7-14-15 Alaska Gas Pipeline Commentary

Alaska Gas Pipeline Commentary:

by

Dave Harbour

On the links list, lower right column, readers will find a link to Alaska's Economy, First National.  

Following that link, our readers will find this exchange among two commentors and your publisher:

• First Commentor:

  I hope parents share this (1st National economic information) with their teen age children. Alaska's future needs to be a topic of conversation with all Alaskans.

   
• Second Commentor:
  Yeah, well, if the oil companies want to warm the cockles of Alaskan hearts they need to build a gas pipeline that is big enough to deliver affordable gas in-state. We are sick of having all the resources and none of the benefits.

Dave Harbour Comment. 

We respectfully suggest that oil companies have not delayed the building of a gas pipeline.  Nor do they or any other private sector company make major project investments to warm the cockles of anyone's heart.  

Politics in the 1970s derailed the first viable Alaska North Slope gas project (i.e. Arctic Gas route), while the FPC derailed the El Paso LNG project and Canada favored the Alcan project. ​  

Economics in the 80s and 90s delayed the second one (i.e. Alcan route), and third one (i.e. various Alaska LNG Asian export projects).  

Alaska politics, with coming of the new Century, delayed the next serious attempt when economics improved (i.e. Murkowski's fiscal certainty effort rejected).  

Alaska politics (i.e. Governor Palin's ACES impact on economics and her 'must have' approach with AGIA) along with the new shale phenomenon and growing Asian demand  (i.e. making LNG, for the first time in history, more economically feasible than a Midwest pipeline) gave rise to the Ak-LNG project.  

The producers have gone all-out to tailor favorable economics for the current AK-LNG project but, again, politics threaten the economics.  

• First, Alaskans demonstrated via the failed referendum attempt a year ago to repeal SB21 oil tax reform, that any investment in Alaska is always subject to a political/populist referendum that could kill otherwise favorable economics after the investment is made.  
• Second, the current governor (i.e. Bill Walker) has signaled his priority support for a successful gas pipeline project — a priority diminished by conflicting signals that higher oil taxes and a reduction in oil tax credits are another priority.  (Note that an unsustainable state operating budget increases pressure for higher taxes.  A Greece-like distaste for any austerity that could support gas pipeline economic feasibility and investor confidence pervades Alaska's current political environment.) 
• Third, soon after taking office, The governor began to signal that his impatience with the Ak-LNG project was causing him to want to put full support behind an expanded AGDC project (i.e. threatening to create competing gas projects does not reflect fiscal certainty, logic, or wisdom on the part of Alaska's chief executive).  
• Fourth, Walker has expressed support for some sort of 'fiscal certainty' regarding taxation of natural gas but is refusing to consider a way of providing fiscal certainty to oil investors.  Surely gas pipeline investors must be, on the one hand, encouraged by the idea of having a stable investment climate for gas.  If the oil taxation climate is unstable and even hostile, as now, politics once again threatens the pipeline dream becoming reality.  

Due diligence will certainly reveal to any gas investor that after investing billions to bury a refrigerated gas pipeline into the permafrost, a predatory government could once again undermine its gas investment on the one hand by engineering higher oil taxes on the other.

To provide true fiscal certainty that supports investments by companies in gas (and other major) projects, Alaska needs to provide some convincing evidence if not a constitutional guarantee that what is invested in good faith will not be expropriated later in bad faith.  

(Lastly, on the comment above, "…affordable gas in-state. We are sick of having all the resources and none of the benefits…," I'm almost embarrassed, as a 44-year resident, to respond; embarrassed in being aware that this conversation is bound to verify any negative opinions our 'outside' readers may have about the wealth and even the spoiled nature of some Alaskans.  But we are compelled to observe that Alaskans have gotten a lot for nothing during this incredibly blessed oil and gas era, including:

• In return for massive hundreds of billions in state infrastructure and financial support for municipalities and villages, Alaskans pay no statewide income tax, property tax or sales tax.
• Oil companies on the other hand pay for 90% of the state operating budget and their capital intensive work supports over a third of the entire economy.  They pay oil royalties, agreed upon when they bid on oil leases.  In addition, the legislature has the power — and has in the past — created, changed and increased oil taxes after investments have been made.  The government has even taxed Alaska's largest investors retroactively.  Oil companies pay a corporate income tax, a 'severance' or 'production' tax and a discriminatory oil and gas statewide 'property tax' that other companies or citizens do not have to pay.
• As some Alaskans complain about not having subsidized natural gas, they are being paid annual dividends from a $50 billion 'Permanent Fund' financed 100% by oil industry taxes and royalties.
• As fellow citizens throughout the country struggle for financial survival, Alaska has created the highest spending per capita state in the nation and has the highest number of non-profit organizations per capita in the nation; most supported in various direct and indirect ways by the oil industry.
• As a small number of the incredibly rich Alaskans complain about not having enough 'free stuff' from oil investors, they might pause from time to time to consider:
  • Their state subsidized airports — and thus their inter- and intra-state travel — financed in large part by oil; and  
  • All of their couple hundred non-taxed rural villages provided with state subsidized, oil supported: schools, health facilities, sanitation, water, port, road, State Trooper, fire fighting and other services; and
  • A lavishly financed state university system, enabled by oil; and
  • hundreds of thousands of jobs supported directly and indirectly by oil companies.

Yes, I'm embarrassed to recount Alaska's riches before our thousands of readers in North America.  But, on the other hand, if the facts listed here can help other uninformed citizens to better understand the economy of their state and better support that economy, it has been an exercise well worthwhile.

Lastly, it is possible for Alaskans to not be embarrassed about the God-given natural resource wealth accorded it.  That can best be accomplished by considering what productive contributions we can make to fellow citizens, rather than what increased financial and social benefits we can lobby from government.   

Alaska now finds itself in a very low price oil environment, with a federal government doing everything possible to stop natural resource work on federal (and state) lands and with a state administration that seems both anxious to increase oil taxes and reluctant to trim spending.   

It is critical that Alaskans join together to support a stable investment climate for our largest investors, to create self-disciplined spending polices and engage in rhetoric that does not demonize the economic engine supporting a half century of unbelievable prosperity.  

Respectfully, dh