4-26-18 Alaskanomics and Alaska’s Natural Resource Wealth

Alaskanomics

Scott Goldsmith. Northern Gas Pipelines photo by Dave Harbour

We commend Northrim Bank (Northrim and its public service web page, Alaskanomics) for having long supported an approach adopted by Dr. Scott Goldsmith, now retired from the Institute of Social and Economic Research (ISER), the “three legged stool”.

This analogy equates the stability of the stool to an economy supported equally by 1. oil & gas industry taxes and spending, 2. federal government spending and 3. other resources.  The only alteration we would suggest to the stool analogy is that, to us, the three legs of the stool look more like two legs when one notes the overwhelming dependence of the “other” leg on the oil industry.  The industry provides over 85% of state government spending which, in turn, supports “everything else.”  Alaska’s commercial fishery, tourism and mining industries are world class…but oil pays the way for roads, schools, airports, seaports, medical, educational and governmental support!  Without oil, taxes on these beneficiaries would increase by billions!  Note that the “85%” government dependence on oil companies has been as high as 90% in recent years.  Former International Trade Director Bob Poe once observed, correctly, that the stool is “teetering”.

Bob Poe. Northern Gas Pipelines Photo by Dave Harbour.

Alaska’s policy makers have long known of the stool’s fragility because Goldsmith began warning of a coming fiscal crisis almost 3 decades ago…and the need for a “soft landing” that roughly equated to “sustainable” policy emerging from a more rational, long-term fiscal regime (i.e. taxes and spending cuts).

Nearly four decades ago, Common Sense for Alaska’s non-partisan forums (here, 12-13-80 ), began warning community and political leaders that overdependence on and over taxation of oil would eventually result in an unsustainable state government budget and a vulnerable economy.

For high initiative in supporting responsible government policies, we’ve appreciated Northrim, whose annual economic briefings and webpage, “ALASKANOMICS“, have provided both updates and suggested actions for solving the state’s economic challenges.

Earlier this month, Northrim convened its latest community briefing session under the leadership of new Chairman, President and CEO Joe Schierhorn, accompanied by key management colleagues, Executive Vice Presidents Audrey Amundson, Jed Ballard, Ben Craig, Michael Huston, Michael Martin and Lynn Wolfe.  This team builds on the long term contributions to the nearly 3 decade-old bank by founders Marc Langland and Arnold Espe and a succeeding generation headed by Joe Beedle and now Joe Schierhorn.     (As a personal note, your author witnessed Marc Langland’s long hours of diligent preparation for the Bank’s founding in 1989 as he labored for months in a small downtown office provided by mutual friend, Jim Yarmon.  Earlier in the 80’s, we shared many hours of volunteer community service with Schierhorn’s parents, Mortin and Sarah Schierhorn.  In the 90s we became acquainted with Beedle in the course of security work and Commonwealth North activity.  Small world.)

Mark Edwards (Northern Gas Pipelines photo by Dave Harbour) is Northrim’s Senior Credit Officer & Bank Economist.  In his simultaneous April 9 article in Alaskanomics, Edwards expresses both the Bank’s optimism and concern for the state economyThe 2015-17 low price environment carried with it significant job losses and decline in state revenues.  Edwards cited improvements in federal policy as a good reason for maintaining optimism, including growing support for ANWR exploration and production.

Gregory Philson of the Juneau Empire, reported on both the economic confidence expressed by speakers as well as the caveats.

The Alaska Business Monthly’s Tasha Anderson reported on, “Four Things We Learned at Northrim Bank’s 2018 Economic Summit Editorial Board“.

The meeting ended with the bank’s continuing financial support for the University of Alaska (Photo, courtesy Katie Bender: Northrim and University officials, left to right.  Ralph Townsend, Steve Johnson, Joe Schierhorn, Jon Bittner, Terry Nelson, and Chris Swalling)

Alaskanomics is the now well-known term applying to the study of Alaska economic conditions and trends.  For that significant public service contribution, we have Northrim to thank.  Similarly, we appreciate First National Bank of Alaska’s continuing use of ISER’s 3-leg-stool graphic in its quarterly economic report written by Goldsmith.

Alaska is 20% the size of the U.S., is Canada’s neighbor, is America’s only Arctic state, is the world’s greatest fishery, is the home of the great Prudhoe Bay discovery and storehouse of perhaps the country’s greatest array of natural resources.

In light of Alaska’s economic past and potential future economic contributions to the United States, all Americans should be aware and supportive of the 49th state’s value to the country.

In light of their responsibility to both the nation and Alaska’s future citizens, it behooves today’s Alaskans to elect leaders dedicated to positive ALASKANOMICS, to the sustainability and reliability of wealth and resource production from a hugely well-endowed state whose potential has been barely touched.


Program Speakers:

Mouhcine Guettabi       Joe Schierhorn                Tim Bradner

        


Alaska Gas Export Related News Links From Larry Persily, former Federal Coordinator, Alaska Gas Pipeline Project

Last two of seven Australia LNG mega-projects near start-up

(COMMENTARY:  The link above and story below underline the progress that Shell and other industry leaders are achieving as they bring LNG projects into the robust, energy marketplace.  This week we provided our TWITTER followers with a number of warnings/concerns/questions about the Alaska government’s LNG project.  In one, we complimented industry on the many, worldwide LNG projects underway.  We said, Ak could be more bullish, too, if socialist leaning, temporarily elected and appointed politicians and bureaucrats didn’t own and control AGDC.”  In another we Tweeted: “Kudos to & . Even if Alaska’s socialist GOVERNMENT LNG scheme had a viable market and finance plan, a trend toward short term contracts would be the stake in its heart.”    In yet another Tweet we asked, Should Alaskan politicians align their State with communist China or rely on free enterprise development of Alaska’s natural gas transportation system WHEN IT BECOMES ECONOMICAL? -dh)

(Reuters; April 23) – Shell and Inpex are in the final stretch of a years-long race to export gas from offshore northern Australia, where both have spent billions of dollars building large and complex maritime vessels to grab a slice of Asia’s booming LNG market. Shell and Inpex, Japan’s biggest oil and gas producer, are vying for first gas from two overlapping fields after delays and overruns that have plagued both projects. The two are the last of seven LNG export projects built for Australia this decade.

Shell’s 1,600-foot-long Prelude floating liquefied natural gas production and storage unit and Inpex’s Ichthys Explorer semi-submersible gas production platform are both the world’s largest of their class. Their combined cost has been estimated at around $55 billion. “Prelude and Ichthys are both record-breaking mega-projects that have been competing throughout their development,” said Saul Kavonic, of energy consultancy Wood Mackenzie. “We currently assume first cargo from Ichthys in third-quarter 2018 and from Prelude in the fourth quarter, with risk of further delays,” Kavonic said.

Commissioning cargo on its way to Ichthys LNG in Australia

(Reuters; April 23) – Japan’s Inpex Corp. and its partners have bought a cargo of liquefied natural gas to cool their Ichthys LNG plant in Australia ahead of a potential start-up of the much-delayed facility, a company spokesman said April 23. Liquefaction facilities must be chilled before production can begin, typically by using the super-chilled fuel from other liquefaction plants. The LNG tanker Pacific Breeze is currently in the Java Sea and expected to reach the Ichthys plant on April 26.

Novatek says it has lowered cost per tonne at Arctic LNG-2 project

(Bloomberg; April 22) – Russia’s second multibillion-dollar liquefied natural gas plant in Siberia is going to be cheaper than earlier estimates. Novatek has raised the planned production capacity of its proposed Arctic LNG-2 facility, allowing it to reduce the cost per tonne of production to less than that of the nearby $27 billion Yamal LNG, which started up in December. Capital costs are key for LNG-2 as Novatek, which partnered with Total and Chinese investors at Yamal, has yet to find investors for the project.

The plant’s capacity has been finalized at 19.8 million tonnes a year, up from earlier estimates of as much as 18.3 million. Yamal LNG’s production capacity is 16.5 million tonnes per year from three liquefaction trains. Novatek has not disclosed any costs for Arctic LNG-2, other than to report the costs will be less per-tonne than Yamal. “It’s going to happen for many reasons, including higher production capacity,” Novatek’s billionaire CEO Leonid Mikhelson told reporters at the company’s shareholder meeting in Moscow.

LNG trader sees possible supply crunch from under-investment

(Reuters; April 24) – Last year’s strong demand for liquefied natural gas, led by Asia’s major economies, is expected to continue this year and should absorb some of the new supply coming onstream, industry executives said at a conference April 24. The global LNG industry has been expecting prices to be depressed by a rush of new supply as projects to produce 40 million to 50 million tonnes of LNG per year are coming online over the next two years, mainly in Australia and the United States.

But, a surge in Asian demand last year took the market by surprise, with some producers now expecting the new supply to be easily absorbed by the increasing consumption across Asia. “For the past three years, we were told at every conference that we’ll have a gas bubble, that gas is oversupplied, that we won’t be able to sell LNG … but it’s a bubble that never came,” Jean-Pierre Mateille, vice president of trading at Total’s gas and power division, said at the LNG Forum 2018 conference in Singapore.

Bangladesh becomes world’s 41st LNG importing nation

(Platts; April 25) – Bangladesh has joined the ranks of liquefied natural gas importing countries with the arrival of its first cargo at Moheshkhali Port on April 24. This makes Bangladesh the first new country to start LNG imports in 2018, and only the second since Jan. 1, 2017, as Malta was the only new LNG importer last year. Bangladesh becomes the 41st LNG importer in the world, up from just about a dozen in 2000.

The Qatari cargo arrived on the floating storage and regasification unit, Excellence, at the Moheshkhali LNG terminal, and heralds a new era in Bangladesh’s energy sector, said State Minister at the Ministry of Power, Energy and Mineral Resources Nasrul Hamid. The Excellence is owned by U.S.-based Excelerate Energy Bangladesh. Its cargo can supply gas to meet local needs for about 15 to 20 days. The $180 million infrastructure project has a capacity to deliver 3.75 million tonnes of LNG per year.

South Korean oil refinery joins ranks of LNG importers

(Platts; April 24) – Malaysia’s state-run Petronas, through its subsidiary Petronas LNG, has delivered its first LNG cargo to S-Oil Corp., making the South Korean oil refiner one of the newest LNG buyers in the region. But unlike most other Northeast Asian LNG buyers, S-Oil will use the gas as feedstock for petrochemical production and to power units at its 669,000-barrel-a-day refinery at Onsan, instead of just for power generation and heating.

Japan wants to help boost U.S. LNG sales to Asia to ease trade deficit

(Japan Times; April 24) – The Japanese government said it will promote U.S. liquefied natural gas exports to Asia to help slash Washington’s trade deficit. Masaki Ishikawa, chief of the Trade and Economy Cooperation Bureau in the Ministry of Economy, Trade and Industry, spoke of the plan at a bilateral economic dialogue April 23 in Washington, expressing hope it will “broaden the scope of Japan-U.S. cooperation.”

LNG carrier takes first cargo from Maryland terminal to Japan

(Bloomberg; April 25) – The giant Japanese ship LNG Sakura is doing its share to appease President Donald Trump’s frustration over trade with Asia. The vessel with the largest spherical holding tanks in the liquefied natural gas industry is taking its first shipment from Dominion Energy’s Cove Point, Md., terminal to the Asian nation. With a name that means cherry blossom, the ship can serve “as a symbol of friendship and goodwill between Japan and the United States,” according to co-owner Nippon Yusen.

It’s an easy win for both countries. For the Trump administration, which has been pushing for Asian purchases of America’s abundant shale gas supplies to reduce a trade imbalance, it suggests the pressure may be working. Japan, the world’s largest buyer of LNG, needs the fuel to meet power demand at its highest level since 2011. Most importantly, keeping good relations with the U.S., the largest buyer of its exports after China, is vital for Japan’s economy. The ship left Cove Point on April 22.

China will be better prepared for winter gas demand, official says

(Reuters; April 23) – China is unlikely to see a repeat surge in liquefied natural gas imports this coming winter as the world’s largest energy consumer has learned from the previous cold season to keep demand under control, the head of Unipec said April 24. “Last year was a special year,” Chen Bo, president of Unipec, the trading arm of China Petroleum & Chemical Corp, or Sinopec, said at an LNG forum in Singapore, referring to government policies that caused China’s LNG imports and prices to soar last winter.

China overtook South Korea as the world’s No. 2 LNG importer in 2017 at 38 million tonnes, 46 percent above a year ago. Imports soared after the government ordered millions of homes to switch to gas and electric heating from coal to counter rising air pollution. “We didn’t have the experience before to deal with such a situation,” Chen said. This year, “demand will increase but the government and companies will control.”

Boston Globe editorial calls for ratepayer-financed gas pipelines

(Boston Globe editorial; April 22) – When Massachusetts legislators blocked financing for a new gas pipeline into New England in 2016, they claimed to be saving money for ratepayers and helping the environment. But nearly the opposite has happened. And now the damage — environmental and financial — is starting to pile up. The toll this year has been eye-popping: Greenhouse-gas pollution exploded during this winter’s cold snap, generators burned 2 million barrels of oil, and the region relied on Russian liquefied natural gas. It sparked a mini-revival for the region’s moribund coal industry.

That extra pollution was expensive. Energy costs totaled more than $700 million over the same period last year. Now, in a potential additional cost, a regional power plant and LNG importer is demanding financial support to stay in business — as the state continues to block efforts to relieve gas pipeline shortages. The costs to consumers and the environmental damage are the result of elected officials’ decisions. The Legislature should reconsider and join efforts by other states to expand the region’s gas pipelines.

Houston columnist criticizes anti-pipeline efforts

(Houston Chronicle columnist; April 25) – A 61-year-old woman in a Virginia treehouse, British Columbia’s premier and Nebraska farmers are fighting to stop pipelines passing through their backyards, failing to realize they are doing more environmental harm than good. Across North America, companies have discovered new reservoirs of oil and gas, which need new pipelines to reach markets. But if protesters get their way that won’t happen, prolonging our reliance on dirtier fuels such as foreign heavy crude and coal.

The anti-pipeline movement has joined property-rights activists and environmentalists. The not-in-my-backyard sentiment is as old as America itself, but so is eminent domain, the government’s power to force landowners to sell their property for a public good, such as a road, power lines or pipelines. While I understand how a landowner must feel, sometimes the needs of the many outweigh the needs of the few. If officials obey the law, and if landowners are properly compensated, that’s the cost of modern life.

Battle continues over oil line replacement project in Minnesota

(The Associated Press; April 23) – Minnesota regulators should approve Enbridge’s proposal for replacing its aging Line 3 oil line only if it follows the existing route rather than the company’s preferred route, an administrative law judge recommended April 23. Calgary-based Enbridge says the project is necessary to ensure the reliable delivery of Alberta production to Midwest refineries. The company says the existing line, from the 1960s, is subject to corrosion and cracking and can run at only half its original capacity.

The administrative law judge’s recommendation that the replacement line follow the existing route sets up further disputes, however, because the existing line crosses two Ojibwa reservations where tribal governments have made it clear they won’t consent to the rebuild and actually want the old pipeline removed altogether. The judge wrote that Enbridge has established that the project is needed. The state regulatory commission will consider the judge’s ruling and is expected to make its final decision in June.

B.C. oil-and-gas region rallies in support of controversial pipeline

(CBC News; April 22) – As British Columbia prepares to head to court to clarify the province’s jurisdiction over the Trans Mountain oil pipeline, over 100 people rallied in support of the project in the province’s northeast April 21. “Our battle cry now is for LNG and Kinder Morgan,” said Alan Yu, organizer of the rally in Fort St. John. Premier John Horgan said his government’s case will be filed in B.C.’s Court of Appeal by April 30 and will seek to clarify the province’s rights to protect its coast and economy from a spill.

The proposed C$7.4 billion expansion would nearly triple the capacity of the Kinder Morgan pipeline that carries crude from near Edmonton to the Vancouver area to be loaded on tankers and shipped overseas. The federal and Alberta governments support the Trans Mountain project, while British Columbia has said it is defending its coast from a potentially catastrophic oil products spill.

Higher oil prices will not damage demand, says Goldman Sachs

(Bloomberg; April 23) – Goldman Sachs sees oil’s rally the same way as Saudi Arabia: It won’t check the world’s soaring thirst for crude. Oil’s surge to the highest prices in more than three years will in fact spur more demand as swelling reserves of Middle East dollars are reinvested overseas and stimulate the global economy, Goldman’s head of commodities research said. “Global demand growth is absolutely stellar,” Jeff Currie said. “You’d have to get a really high price before you start to see it damage demand.”

News:

Peninsula Clarion.  Elizabeth Appleby, who became Kenai’s new city planner on April 9, said she’s practiced the skills of listening to and balancing different interests through her past work as an environmental permitting consultant for Alaska megaprojects including the Donlin Gold mine and the Alaska LNG project.


Pebble: Rep. Josephson needs to visit site before replaying misleading rhetoric  I respectfully disagree with Rep. Josephson’s recent opinion piece about the Pebble mining prospect that is full of misleading and inaccurate claims.


Offshore lease schedule for Beaufort draws flak  Congressional Democrats sounded the alarm about the Interior Department’s efforts to hold an offshore oil lease sale next year in the Beaufort Sea.


Kinder Morgan suspends Trans Mountain expansion.   Kinder Morgan Canada Ltd. is suspending all nonessential activities and related spending on its Trans Mountain Expansion Project. KMCL also announced that, given actions in opposition to the project by the Province of British Columbia, it will not commit additional shareholder resources to TMEP. KMCL, however, will consult with various stakeholders to reach agreements that may allow TMEP to proceed.


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About the Author:

Dave Harbour, publisher of Northern Gas Pipelines, is a former Chairman of the Regulatory Commission of Alaska, a Commissioner Emeritus of NARUC, NARUC's Official Representative to IOGCC and Vice Chairman of NARUC's Gas Committee. He served as Gas Committee Chairman of the Western Conference of Public Service Commissioners. He also served as commissioner of the Anchorage Bicentennial Commission and the Anchorage Heritage Land Bank Commission.He earned a Bachelor of Arts Degree: English, at Colorado State University, a Master of Science Degree: Communications-Journalism at Murray State University and graduated from Utility Regulatory School for Commissioners at Michigan State University. He served as a Vice President for Communications and Public Affairs at Alaska Pacific University, taught bank marketing classes at the University of Alaska and was an English teacher at Los Alamos High School.Harbour served in ranks of Private - Captain during a 4-year assignment with the Army in Korea, Idaho, Georgia and Fort Meade and received the Meritorious Service Medal among other commendations.Harbour is also a past Chairman of the Alaska Council on Economic Education, the Alaska Oil & Gas Association Government Affairs Committee, the Anchorage Chamber of Commerce, the Export Council of Alaska and the Department of Commerce's District Export Council. He is a past President of the Alaska Press Club, American Bald Eagle Foundation, Consumer Energy Alliance-Alaska and Common Sense for Alaska.Harbour was instrumental in founding the American Bald Eagle Research Institute (UAS), the Alaska Support Industry Alliance, the Downtown Anchorage Business Partnership, and Arctic Power.He also served as CEO of several small Alaska organizations, including the Anchorage Parking Authority and Action Security, Inc. Harbour is also Chairman Emeritus of the Alaska Oil & Gas Congress.Harbour's wife, Nancy, is a professional, performing arts administrator and his three boys, Todd, Benjamin and William work in the fields of environmental management, energy marketing and medicine.
By | 2018-04-30T10:18:33+00:00 April 26th, 2018|Alaska's Fiscal Crisis, Alaskanomics, Commentary, Interstate Gas, LNG|0 Comments