Thoughts on Alaska Oil & Gas

Last week I gave a speech to the Alaska Support Industry Alliance discussing Judge Gleason’s recent decision on TAPS.  The overheads I used for the speech are posted on these pages here.

In order to set the context for my remarks, at the outset I quoted a couple of pieces on the subject from Fairbanks Daily News-Miner columnist Dermot Cole’s column and blog.  In one column, published on January 1, 2012, Dermot argued that Judge Gleason’s decision was a “good news for Alaskans.”  (” … But the good news for Alaskans is that numerous oil company documents and expert testimony shows there is no reason to believe the pipeline will be shut down this decade or for a long time after.  To the contrary, the oil companies are booking reserves far into the future and making plans to run the pipeline at lower rates, which means more decades of operation for the pipeline.”)

In my comments to the Alliance, I took issue with Dermot’s conclusion and suggested that the decision was largely irrelevant to the issue of Alaska’s economic well being.  As I explained in the speech, the important factor in that regard is production rate — not reserve life — and Judge Gleason’s decision didn’t deal at all with current production rates.  The further explanation of that view is reflected in the slides. Continue reading →

From the Fairbanks Daily News-Miner, “Resources help Alaska weather recession but all is not ‘sunshine and lollipops’,” Jan. 17, 2010.

Quoting Jonathan King, principal and senior economist with Northern Economics Inc., in his presentation before the Greater Fairbanks Chamber of Commerce:

“We are truly, and have been, very lucky the last couple of years.” Nevertheless, oil production is down and the decline shows no signs of slowing or stopping, King said. To balance the state budget, Alaska had to sell it’s oil for at least $64 per barrel in 2010, $77 in 2011 and $94 in 2012, King said. A projected price of $97 per barrel is needed for 2013. “As you can see, we can no longer afford our state government on $50 a barrel oil. That’s just not possible for us,” King said.   “It’s pretty scary, and the window is closing.  … 2012, not so bad — 2013, we’ve got concerns about. Due to declining production in oil and reduced federal spending, we face strong headwinds,” King said.