Wednesday, November 7, 2012

The election . . .

The outcome of the election yesterday is contradictory at the national level.  The incumbent won, but his party lost ground in the House.  The Republicans hold a firm majority there.  The House controls the spending.  In the Senate, nothing really changed, the Democrats still hold the Senate.  The intriguing thing is that our Constitutional Republic, which was established upon Christian and capitalist ethos, is still in the hands of a radical socialist President who has increased our national debt by $16 trillion with deficit spending double that of his Republican predecessor who had a two front war underway, without the Congress passing any budgets for the first four years of his presidency.  This President has now promised increased taxes in the form of a Carbon Tax upon industry, and an unfettered growth in government. 
14 million Americans who voted last election did not vote this election.
Alaska has managed to correct the parity between the parties in the Alaska Senate.  Anchorage Sen. Bettye Davis (D), a long time Alaska pol, lost her seat to Anna Fairclough (R) of Eagle River.  Fairbanks Sen. Joe Paskvan (D) lost his seat.  Anchorage Sen. Hollis French (D) may yet lose his seat to Rep. Bob Bell (R), a race which has French in the lead by 249 votes, with challenged and absentee ballots yet to be counted.  The net result is that Republicans gained a total of three seats in the Senate giving a 13-7 Republican majority.  This majority may end the parity but does not insure the clear majority needed to move forward Governor Sean Parnell's oil tax reduction plan. Kodiak Senator Gary Stevens and Southeast Senator Bert Stedman both sided with the Democrats forming a majority last session that stonewalled any oil and gas legislation having to do with taxes and a gas pipeline.  How they will stand with a Republican majority will soon be demonstrated.  If they continue to support no change in ACES, then the Republican majority will be effectively 11-9.
The Alaska House remains firmly Republican.
What is the potential impact upon Alaska's growth of government and spending of the election?
The portent of this majority would normally bring groans to those who want growth in government.  However, neither House Republicans or Senate Republicans have stood the line with respect to fiscal discipline or restrained the growth of government.  Since Governor Frank Murkowski's budget, succeeding Republican governors have increased the budget far beyond that of previous administrations.  Last year's budget by Governor Sean Parnell exceeded $10B.  This budget was declared unsustainable by many of the same Republicans that passed it in both the House and the Senate.  The number of State employees has increased by an additional 800 employees under the current and previous two Republican administrations. Therefore, will Alaskans see fiscal restraint or any halt to State government growth imposed by a Republican majority in the House and Senate and a Republican governor?
What is the potential for a gas pipeline to bring Alaska's North Slope to market under the new Republican majority in the House and Senate?
Given the passage of CH9 last session, and the introduction of CS9 in the Alaska Senate, it is unlikely that the 500 million cubic feet per day (500mmcf/da) Alaska Stand Alone Pipeline (ASAP) will make much progress this session.  Even were CS9 to be passed by the Senate intact, the estimated start date by Dan Fauske of AHFC is estimated at 2018 or later, if a route is finalized.  Previously, the Legislature appropriated $200M last year to fund the permitting process, but failed to give any provision to actually spend the money.  The Alaska Gasline Development Corporation was created by CH9.  CH9 ended the voter mandated Alaska Natural Gas Development Authority created by the passage of Proposition 3 in 2002.  Without a route, permits, or any real plan in place, the ASAP is still a pipe dream with little chance of success. 
The ASAP is considered to be uneconomic, given the limitation of 500mmcf/da limitation for any instate pipeline under AGIA.   The ASAP has no permits or even a route finalized, even after $214M in appropriations.  The legal hurdles are permits through a national park, a national wildlife preserve, a State park, and permits to cross numerous salmon streams.  It is unlikely, the environmentalists will allow the State to build this pipeline without legal challenges, thereby delaying any start of construction by at least one or two decades.
Some progress towards development of North Slope gas development has occurred with the recent agreement between the State and Exxon over the Point Thompson Unit development.  The Point Thompson Unit is a major gas deposit, the development of which is necessary to any natural gas pipeline plan.
Governor Parnell has recently touted a letter dated 3/1/2012 from the Producers (Exxon, Conoco, and BP) as a willingness to commit to the all-Alaska natural gas pipeline to Valdez.  As a requirement, the Producers made it very clear that fiscal certainty is a requirement for any development of Alaska's North Slope natural gas resources:  
" Serious discussions between our companies have taken place over the past several months, along with the Alaska Pipeline Project (APP) parties who are supporting the AGIA License. We have aligned on a structured, stewardable and transparent approach with the aim to commercialize North Slope natural gas resources within an AGIA framework. As a result of the rapidly evolving global market, large-scale liquefied natural gas (LNG) exports from southcentral Alaska will be assessed as an alternative to gas line exports through Alberta. In addition to broadening market access, a south-central Alaska LNG approach could more closely align with in-state energy demand and needs. We are now working together on the gas commercialization project concept selection, which would include an associated timeline and an assessment of major project components including in-state pipeline routes and capacities, global LNG trends, and LNG tidewater site locations, among others.
Commercializing Alaska natural gas resources will not be easy. There are many challenges and
issues that must be resolved, and we cannot do it alone. Unprecedented commitments of
capital for gas development will require competitive and stable fiscal terms with the State of
Alaska first be established. Appropriately structured, stable fiscal arrangements have opened
new opportunities around the world, and will playa pivotal role in making Alaska competitive in
the global market and unlocking the economic potential of North Slope resources."
Very recently, Governor Parnell used the 10/3/2012 letter from the Producers and TransCanada as proof of his progress in achieving a natural gas pipeline from the North Slope to Valdez under AGIA to send LNG to market in Asia.  Once again, the Producers make it very clear that before any commitment to build a pipeline occurs, the Producers want ". . . fiscal terms necessary to support the unprecedented commitments required for a project of this scope and magnitude and bring the benefits of North Slope gas development to Alaska." 
Unfortunately, the Governor's commitment to AGIA fails to take into consideration conflicts of interest on the part of TransCanada and the Producers.  Alaska's natural gas sent to Asia as LNG would be in conflict with their existing LNG projects overseas and in Canada.  Exxon, Conoco and BP all have Asian and Australian natural gas development projects that are intended for Asian markets.  Exxon and Conoco are sending their Qatar LNG to market in Asia after the U.S. domestic market was made untenable by the domestic shale gas development.  Permits to export U.S. domestic natural gas have been made to export LNG to Asia. TransCanada has an interest in the Kittimat, BC LNG terminal project with feeder pipelines and its association with Foothills Pipeline Company.  Kittimat has national support and is a national priority.  Alaska's natural gas pipeline to Valdez with natural gas converted to LNG for export would compete with those projects.  Would TransCanada act to compete with Kittimat with a pipeline to Valdez?
To a prudent observer, these conflicts of interest on the part of TransCanada and the Producers would serve as justification for a dissolution by the State of AGIA as the bases. 
Both the ASAP pipeline and AGIA have huge hurdles to overcome on the part of the participants and the State.
What is the portent of the national election to Alaska and Alaskans?
Taxes on business and individuals will go up.  The Bush Tax cuts sunset on 16 January.  They will not be renewed.  An estimated increase in healthcare costs of over $2,000 per individual is anticipated with Obamacare this coming year.  This President has already stated that he will seek a Carbon Tax on industry, which will result in even more U.S. manufacturing going overseas and the loss of even more jobs.  U.S. power production will continue to decline under this President.  President Obama's war on coal production and coal power plants will result in increased cost of power to all Americans. Only Europe has a carbon tax on industry and power production.  Neither the People's Republic of China nor India has such a tax. 
Those who work for government in Alaska are becoming the new elite.  The government worker is now estimated to have wages and benefits exceeding the private sector by 2:1, an average of $80,000 for the federal government worker to $35,000 for the average private sector employee.  The foxes are now in charge of the hen house.
Alaska's offshore oil development benefits only the federal government in terms of royalties.  Alaska will receive taxes and jobs.  However, this President has restricted offshore development, and will certainly be able to act with impunity with respect to further restrictions on domestic energy development through executive orders.  The net result will be increased energy costs Alaskans and Americans, and fewer jobs in the energy development and power generation industries.
The socialism of the federal government will continue to be more intrusive and more aggressive in the intent to impose social engineering upon our schools, military and society in general.  Expect more homosexual lifestyle agenda impositions.  Expect more attempts to limit free speech and the practice of Christianity. 
Our military is about suffer catastrophic losses.  For Alaska this means an reduced military presence, or at least the probability of the military being unable to defend Alaska's continental shelf from Russian attempts to stake claims to Arctic resources.
Alaska's social programs will not suffer, until there is a decline in revenue forcing reductions by the State.  Eventually, federal overspending will result in less money to the State.
The Alaska Permanent Fund Dividend check will certainly end.  The Alaska Legislature and this governor cannot see the forest for the trees with respect to oil and gas development.  A declining TAPS is the bellweather for Alaska's economy.  The Legislature and governor will be forced to institute an income tax before the next four years of the President's administration is over.  Alaska will be receiving fewer federal funds.
The economy of Alaska will continue to slow.  People will leave.
In the mean time, we all get to witness and to experience what our grandparents and great grandparents experience during the Great Depression. This recession is a depression that is world-wide in magnitude.

The worst is yet to come.

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