5-8-15 “Danger Stranger”

Will the Seattle Port Authority’s Independence Survive Mayor Murray’s Political Influence?

By

Dave Harbour

On Tuesday and Wednesday we commented on an unbelievable act of the mayor of Seattle, Ed Murray, causing us to think, "Danger Stranger".  

In other news today: WSJ: Could climate change politics strand energy reserves?  (Today's news points in that direction.  -dh) Seattle Times Editorial: Murray insists that he’s a strong supporter of the port and maritime industry. But if the city’s move blocks Shell and scuttles the port’s lease with Shell’s partner Foss Maritime, it could permanently tarnish the reputation of Seattle’s struggling port and put the city’s future as a maritime hub in question. The Stranger First Nation rejects BC LNG project Alberta Energy industry nervous about NDP election win

Seattle has long been critical of Alaska while not hesitating to reap her wealth.  

But we are shocked at this action, this "strange new danger" of a Mayor attempting to block interstate commerce for admitted, political reasons.  It resembles the President's rejection the the Keystone Pipeline for similar political reasons, though the project had State Department support.  

The mayor used a convoluted "climate change" rational to thwart a decision of Seattle's "independent" Port Authority to accommodate vessels bound for oil and gas exploration in the Alaskan Arctic.

While Shell and its contractors may well have a backup plan to use another port, many Alaskans consider it in their interest to challenge this decision for broader reasons. 

The respected Resource Development Council for Alaska has urged its members to provide input to Seattle Port Authority Commissioners and has noted that, “… it creates uncertainty and sends a signal to maritime companies that a lease with the Port may be targeted by special interests and local politicians in the eleventh hour, even as vessels are en route to the region.”  The Alaska State Chamber of Commerce and Alaska Support Industry Alliance  have also encouraged their members to communicate with Port Commissioners. 

See this excellent CNBC review and background piece by AP writer, Dan Joling.

The federal government sold oil and gas leases to Shell Oil and the project moves slowly forward only as regulators grant permits.  The application for permits and the granting or denial thereof is part of America's Constitutional system of due process.  Due Process is one of many Constitutional principles and legal protections which we sometimes think of as, "the rule of law". 

On a local level, Shell Oil's contractor contracted with the "independent" Port Authority for seaport services.  The actions of the mayor–in addition to confounding local due process and threatening the entire success of the Arctic exploration project–could have unanticipated effects on Seattle:

• The Mayor's use of the permitting process to forward an admitted, political agenda could affect the credit rating of the Port of Seattle, which was created to be an "Independent Agency".  We believe the city’s credit rating could also be exposed, with local tax impact.
• The Mayor's interference with the independent Port Authority's process could result in loss of the short summer exploration season in the Arctic; one can only imagine the hundreds of millions of dollars of loss the Mayor could be responsible for causing many entities in Seattle and beyond.
• Politically motivated action by the mayor (i.e.  "To prevent the full force of climate change, it's time to turn the page on things like coal trains, oil trains and oil drilling rigs."), could impact the Port Authority's revenue by making the agreements it enters into with revenue paying customers of the seaport, the airport and other entities less reliable. 
• Should the Mayor's position stand, potential investors might decide to invest in other jurisdictions.  Existing investors may decide to "get out of Seattle while the getting is good".  Rating agencies, we believe, will calculate this new era of risky, local government activism into their rating calculations.
• Much of Alaska's tourism and commercial fishing activity is staged or supported from Seattle.  But Alaska public services from airports to seaports to health facilities to public transport and education are heavily subsidized by Alaska's 90% oil-funded budget.  Lacking the significant support of the oil industry, it is unlikely that tourism and commercial fishing entities would enjoy the same quality of shore-based support they now receive.
• Alaska’s government and 49th State companies could consider the various Port of Seattle services too risky when large capital losses may occur as a result of changing political sentiments.  
• Will a revenue change cause the Authority to ask for more taxes within its jurisdiction?  Could revenue bond coverage requirements be threatened, leading to technical if not actual defaults?  Does this sort of political interference by the City endanger the legal basis of the independent Port Authority and make it and the city subject to lawsuits from existing bondholders? (Note: Stock market analysts and rating agency specialists are always watching.  We believe it likely that City and Authority bond counsel may already be receiving queries from New York and San Francisco.)  

This week U.S. Senator Dan Sullivan questioned the Administration's usurpation of Congressional authority

Washington D.C.

The Trans-Alaska Pipeline System (TAPS) has served Alaska, the Pacific Northwest and the entire country well for nearly 4 decades. 

It is now 3/4 empty and in danger of shutting down during the next few years.   

TAPS can only continue if new, Alaska North Slope (ANS) oil sources are developed.  Ironically, rich new sources of billions of barrels of potential oil and gas reserves surround the 800 mile long TAPS’ ANS entryway.  

Some of that potential is on state land, subject to Alaska's own rapacious appetite for taxes and high per capita spending.  Most of the adjacent oil potential is on federal land surrounding Prudhoe Bay.  The Obama administration has taken action to lock up billions of barrels of potential oil reserves, preventing its access to TAPS.  

In a US Senate hearing this week, Alaska Senator Dan Sullivan questioned the administration's overreaching executive action to manage as wilderness, a small section of ANWR that Congress dedicated to oil and gas production (See video above).   

The BLM has taken action to block oil and gas development within half of the adjacent National Petroleum Reserve – Alaska while promoting that it is making much of it available.  The Interior Department and EPA have caused unwarranted delays in Shell's access to its federal leases in the Arctic.  

While Seattle's economy continues to benefit from Alaska's diminishing energy wealth, Alaska is more dependent on that one source of income than any other state.  Its state operating budget is 90% dependent on TAPS, for it makes possible the collection of oil royalties, a production tax, a property tax and state income taxes.  Alaska's entire economy is over 1/3 dependent on TAPS and would be a mere shadow of its former self without TAPS.

Without TAPS and the potential oil reserves it could transport from adjacent reserves in the OCS, NPR-A and ANWR, tens of thousands of jobs could be lost while American consumers would continue paying more for imported oil.  Also lost: countless billions spent with suppliers, service companies and manufacturers throughout the country– and additional billions paid in federal and state taxes.

And with the future of TAPS in question, how likely is it that Alaska's monster gas reserves can be developed and transported to market?

Alaska

Over the last half dozen years we have documented a pattern of federal assault on Alaska resource development in particular.  When Congress approved Alaska’s Statehood Act in 1958 and President Eisenhower signed it early the next year, all were aware that Alaska’s Constitution required the economy to be based on natural resource development.  

Since then, there have been so many assaults on that constitutional foundation that many wonder if the state has the ability, now, to maintain a sustainable economy.  Many assert, in fact, that the federal government has broken the statehood compact which consisted of the Act, the Alaska Constitution and a statewide plebiscite. 

Elsewhere

The current administration is now well known for actively violating the "rule of law" in many instances, which we have also documented (1, 2, 3, 4).  The pattern of federal overreach and lawless behavior is a concern to all citizens and enterprises, including natural resource industries.

Conclusion

The Seattle Mayor’s political intervention into the Port Authority’s independent seaport management could set a strange and dangerous precedent for other cities and even states to use their regulatory powers for political purposes.  That practice, in turn, could have a huge impact on the sanctity of municipal contracts, municipal bonding capability and reliability of interstate commerce.

Growing sentiment that the rule of law itself is under assault by government agencies overreaching their authority, is justified.  (Note: "Rule of Law" is a little difficult for a layman to define.  It is one of those concepts that, however it may be defined, is to us a symbol of confidence in a lawful, stable, systematic, open and fair system of governance.)

In simple terms, America – including our natural resource job and wealth producing industries – are losing trust in those responsible for independent, just and reasonable adjudication of complex issues.

Loss of trust results in higher risk.  Higher risk means higher potential for default. High risk is one of an investors greatest concerns and could encourage one to begin considering how to export work to less risky areas.

Seattle is one of our favorite cities.  All Alaskans have adopted it to one degree or another and all benefit from its supplies and services. We wish Mayor Murray well in his decision making.  We trust that with additional input his decisions will strengthen the reputation of Seattle as an investment destination and the Port Authority as an independent decision making body and reliable business partner.                  -dh

Finally, how is it logical for a politician to seek to address climate change by thwarting energy production in the most highly regulated, most environmentally focused country and state? 

Wouldn't less production of oil and gas in Alaska — like political blockage of the Keystone Pipeline — merely trigger production abroad, creating greater environmental exposure and 1) less U.S. employment, 2) higher balance of trade deficits, 3) a lower level of national security, 4) less direct and indirect local, state and federal tax and royalty revenue, and 5) higher imported energy costs for American consumers? 

 

 

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Canadian Press (CBC).  The first of three votes on a natural gas benefit offer worth over $1 billion has been unanimously rejected by a First Nation on British Columbia's northwest coast.  … more than 180 eligible voters at a meeting in Port Simpson stood up to oppose the plan to build a liquefied-natural-gas pipeline and terminal in their territory, said Lax Kw'alaams band member Malcolm Sampson.

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Calgary Herald by Dan Healing.  …Calgary’s oil and gas industry Wednesday insisted the new NDP provincial government declare its intentions — and do it as quickly and as clearly as possible.  Election pledges to raise corporate taxes, review royalties collected on petroleum production and withdraw support for oil pipelines to B.C. and into the U.S., were criticized during the election…. On the morning after the election, energy stock prices dropped as financial investors released reports warning the new government….  Gary Leach, president of the Explorers and Producers Association of Canada …, said in an interview the NDP’s position on pipelines, for example, shows the party doesn’t understand the connection between market access, getting the best price for oil and the creation of wealth and jobs in Alberta.

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Wall Street Journal, by LIAM DENNING.  Even as oil rallies back above $60 a barrel, obituaries are being drafted. Oil majors face questions from shareholders concerned the threat of climate change means some of the reserves underpinning the companies will never be produced. In a recent report, HSBC urged investors to plan for this risk of “stranded assets.”

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