What’s at stake for Alaska in Shell’s Arctic drilling program?
Reader Op-Ed By Paul Fuhs (NGP Photo)
A lot has been said by many people about Shell’s Arctic drilling program but I have yet to see a real analysis of what it would mean for Alaska and our people.
Some have said : “Well, it is in Federal waters so we won’t get anything out of it.” I just don’t believe that is true. Here are some of the direct benefits we will receive if Shell is successful in their endeavors.
The current throughput of the Trans Alaska oil line is about 400,000 barrels a day and declining by about 5% a year. It has been estimated that below 200,000 barrels a day the pipeline will not be able to operate. A study by the Idaho National Energy Lab estimates that if this were to occur, we would strand at least 1 billion barrels of oil on the North Slope.
At even $50 per barrel, that is $50 billion of value left in the ground. At current tax rates that would mean at least $1 billion annually to the State’s treasury of which 25% would go to the Permanent Fund.
If Shell has throughput of 750,000 barrels a day as they have projected, it will drastically lower the cost per barrel for shipping oil through the pipeline. This would increase revenues to Alaska by increasing the wellhead value. The lower cost of shipping would also encourage the development of marginal fields on state and Native Corporation lands that would otherwise be uneconomic.
Keeping the pipeline active would provide ongoing substantial property tax revenues to local governments along the pipeline route that would otherwise be lost. Other communities would be helped as well. A little known provision of SB21, the tax reform bill, identifies corporate income tax as a source for municipal revenue sharing to provide services or reduce local taxes. While Shell wouldn’t pay Alaska production or severance taxes they will pay corporate income tax.
The production and severance taxes will be paid to the federal government and our congressional delegation is working hard to get revenue sharing of these funds to the State of Alaska and local governments, just as other states have done.
While there are risks to Arctic drilling, there are definite environmental benefits as well. For instance, Shell’s substantial support vessels are some of the only emergency response assets we have in the Arctic now, not just for Shell’s operation but also for vessels on the Northern Sea Route. Just a couple of years ago an international vessel called the Golden Sea lost power and was is imminent danger of running aground and causing an oil spill.
Shell was contacted and they voluntarily released their icebreaking support vessel Thor Viking to go rescue that ship and tow it to safe harbor in Unalaska where it could be repaired.
If Shell’s exploration program is successful and they proceed to full field development, the onshore port services that will be needed will be the financial impetus for finally building the Arctic ports we have been talking about. This would also improve the efficiency of shipping for Arctic communities and reduce their cost of living along with providing facilities for emergency response for vessel traffic in the Bering Strait.
Regional and Village corporations of the North Slope have joined Shell’s operation in a joint venture agreement. The profits from this association will circulate throughout Alaska’s economy as our Native Corporations keep the money within Alaska rather than sending it outside.
Then there are jobs for Alaskans. Jobs in onshore support services, jobs operating the Trans Alaska Pipeline, jobs in developing marginal wells on the North Slope, jobs in oil spill preparedness and jobs on the offshore rigs. Offshore gas finds could also extend the life of our hopefully soon to be built Alaska gasline.
Yes, there is risk to any endeavor such as this, but let’s remember that we have been drilling in ice covered waters in similar depths for over 40 years in Cook Inlet without ever having a major incident. And the regulations for drilling in the Arctic are even stricter.
I hope this helps Alaskans understand how much is at stake in Shell’s drilling program. If they are successful, other companies like Conoco Phillips and Statoil will come behind and will help build a thriving economy for coastal communities just as they have in the European North Sea offshore developments. And that will be good for all of us.
|Paul Fuhs is the former Mayor of Unalaska/Dutch Harbor, former Commissioner of Commerce and Economic Development, and is currently a port development consultant for ports that may be used during Shell’s exploration and development operations.|
Comment: President Barack Obama dined last night at the Anchorage home of Alaska Dispatch Publisher Alice Rogoff (NGP Photo). We hope that in addition to climate change issues, Alaska's major publisher was able to also discuss other matters.
Read other national and international news accounts of President Obama's Alaska visit, here.
We provided additional links, yesterday, here.
Alaska's dependence and constitutional reliance on natural resources largely rest upon Trans Alaska Pipeline System (TAPS) sustainability. This is because 90% of the state operating budget and over a third of Alaska's economy are based on oil revenue.
TAPS' sustainability, the President should know, depends in large measure on federal policies affecting the National Petroleum Reserve-Alaska; the Alaska National Wildlife Refuge (1002 area); oil and gas lease sales; energy project permitting, regulation and conditions.
Rogoff, a well known organizer of Arctic forums would also be in a good position to emphasize the importance of protecting US jurisdiction in the Arctic. Guarding American interests is particularly important as Russia becomes more and more provocative in staking out high value oil and gas resources in the Arctic, building infrastructure and increasing its military presence.
We have noted Canada's diligence in caring for its Arctic domain. The United States, Canada's NORAD partner, should be doing the same. -dh
As President Barak Obama begins his Alaska visit today, we bring readers these observations from our energy consultant friends...and others (i.e.
ADN, NYT, CNN, NPR, CBS, Reuters, USA Today (Note: "Climate Change" overtakes energy as focus of trip...consistent with the Obama policy of elevating climate change as top 'national security' priority. -dh)
Our great Aussie energy consultant friend begins the week with this observation, beginning with news of an ENI natural gas discovery in Egyptian waters, almost equal to the 35 TCF of stranded Alaska North Slope gas.
In the midst of market volativity and the Obama Administration EPA initiatives against carbon fuels, our unnamed, Mid-Atlantic energy consultant friend offers this observation:
We caution investors against overreacting to the near-term impact of the final Clean Power Plant (CPP) rule, and observe that the rule's effects will likely vary across the country and across companies. There are several reasons to be skeptical that the rule will be as impactful in reality as it now appears. How exactly the CPP influences individual firms, utility or otherwise, will hinge on their specific circumstances and the approaches particular states take toward compliance, which will take years to play out.
· Very Lengthy Implementation. It will take many years before the rule is truly
· State Cooperation Remains Key, Although Problematic. The rule’s effectiveness hinges upon state cooperation, which is far from assured. Large coal burning and mining states have already expressed their disdain for the rule, and in many cases have filed or backed lawsuits opposing it. It is very questionable whether key coal burning states will cooperate with EPA to develop adequate SIPs in a timely fashion, or at all. While EPA can develop state specific Federal Implementation Plans (FIPs) as an alternative, that would take time and be challenging to put into effect.
· Litigation. Until now, legal challenges of the rule have been deemed legally premature. Now, with the rule out and due to be published in the Federal Register, those hurdles will lift, allowing litigation to commence. Since these suits will proceed over many months, they won’t stop some states from developing SIPs and submitting them for EPA review in the interim. We maintain that the rule is legally vulnerable on several grounds, including its call forreductions in emissions from outside the fences of power plants, and its statutory underpinning, Section 111(d) of the Clean Air Act, which has not been thoroughly litigated in the past.
· The Next Administration Will Moderate the Rule. Regardless of who wins the White House in 2016, Republican or Democrat, they are going to put their imprimatur on the CPP. A Republican would likely stop implementation and direct the EPA to come up with a new much less aggressive approach that would effectively put the rule on hold for several years. A Democrat, with their eye on reelection, would likely retain the broad parameters of the rule, but adjust it to moderate the impact on key states like Ohio, Pennsylvania and Virginia, states that produce or burn significant amounts of coal. Since the confirmation of a new EPA administrator will likely take at least six months and the confirmation of key EPA personnel upwards of one year, there will be a significant delay for any actual changes to the CPP.
Governor Bill Walker will accompany the President Tomorrow morning from Washington, D.C., to Anchorage, Alaska, on Air Force One.
“My goal is to spend as much time as possible with the President so I can clearly present to him the benefits our great state provides the nation,” Governor Walker said. “I look forward to discussing with President Obama opportunities for the state and federal government to work together to improve Alaska’s economic situation. I also want to thank President Obama for his leadership in permitting Shell’s exploratory drilling activities. It’s an honor to accompany a sitting President to our great state.”
Lieutenant Governor Byron Mallott will greet Secretary of State John Kerry when he arrives in Anchorage Sunday, as Governor Walker will be en route to Washington, D.C. Lt. Governor Mallott will also greet the President when he arrives in Anchorage and will ride into town with the President and Governor Walker.
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