Remember this announcement, 5 years ago today? ANCHORAGE, April 8, 2008 – BP
| Globe & Mail. The U.S. Energy Information Administration reported last week that Canadian oil exports to the United States are the highest in at least four decades. |
Today, Congressman
Doc Hastings' (NGP Photo) House Natural Resources Committee held a Full Committee legislative hearing on four straightforward bills to update the Endangered Species Act (ESA) for the 21st century and improve species recovery. This effort works in the favor of Alaska's and America's economy without diminishing reasonable support for protecting truly endangered species. -dh
Does Alaska's Pension Liability Threaten Gas Pipeline Viability?
(See SitNews Ketchikan Reprint)
by
Dave Harbour
Alaska spends more than it takes in. To that extent must investors worry about when — and not if — the next tax proposal will creep over the horizon toward THEM.
Below is the link to an Op-Ed wherein mayors (i.e. whose own retirements are at risk with underfunded pension liabilities) urge lawmakers to support the Governor's proposal to reduce the $12 billion unfunded pension liability by $3 billion.
 Today's Juneau Empire Op-Ed. See long-time Alaskan utility and natural resource expert, Bill Corbus' (NGP Photo) related opinion. -dh |
To do that, lawmakers will have to remove $3 billion from state savings accounts at a time when their deficit spending level requires use of depleting savings.
Oil production from Prudhoe Bay is declining, upon which 90% of state spending is based. Oil revenue could continue its dramatic, annual production decline putting more reliance on savings accounts to balance an unsustainable state budget.
See Alyeska Pipeline Service Company President  Tom Barrett's (NGP photo) response to yesterday's Alaska state revenue forecast. We believe that better than projected production decline rates are due to the passage a year ago of SB 21, which reformed Alaska's oil production tax. -dh |
Paying off the entire pension liability is impossible since Alaska doesn't have $12 billion in total savings available. (4-10-14 Note: See "Understanding Alaska's Budget". Some might say we have over $20 billion in savings available; but since political reality prevents expenditure of most of these sources for "government pension fund liabilities," they should not all be considered available.)
Gas pipeline investors have to be wondering, "If I commit to a portion of a $40 – 60 billion gas pipeline/LNG export project and the state continues running out of money, how safe is my investment from predatory tax policy?"
Alaska has a track record of taxing for more than it needs to operate and, to add insult to injury, taxing the oil industry retroactively. It has built the highest cost per capita bureaucracy in the nation. Now, in the face of rising costs and diminished revenues it is urging oil companies to invest in a mega gas pipeline project so that revenue from that project a decade from now can fund the state's spending appetite.
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Link to our reports and commentary on LNG competition, here. Energy advisor, Keith Kohl, says in his communique today that, " Like us, Canada's National Energy Board has approved seven LNG export license applications — but unlike us, the first project slated to start tapping the Asian LNG markets as early as next year." |
Meanwhile, dozens of pending LNG export projects in the the US and Canada are all romancing the same Asian energy consumers. Experienced observers know that profit margins will likely be thinner than they hope for. Asian utility managers are not stupid. They will want the lowest possible "ship or pay" cost for LNG energy in return for their own "take or pay", long-term financial commitments. (Some good, Lower 48 researchers are excited about Alaska's prospects, but may not be fully aware of investor concerns or competitive pressures from other export projects that we have covered in these pages. -dh)
The LNG project that offers the lowest, competitive price to an Asian utility in return for a 20-year, firm contract, cannot afford to risk company solvency on "assurances" that Alaska will not create new energy taxes out of thin air and even apply them retroactively–thus altering project metrics and risk. The risk that the contracted delivery price of LNG to an Asian market could be lower than the cost of delivering the LNG — under a "ship or pay" arrangement, may be an unacceptable risk to a responsible investor.
So the final question that any gas pipeline investor might be asking now is, "Can Alaska assure my company that today's gas pipeline investment is safe from future tax increases when unfunded pension liabilities, run-away budgets and diminishing oil production pose a dreadful danger in spite of 
any politician's soothing assurances and best intentions?"
As our friend, utility manager Joe Griffith (NGP Photo), has often said, "Hope is not a strategy." We all hope for conditions that will enable sustainable budgets and projects to supply both the jobs and the financial resources of the future. But hope alone will not achieve that goal.
What then is an answer to this Gordian knot of intertwining politics and energy policy? Cut public spending to be consistent with income. Cut welfare/entitlement spending to be consistent with median welfare spending of all other states. Business taxes should not exceed median of business taxes in other states. Institute new taxes only on new investment, not on prior investment. Never tax retroactively. Cut tax and regulatory burdens to essential and responsible needs. Avoid state investment into private sector projects–which always involves politicians risking "Other Peoples' Money". Of course, there are as many suggestions as there are people with opinions.
So is some combination of these and other responsible remedies too difficult?
If workable solutions are "too difficult" they will not be undertaken and undisciplined, unsustainable economic policies will ultimately result in involuntary compliance with economic realities.
Parents warn children that this is called, "learning the hard way".
Fairbanks News Miner, by Mayors John Eberhart, Luke Hopkins and Bryce Ward.
Gov. Sean Parnell’s budget includes a $3 billion line item to reduce the Public Employees Retirement System (PERS) and Teachers Retirement System (TRS) unfunded liability, which is about $12 billion. The mayors of Alaska, through the Alaska Conference of Mayors and the Alaska Municipal League, fully support the governor’s initiative to stop the can from being kicked down the road.
The state has attempted to make inroads in regard to this huge liability, but so far hasn’t had success. Every year the deficit has increased. The governor has stepped forward to address this issue in a responsible way.
Comment: Yesterday, April 7, 2014 the Alaska Department of Revenue issued its Spring 2014 Revenue Forecast. We believe it provides a brighter outlook for a future, sustainable economy, if decision makers continue to support the sort of tax reform to which the increased production may be .jpg)
largely attributed. But for future years, a sustainable economy based almost entirely on the back of one industry needs serious, objective attention and problem solving.
Note that the forecast includes improved North Slope production and projects a lower decline than has been anticipated. The following is from the office of Alyeska Pipeline Service Company President Tom Barrett (NGP Photo). -dh
Barrett issued the following statement this morning:
“The Department of Revenue’s forecast is great news for TAPS. This much needed upward shift in throughput is critical, because moving less oil through TAPS creates significant challenges for the men and women who work to keep the pipeline operating safely and reliably. Every barrel in TAPS counts and the prospect of thousands of additional barrels moving down the line is welcome news.”
“We understand that Alaska depends on us to safely deliver the oil that funds so many state services. That’s why Alyeska and the TAPS Owners have aggressively pursued solutions to declining flow. But, as I have often said, ‘the best and most direct solution for TAPS is more oil.’”
“I applaud the Governor and the Legislature for fostering an environment that encourages more development. The forecast reflects that the investments being made by the producers should pay off soon for Alaska. That’s good news for TAPS and for everyone in the state.”
More information about the challenges of declining throughput is available at http://www.alyeska-pipe.com/TAPS/PipelineOperations/LowFlowOperations
About Alyeska Pipeline
For more than 36 years, Alyeska has operated the 800-mile Trans Alaska Pipeline System (TAPS), safely moving oil from Prudhoe Bay on the North Slope of Alaska south to the Port of Valdez, the northernmost ice-free port in the United States. The pipeline traverses three mountain ranges, permafrost regions and 34 major rivers and streams. Alyeska personnel work in Anchorage, Fairbanks and Valdez and at pump stations and response facilities all along the pipeline. They also operate the Ship Escort/Response Vessel System (SERVS) for Prince William Sound. Alyeska was created to construct, operate, and maintain TAPS for owner companies which today are BP Pipelines (Alaska), ConocoPhillips Transportation Alaska, ExxonMobil Pipeline Company and Unocal Pipeline Company
For more information, visit http://www.alyeska-pipe.com or follow Alyeska on Facebook or on Twitter at http://www.twitter.com/AlyeskaPipeline
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