News-Miner Editorial
Focus on oil
Alaska’s revenue mainstay needs continued attention
Published Sunday, October 18, 2009
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Stumble It!Imagine the state of Alaska without a natural gas pipeline from the North Slope and with oil production at a dangerously low fraction of its once plentiful flow.
It’s a terrible image. Picture a governor and the Legislature embroiled in panicked debates about how much to cut the budget, about how much in taxes to impose on Alaskans, about how much to take from the Permanent Fund.
Those aren’t necessarily bad concepts, but Alaskans have shown time and again a propensity to disparage anyone who supports them. If Alaskans still hold that sentiment, then they ought to be mortified at anything that stands in the way of getting a natural gas pipeline and that hinders exploration for new oil fields and production of those fields. They ought to be demanding Gov. Sean Parnell and the Legislature do what is necessary to ensure the oil companies working in this state have what they need to produce more oil.
And they ought to be demanding action now, because the frightful picture might not be too far from becoming reality.
While uncertainty continues to surround the gas pipeline, oil production steadily declines — and that’s a bad combination. The state Department of Revenue earlier this year said it expected North Slope production to average 689,000 barrels per day for fiscal 2009 and fall to 655,000 barrels per day for fiscal 2010, a drop of about 5 percent. The department expects production to decline to 575,000 barrels per day for fiscal 2018 — a 71 percent tumble from peak North Slope production of 2 million barrels per day in 1988.
The trend is unmistakable.
Alaska has been spared the resulting major budget cuts only because the price of oil has risen dramatically in recent years.
That’s reason enough to worry. Now comes more reason to fret: ConocoPhillips, a major player in the gas line project and in the Alaska oil industry, has announced it will sell about $10 billion in assets and reduce its capital spending for 2010 compared to 2009. What this means for Alaska won’t be clear until the company releases its third-quarter earnings report on Oct. 28.
The public and the state’s top elected officials have been and continue to be focused on natural gas. But Alaskans and their leaders need to focus simultaneously on oil, because Alaska has set itself up for a troubled future.
Community Discussion
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But...I thought McCain's expert on gas and oil, Sarah Palin (why does that name ring a faint bell?), had solved all our gas development and transport problems. I'm certain that will be one of the main themes of her ghostwritten "autobiography".
Your numbers are a bit off. The peak throughput in TAPS was 2.1 million barrels per day in 1982. The relevance? That means for 27 years the legislature has been fiddling while our only real source of revenue has been declining.
TAPS throughput estimates by DOE are different that DORs'. DOE projects TAPS throughput will be only 500,000 barrels per day by 2014. That's relevant because the fiscal crisis the state is facing is coming sooner rather than later. Administration insiders say project sanction on a gasline into Canada will not be until 2014, if one is even built at all.
Of course Alaska can not wait that long. Any Alaska leader who thinks that's a rational plan deserves to be replaced. Not only are we failing to diversify our revenue stream, (and provide Alaskans with affordable energy) but other LNG projects that directly compete with Alaska will be coming on-line. LNG projects in Russia, Canada, Papua New Guinea, and Australia are moving ahead. (By the same oil companies that do business here).
Time is not on our side.
If the major producers would rather develop LNG projects on its gas reserves in foreign countries, that's fine- as long as they are willing to pay Alaska rent to leave our trillions of dollars of gas in the ground.
The planned, 40 billion dollar, 2 BCF/D ExxonMobil LNG project in Australia is economic- says ExxonMobil. Fine. That's great. Then if a 40 billion dollar, 2 BCF/D, LNG project is economic then why is a LNG project at about half that cost NOT economic in Alaska? Especially when the Alaska LNG project has greater output and greater efficiency due to Alaska's colder climate.
All in all, a good editorial.
PAF - I don't always see things the same way that you do, but I definitely do on this one. Nice comment. And I second your sentiments on it being a good editorial.
As an aside, Alaska has been in a strange situation for some time. The state is highly dependent upon federal funds for its well-being (huge military expenditures, subsidies, ...), but is also very restricted from developing its own resources and has had a huge percentage of the state lands seized by the federal government. The upshot of this is that the state is far more subject to regulation and government oversight than most for its well-being ... something that may not necessarily have a favorable course for the state going forward. This makes it urgent that the state do whatever it can to develop and diversify economic resources as quickly as it can. The clock is ticking on this every bit as much ...
It's too early in the morning to be writing ... hope the above is coherent.
Maybe Alaskans are getting wise to big oil companies that: 1. make all the profit 2. provide few jobs, 3. give back only small royalties to Alaskans, 4. keep the price of gas high at the pumps to give them higher profits 5. destroy pristine wilderness that could otherwise attract tourists who bring in billions that benefit Alaskans.
Amazing how few were complaining for the past forty years when oil brought all the money into this State. How many remember that there were people who were against massive development and knew it would only eventually play TAPS (transAlaska Pipeline system) for this State. It wasn't the oil companies that went on a spending spree creating big State government. It was the elected officials who took that route rather than spend the money on developing alternative economies for this State. Now people like Put Alaska First are crying because it is going down the drain. But this State was told before the start of the oil that it would last only thirty or so years. But very few paid attention because people were just to happy in those high paying government jobs. If the legislature is so concerned about cost, why did it give itself a $25,000 pay increase last year for each representative. haven't heard of any State employees getting pay cuts or lay off notices. what about all those dollars that went to such needed things, like a fish hatchery for genetically altered fish. Grabbing it while they can. Greed has resulted in this economic mess. And the greed will continue until the bank is crying for a bail out.
Hey editorial staff have you ever heard that gas is a global item and the global market has something to do with this. I can see the NewsMiner has already started a campaign against Parnell as Governor. Who would have thought they would be against a republican. How many want to make a bet that we will hear little praise for Parnell since he is not the candidate of choice for the NewsMiner editorial staff. Playing politics is all this editorial is.
DNM just dont get it, WE ARE BROKE!! The only way big oil will
build the pipeline is if we give our rescourses away for practically
nothing. The country is in for some real hard times to work our way
out of this mess. Getting a smaller gas line for our imediate needs
and industry within the state and then go to alternate sources as
fast as we can is our only hope.
For the DNM to dream of the glory days of yesterday is like the old man dreaming of his sexual powerers of his youth, they are gone,
face up to it.Get used to the idea of an income tax .
The State is in a "death spiral" financially based upon the falling production of oil; that is a fact.Not until all factors can get together
will the production of natural gas ever come about. But natural gas will never replace the revenue of oil. The State must cut spending and reduce it's costs: which it will never do under the current thinking of "Big Government" and "entitlement by it's citizens"! God help Alaska, as we will not even try to help ourselves!
First, these high dollar officials need to take a pay cut.
TundraTreker,
You are mistaken about he big profits and low royalties. Not only do the oil companies get taxed on the oil they produce but also on oil they don't produce. If a piece of production equipment goes down for mechanical reasons and production levels fall below a certain level they pay taxes on the loss. Aside from the fact that if oil rises above about $77.00 a barrel the tax is increased again. The sweet spot for profits for Alaskan crude is between $67.00 and $77.00 per barrel. The profit margin is small. BTW the oil & gas industry provide well over 10,000 good paying jobs in Alaska either directly or indirectly (contract workers). If you want one get some educating and come on up to the slope.
Sorry should have been "get some education ..."
Just to put some numbers to the reality, the current state budget works out to over $40,000 per reported Alaskan job or $14,000 per resident. Government and oil production jobs combined account for nearly 50% of the employment opportunities in Alaska. The state will have to cut jobs and services by 75% and we will still be looking at huge income taxes to sustain the most basic services. Most people will simply leave the state when this happens creating a downward spiral in employment and quality of life in this state.
Perhaps Farley Mowat was correct about northern lemming behavior. Alaska appears to be doing a good job of emulating it by running our economy off an economic cliff. It is this same behavior certain vested interests are practicing in precluding economic development. It is astounding and confounding that those who purport to desire economic development would do this.
Last month the Prime Minister of Canada announced in Washington, DC that it was contributing to the construction of the Northwest Transmission Line (google it) in British Columbia. PM Harper even mentioned in the press release that this could lead to an interconnection to Southeast Alaska.
Southeast Alaska, which is economically shrinking, along with population (predicted to lose a senator and representative in the upcoming reapportionment) has over 10,000 megawatts of potential alpine lake tap generation potential with only 200 megawatt being used today. Yet, Alaska officials have said nothing about this opportune announcement - basically ignoring this economic development opportunity. It is no wonder our state is losing ground fast.
Just imagine the Canadian Prime Minister was announcing the gas line would be built just next to say Beaver Creek YK near the U.S.- Canada border - the state would be on this opportunity quickly. This is what is being offered on Southeasts' surplus, abundant electrical energy. Without such a connection, the proposed Southeast Intertie will take years to build and cost the state of Alaska a significant amount of dollars - dollars which would otherwise come from private and public investments instead of just the public ones.
Utilities make the argument that Alaska needs to take care of itself first. I'd ask how have the utilities been doing thus far at taking care of us? I'd pose that question to Fairbanks consumers. I'd pose that to rural utilities. Are you paying less because our utilities in these areas have done a good job? Yet, these are the folks who are generating state energy policy. Utilities are experts at what they do best being monopolies, they have a lousy track record in Fairbanks and rural Alaska!
Everyone seem to be heralding RCA's recent decision on net metering. Many don't know that most of the rural utilities are exempt. This is again astounding and confounding! It is outrageous! But it is again the utilities (legal monopolies) driving state energy policy. Utilities are experts at the status quo, the state needs to secure energy policy leaders who have imagination rather than those whom only understand monopolistic behavior.
The state is at least consistent in ignoring all economic development opportunities. It's that kind of (lemming like) consistency that is driving our state to bankruptcy instead of towards a prosperous independent future. We must shake up our politicians - to get them out of the (lemming) herd mentality. Otherwise, the losing legacy will become ours.
First P-A-T the peak production year for the pipeline was 1988 as reported not in 1982.
Second the state of Alaska in not broke.
Third the TAPs line will not be shutting down in most of these readers life times. TAPS should be getting 120k/bbl/day new production or more from several projects now in construction, The ENI project near Kuparuk should give us 60K, 40 or 50K from Liberty, 10k from Pt Thompson, 10k more from Pioneers Ugarook, 5k from Brooks Range petro's Gwyder bay and the real prize the heavy oil in the Ugnu. This oil is very price sensitve but the resource is huge, more oil in place than Prudhoe. This crude is similar to the crude in Bakersfield. I'm sure the oil companies are looking at steam flood to motivate the oil which takes a lot of gas. But they have a lot of gas. All is not lost.
robir8-
Study up on this...
http://www.globalresourcecorp.com/
... and tell me what you think of using superheterodyne klystrons for moving HeavyCrude, and ultimately converting the crude deposits in-situ underground to a complex non-pyrolysis stream of gases that can be used as feedstock for making LNG and GTL inside Alaska as a refined value added export product inventory.
If I recall right, each of the Major Oil Companies have repeatedly stated that they plan on being in Alaska for years to come.
Hum-m-m .. must be some oil still in the ground.
ConocoPhillips announced reduction has more to do with increased dividend and cash flow this year, than long term energy plan. http://www.conocophillips.com/
ExxonMobil report "The Outlook for Energy: A View to 2030" (52 pages) is not bad reading if your into the crystal ball stuff.
http://www.exxonmobil.com/corporate/ener...
The production oil sent down the pipeline is falling every year, that's a fact. Revenue to the State is falling becouse less oil is going down the pipeline. If 300,000 barrels per day is the "shut down number" for the pipeline we are fast approaching it. Then what does the State do for revenue? Good question, isn't it?
We could be developing our tremendous renewable resources; hydro in Southeast, Susitna, and Chachamina, or however it is spelled. You can take it for what it's worth.
I appreciate what robir8 had to say as well. I'd like to have his assertions verified, because we're getting some different stories. Our former governor Murkowski is in Southeast preaching that we are blowing it with big oil. I'd argue that we blew it by not taxing them adequately and using some of our windfall for infrastructure for our impending rainy days.
Alaskans have a multiplicity of solutions, but opportunities are being squandered because seemingly nobody wants to take a leap of faith or risk controversy.
Where are the Wally Hickels of Alaska? Someone with the courage to look beyond their own personal perimeters? Someone not afraid of their own political shadow, but with the courage of his/her convictions to do what is right instead of what is politically expedient.
Tundra Trekker> "Maybe Alaskans are getting wise to big oil companies that: 1. make all the profit 2. provide few jobs, 3. give back only small royalties to Alaskans, 4. keep the price of gas high at the pumps to give them higher profits 5. destroy pristine wilderness that could otherwise attract tourists who bring in billions that benefit Alaskans."
Could it be that the best way the oil industry has learned in dealing with Alaska, or for that matter any country that has oil under its soil, is to make them bargain from a position of weakness? Keep the local prices as high as possible, create local shortages and stymie local efforts to gain access and transport oil and gas for local needs. Bring in employees from outside of the state as much as possible. Then of course buy and corrupt the local politicians, run a fear and gloom campaign with full page ads in the newspapers (which in turn also prints favorable editorials) in order to extract the resource at the cheapest price possible. When the locals wake up to find they have been screwed on a continuous basis for the past 30 years it is too late, the oil is gone.
good editorial piece...we need to have more discussion and focus on energy development for instate use by Alaskans....We sit atop vast renewable resources and lost our focus in the late 80's and 90's as we yielded to a bunch of emotionally driven enviromnentalists, who blindly supply money and support to idealagocially driven news outlets that more often then not end in nothing good happening for anyone.
Alaska did a fair job of developing various hydro facilities throughout Southeastern Alaska. where favorable rates are generally enjoyed by the majority of its citizens. Several active hydro projects are currently, either underway of just being completed to add to the energy supply, for that area of the State.
Western Alaska began to develop some of its hydro assets but lost it focus following the completion of Bradley Hydro, near Homer. The Rail belt energy fund was spent, largely on things such as rail cars, fire trucks for rural Alaska and a long list of social projects causing our focus on Chakachumna and Sustnia to by the way side....we blew a hugh about of money and effort on a failed Clean Coal Project and no one will ever come out on that project.
Western Alaska is showing great progress in developing a Geo thermal project that will benifit a large area around Dillingham/Naknak..some real local leadership is being shown.
The Railbelt has not been well served by our various utilitiy managers and their boards...and the political leadship has been AWOL also. Once a solid energy foundation is made available, Alaska will see new and brighter days and ways of supporting our high standard of living.
We need to focus fully on development of our vast renewable resources for instate use, by all our citizens, and development of our vast non-renewable resources for sale to an energy hungry world....We have both resources, we have the montetary resouces, we have the need, but still lack, both public and political, will and leadership to get the job done...
Western Alaska is showing great progress in developing a Geo thermal project that will benifit a large area around Dillingham/Naknak..some real local leadership is being shown.
______________________
Are you kidding me. The project is costing (at state expense) $200,000 per person that lives in the area. It would have been far cheaper for the state to just pay for heating oil.
I was just in Nome. The giant wind turbines (12?) still do not turn. Not since last spring.
Prospecter- Why do they not turn? Wind has been used for power of one sort or another for 500 years. The states and much of Europe have vast wind farms. Why do ours continue to go bust? I'm sure it's cold in Nome but it ain't that warm in Oslo or Bergen and theirs turn. We use very small ones on the slope and they turn, and its much colder so what gives? We been dickin with this for thirty years.
What Alaska needs is a dose of reality. The Prudhoe Bay complex was a one time deal. Most credible petroleum geologists will testify that it probably won't be repeated. Yes, there will be more reserves discovered, but they will not be large enough or economically accessible enough to stop the accelerating decline of North Slope production. What Alaska - and the rest of the country for that matter - has to accept is that finite resources are finite. Prudhoe has been in steady decline for almost two decades. The rising price of oil helped to prop up revenues, but it didn't result in any major new discoveries. The party is over! It is time to sober up and deal with the fact that the days of the big bucks have come to an end. Remember Alaska back in the 1950's and 1960's? Welcome to the future.
Time to move on. Soon you will look for oil in the history books along with the corrupt politicians who gave it away. Time to get on with renewables. The original plan was to convert a portion of our oil wealth into a permanent fund. Too bad the same politicians let that waste away with mismanagement.
Good thing we have plenty of renewables. Problem is that the same politicians keep the people from those assets until they can figure a way to get a bigger piece of the action. I predict that only after we are out of oil will the new leadership emerge to lead Alaska into the future.
Wheeldog-Can not say I remember Alaska in the 50's but I do remember it in the 60's, some times with fondness. But remember our fisheries were a bust, even the vauted Bristol Bay, there was virtually no crab fishery or pollack and Dutch was a world war11 memory, There were no hard rock mines like Fort Knox, Greens creek, Red Dog or Pogo, Usibeli was not exporting coal, and facilities in Kenai were on the planning board. We had no permanent fund. All the farmers markets that are so succesfull in Anchorage and Fairbanks did not exist. You may wish to go back to the 50's or 60's but I like it here in my little town and I say no way
Prospector, the turbines in Nome, seem to have fallen victim to a turbine company which couldn't deliver the goods. It's not the technology, but the company to my understanding. Wind certainly isn't as cheap as say hydro, nor to some other technologies, but it is relatively cheap when compared to the cost of diesel. And "relative" is a huge issue in rural Alaska.
Charlie, I don't disagree with you on what you're saying about Southeast and hydro, but you used the past tense. There is much more to be developed there. And I may be misconstruing your statement, I'll admit There is much more to be done in southeast.
And yes the majority of southeast has pretty good rates, but you wouldn't want to live in Kake, Hoonah, Angoon or Klukwan, which have rates exceeding 60 cents/kwh. These smaller communities have been pushed aside, they are dying from that neglect and the Southeast utilities don't really give a tinker's damn about them. There is lots of lip service, but very little action.
Angoon is stuck in the middle of a wilderness area and so has been severely hampered in developing its resources.
Hoonah hasn't been able to capitalize on any project thus far, but it is hoped that this will change with geothermal and an interie between there and Pelican.
Kake has lots of beautiful weather but hasn't had a hydro source that is economic. Not even the proposed intertie between Petersburg and Kake yet promises to lower the costs significantly, because there is no comprehensive idea on how to make it all work - at least one that has been presented thus far.
These communities should be thriving with their rich renewable energy portfolios of biomass, geothermal, tidal, wave and wind resources.
It is suspect and telling that even with these communities relative resource abundance, that the state and utilities haven''t been able to help them get off of Power Cost Equalization - so that other Alaska communities which may never see an end to state support could benefit more. Doing this would serve a great purpose.
So it's not just the utility managers you mentioned but those utilities in rural Alaska which have become slaves to PCE instead of strivers for innovation.
Speaking of slaves to PCE, can anyone explain why rural utilities are exempted from the new RCA net metering rules being promulgated? Certainly they can come in at a different level of participation initially , but to totally exempt vast areas of the state from helping to become less diesel reliant seems patently criminal.
Nothing wrong with going back to the good old days before oil. All those who write these blogs on development will probably be on the first plane out when the money train ends.
Terri -- the net metering exemption was based on the idea that small utilities are already having a hard time recruiting qualified management to run their monopolies (according to their lobbyist and lawyers) -- so why make them do anything more for their customers?
Worldwide it has been a tough year for ConocoPhillips. Among other challenges, in January the Houston-based major took $34 billion in write-downs on its 20 percent stake in Russia’s Lukoil and its 2005 acquisition of U.S. gas producer Burlington Resources.
To “improve its financial position and increase returns on capital” ConocoPhillips recently said that during the next two years it intends to sell about $10 billion of its assets and reduce its 2010 capital budget $1.5 billion, from $12.5 billion in 2009 to $11 billion in 2010.
Proceeds from the sales of its assets would be used to pay off debt and accelerate the company’s return to its target debt-to-capital ratio of 20-to-25 percent.
ConocoPhillips is not yet divulging just what assets it might sell, but its Alaska properties stand a better chance of staying off the chopping block because Alaska is one of the most profitable places in the world that ConocoPhillips does business.
Alaska oil and gas production makes up about 12 percent of ConocoPhillips’ worldwide output. In the first quarter of this year, Alaska operations earned the company $240 million, or 29 percent of its worldwide exploration and production income.
In the second quarter, ConocoPhillips had $725 million in E&P worldwide earnings: More than 55 percent of that, $404 million, came from its Alaska business.
Still, given the uncertainties with the Obama administration regarding the federal waters of the Chukchi Sea, and the lack of federal incentives for offshore Alaska developments, there is a chance ConocoPhillips might consider selling its Chukchi acreage, Petroleum News sources say.
But it is more likely the company will sell its 9 percent stake in Canadian oil sands producer Syncrude or its 20 percent stake in Lukoil, UBS Securities LLC said in a recent report to its customers.
ConocoPhillips might also put its North America natural gas assets on the market, in light of its “more cautious” outlook for U.S. fuel prices, said UBS, which also named assets in Algeria, Nigeria and Libya as other possibilities
New energy site explains topics in plain language
Energy Explained is a new Web portal launched Oct. 7 by the U.S. Energy Information Administration, or EIA, as part of Energy Awareness Month.
Dubbed the “most comprehensive energy education resource available from the U.S. government,” Energy Explained uses plain language and graphics to teach visitors about every facet of energy.
For example, the site explains where gasoline comes from, what determines the price of electricity, how much renewable energy the United States uses and hundreds of other energy topics.
Visit Energy Explained at this Web address: www.eia.doe.gov/energyexplained.
What, me worry?
To make us ever more dependent on a one-time resource so we are more amenable to selling it off for short-term gain?
Grow a spine News-Minus, grow a spine and look to the future.
Oh, I forgot you are already blind to anything but status quo,
My bad.
Territorial, it is more like an economic cult predisposed to take comfort in its current manifestation which is to feed at the trough indefinitely until all of the oil and gas wealth is gone.
Then it's on to new and better times somewhere else, nothing in this editorial speaks to Alaska's future which is RIGHT NOW!
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