Several days ago we wrote an editorial entitled, TAPS and Spend.  One of our decade-long readers, Dan Kish, responded with the following comment:


Again this winter, could gas supply for Alaska’s most populous area be at risk?  (See Lisa Demer’s ADN article.) 

Mike Hawker, Alaska State House of Representatives, Cook Inlet Gas Supply, North Slope Gas Pipeline, Photo by Dave Harbour

Commentary: Over five years ago, three of five members of the Regulatory Commission of Alaska voted to reject a gas supply agreement (GSA) negotiated between Enstar and Marathon that would have provided for Enstar’s Southcentral Alaska needs through 2016 at roughly Henry Hub prices (i.e. Today, $2.19/MCF vs. current RCA-approved Enstar rates for limited volumes of Marathon gas @ $6.91 and $9.67 respectively).   Looking back, approval of the 2006 GSA could have saved Enstar ratepayers many tens of millions of dollars and consumers have no solid guarantee of firm gas supply through 2016.  As one of the two who voted to approve the agreement, I had a background in oil and gas and was convinced that this was an incredibly good deal for ratepayers and the negotiating parties.  In fact, so distraught was I when the three voted against it I seriously considered resigning from the commission which I believed had put Alaska’s ability to survive cold winters at risk.  Instead, I wrote a dissent on October 12, 2006 (followed by a final order dissent on January 10, 2007), which readers may wish to review here.  The dissents explain why the three commissioners’ action violated RCA precedent and endangered the ratepayers — and there’s not much I would change were I to rewrite it today.  In the the statement below, Representative Mike Hawker (NGP Photo, above) seems concerned with at least one Cook Inlet producer for Enstar’s lack of gas supply.  While his reaction is understandable and well-intended, perhaps this personal reference and historical dissent will assist in keeping such matters in perspective.   Enstar has worked diligently to maintain gas supply and the Cook Inlet producers have been responsible. (One notes that two of the three commissioners voting against the 2006 GSA remain on the commission but new commissioners have been appointed and GSA decisions in recent years have improved.)  -dh

On Friday, Representative Mike Hawker addressed the problem of gas shortage in the Cook Inlet area, affecting the most populous area of the state.  He said, in part:

“The Southcentral gas market has always been a tricky one. Small and isolated, with huge seasonal fluctuations in demand, limited exports have long been the foundation that gives industry incentive to produce and provides energy security for two-thirds of Alaskans.

“I support free market principles that allow those with a commodity to sell it for the highest price they can. However, there has long been an informal understanding between Cook Inlet producers, utilities and the state that local needs must be met. I am deeply disappointed that a producer would disregard what I see as a responsible corporate citizen’s obligation to the people of Alaska.

“I understand that along with a potential physical shortage of gas to supply to CINGSA and to utilities, the gas price has gone up dramatically, now generally paralleling the price of export gas. This would represent a significant increase in electricity and home heating costs to Southcentral Alaskans, one that individuals and the general economy cannot easily absorb.

“I support continued LNG exports from Cook Inlet; however, our local needs must be met first, and at reasonable rates fair to all parties. To that end, I urge the producing companies in Cook Inlet to pursue reasonable, fair supply contracts with Enstar, CINGSA and electric utilities that will provide Alaskans with energy security as we approach a critical winter.

“Meanwhile, now more than ever, we must relentlessly pursue long-term solutions offering energy stability to economies and individuals of Southcentral and all Alaska – including a natural gas pipeline from the North Slope to export at tidewater.”

I couldn’t have said it better.  For decades, I have heard folks in Alaska repeat the canard that because Alaska has oil, companies will beat down the door to get it. Meanwhile, the oil wealth has allowed folks a very comfortable life via a magic goose laying golden eggs from behind a curtain.
This has led to people believing there is no need for timber, mining, or any other kind of development, including more oil production.  Roads aren’t necessary in a state twice the size of Texas that has less paved road than the District of Columbia.  I’ve been told by some in the environmental community that many people literally sign over their permanent fund checks to them as a contribution.
After a number of years of studying oil and gas developments around the world, including the lower 48 states, it is clear to me that that approach is indeed a canard.  Alaska has to compete to attract investment just as everyone else in the world.  Having huge resources is but the first condition for resource development. Alberta’s success, for example, is directly attributable to a royalty system that attracts large amounts of capital and recognizes that it will benefit over the long run as the capital is paid for by production.
Oil is discovered not in the ground, but in the minds of men and women willing to work and invest and risk capital to give it value.  The Arabs sat on huge wealth but lived lives of paupers until technology and capital gave them wealth.
The No Growthers love the economic nincompoops who defiantly declare that higher and higher taxes and take on Alaskan production is warranted.  They seem to know  nothing of the energy world that is coming to the conclusion that Alaska is making itself irrelevant.  When oil is being discovered in quantity in the waters of Israel and the Falklands and many countries including China are working on both shale oil and gas shale, the positions of some Alaskans are so insular as to threaten the future of the state.  And while the No Growthers might like that, Alaska would be a much, much different place.  It is not far from becoming just that.
Keep up the good work ringing the bell, my friend.
Daniel V. Kish
Senior Vice President, Policy
Institute for Energy Research
1100 H St. NW
Suite 400
Washington, DC 20005
202 621 2959 (direct)
202 360 2480 (cell)
















Fred Carmichael, Aboriginal Pipeline Group, NWT, Inuvik, gas pipeline, arctic, oil pipeline, Photo By Dave HarbourPetroleum News by Gary Park.  FredBob McLeod, oil pipeline, NWA, Photo by Dave Harbour Carmichael (NGP Photo-L), chairman of the Aboriginal Pipeline Group, which has the option of a one-third equity stake in the Mackenzie Gas Project, said a pipeline to the Beaufort Sea would face a backlash from environmental and aboriginal organizations.  (See our earlier editorial onBob McLoed’s {NGP Photo} initiative.)

Calgary Herald by Jason Fekete.  Prime Minister Stephen Harper’s annual northern tour (today) comes at a critical time for energy development in the North, with the Mackenzie Valley pipeline project languishing and bids about to close on a huge tract of Arctic offshore petroleum exploration rights.

NYT/ADN by Clifford Krauss.  Pete Slaiby, Shell Oil, OCS, Chukchi, Beaufort, OCS, Arctic, Photo by Dave HarbourShell remains confident that it will get final approval from regulators and be able to begin drilling for oil in Arctic waters off the Alaska coast this summer, the oil company’s top Alaska executive said Friday. “We absolutely expect to drill this year,” Peter E. Slaiby (NGP Photo), Shell’s vice president in charge of Alaska operations, said in a telephone interview. “Our confidence continues to grow, and we are feeling good.”

The Alaska Department of Natural Resources (DNR) will hold its annual sale of oil and gas lease tracts in the Beaufort Sea, North Slope, and North Slope Foothills on Nov. 7, 2012.

ADN/AP by Dan Joling.  Special protections proposed for wildlife habitat in the 36,000-square mile National Petroleum Reserve-Alaska would block oil development on half the area, but Alaska officials’ immediate concern is how it would affect offshore drilling.