August 15, 2014

Left Behind By The Boom: A Look At Alaska

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Oil pipeline in Alaska.

Oil pipeline in Alaska.

Wyoming Public Radio’s Stephanie Joyce interviews Alexandra Gutierrez of Alaska Public Radio on Alaska’s diminished role in America’s energy boom and what it means for the state.

Stephanie Joyce: Here in the lower 48, all we hear about is the boom. Booming oil, booming gas. How are things different in Alaska?

Alexandra Gutierrez: In Alaska, we hear that it’s booming everywhere but here. We still have the largest [North American] oil fields in production, but they’ve been in decline since 1988, and we haven’t had the same shale boom as everyone else.

Joyce: Why does it matter if it’s booming or not in Alaska?

Gutierrez: Ninety percent of our state’s revenue comes from oil. If we don’t have oil, we can’t tax the oil. So, we start looking at less money for our schools, less money for Medicaid, less money for road and infrastructure projects. Basically the way our state government is funded is being upended. We don’t have a large population base, just a large landmass. So even if the state imposed an income tax or sales tax, it couldn’t keep up the level of spending that it’s established. Beyond government [services], there are also a lot of jobs up here that are dependent on the industry. Without them, you’re potentially looking at people leaving the state.

Joyce: Alaska has always known this is coming, that oil is a finite resource and that at some point the state was going to run out. How has Alaska positioned itself for declining oil?

Gutierrez: Well, there’s that bumper sticker saying about the state, “Lord, please give us another boom. We promise we won’t squander it like the last one.” The state is not in the absolute worst position to face the oil decline. We have $50 billion in our Permanent Fund. And we still have more than $10 billion in the bank in our budget reserves. The problem is, is it enough? There have been studies that [show] that at the current rate of [oil] decline, if state spending were capped at $5 billion or so, the state could basically live off of the investment. We could adopt a Norway model. The problem is, our state spending isn’t at $5 billion. It’s at more than that, and it doesn’t look like there are easy ways to rein it in, unless we cut some major projects that we’ve already started and keep our operating budget flat. Which isn’t an easy thing to do.

Joyce: Is there a way to bring back oil production in Alaska?

Gutierrez: We’re hearing a lot from oil companies that they’re currently reinvesting in Alaska because of a new tax structure that was passed last year that caps the tax rate on oil production. Previously, we’d had a system where the tax rate on oil went up as the profits on oil went up. So, if you were looking at high oil prices, the oil companies could be paying as much as 75 percent production tax on oil coming from the North Slope. The [new] system caps the tax rate at 35 percent, with further deductions down from that. So obviously, that could be a boon to the oil companies. It’s said the tax break is worth billions of dollars.

Joyce: So are the Alaska oil fields just tapped out? Is there any chance of them booming again?

Gutierrez: No one is expecting us to find another Prudhoe Bay. We do still have billions of barrels of proven reserves left, and that’s obviously worth something, but the next goal in energy production is actually developing our natural gas. We have incredible, unfathomably huge gas reserves that have long been uneconomic to produce. Soon after oil was discovered and an oil pipeline was built, there was talk of a natural gas pipeline being built. This is not a new idea — it’s from the 1970s. But every effort to build a natural gas pipeline has been stymied, because it’s just not as profitable as oil.

Up until now, the farthest it’s gotten recently was Sarah Palin’s Gasline Inducement Act. You might remember that when she was introduced at the Republican convention in 2008 as the vice presidential nominee, she talked about ‘we’re building a pipeline! we’re building a pipeline!’ What she was talking about was a proposed gas line that would take Alaska natural gas, through Canada, down to the Lower 48 to sell. You might have picked up on the fact that that’s right around the time things started booming in the Lower 48. It obviously never came to fruition.

Now, Alaska is considering one of two options for a natural gas pipeline. The preferred option would cost at least $45 billion and it would take North Slope natural gas down to tidewater, so 800 miles, down through Alaska. Then, the liquified natural gas would be taken to Asia. Without getting into hard figures about the revenues that would bring in, it would be helpful, but it wouldn’t in any way fill the gap that oil would leave behind.

Joyce: So what does Alaska’s future hold in terms of energy production and revenues from energy production?

Gutierrez: Well, there are two schools of thought when it comes to the future of energy production in Alaska. There’s one that says we can’t reverse the [oil] decline, that looking at [Alaska’s] oil fields and how other massive fields like it have produced, that we’re in our twilight. But then there’s another school of thought that’s ‘no, we can explore more, we have the pipeline infrastructure, we just need to encourage the oil companies to spend their money here.’

It’s hard to say, but let me put it this way: a few years [ago], the big promise was, “we can turn around decline.” Now all we’re hearing is, “we can stop the decline.” There’s a big difference between those two statements.

Alexandra Gutierrez is Alaska Public Radio’s statehouse reporter. She missed her turn while driving through Anchorage during this interview because “I was trying to be smart on oil.”