … institution of a broad-based tax, and use of a portion of the earnings of the Permanent Fund.”

• If Alaskans want a different course, they need to tell Juneau that they will accept serious cuts.  Right now, that isn’t the message Juneau is hearing.

The slide deck reflecting the analysis and conclusions is available here.  I am looking forward to the opportunity — and more importantly, the questions following.

Last month I outlined some concerns about the proposed Alaska LNG project and suggested that the legislature look more deeply to the experiences of other, successful projects elsewhere in the world to evaluate whether Alaska was applying global best practices.  (See The Legislature should rethink the Governor’s LNG proposal, Feb. 18, 2014)

As I have listened to the testimony and presentations about the Alaska LNG project in the intervening period my concerns have only deepened, and, disappointingly, the legislature still has not appeared to turn to the lessons learned from other, successful projects to determine whether Alaska could be doing better with this one.   As Alaska discovered with AGIA and ACES, sometimes — oftentimes — its not productive to create new approaches when others already have proven successful.  I am concerned that Alaska is going down the same road again.

As I outline in the attached (a copy also can be downloaded here),  I believe this project is going wrong in three critical areas.

• Fails to achieve the “alignment” which the earlier Alaska North Slope Royalty Study found critical to successful efforts,
• Unlike successful, similarly situated projects elsewhere in the world, does not provide Alaska with an active role in the critical upstream segment of the project, and 
• Something I know a little bit about, potentially creates significant fiscal policy issues for the state and, by transferring a profitable segment of the project to a Canadian entity, does not maximize return to Alaskans.

Sometimes these things are better captured in a slide deck than by an extended essay.  I developed this slide deck in the format I would use if asked to testify or speak further on the issue.