Alaska's eggs are all in the oil basket, like Norway, we have screwed up

Alaska’s Legislature and Governor like to point to Norway’s success with its savings account from Norway’s oil development. Over the last 50 years, Norway has managed to sock away $740 billion in the Norwegian Oil Fund (NOF), Norway’s savings account from oil development royalties. Is Norway’s fund truly the outstanding example of sound fiscal management pointed to by our politicians?

Jerome Vitenburg, an international political analyst, citing a 2011 study by Michael Hudson of the University of Missori, in the Washington Times says no, Norway has not been a good steward of the incredible wealth afforded by the oil boom. Bad investments, a rapidly expanding welfare state, and the failure to invest in Norway’s industry and infrastructure raise serious doubts about Norway’s financial future. Like Alaska, Norway has failed to invest wisely in itself.

Norway has failed to improve its non-oil related industrial infrastructure. Norway has invested heavily outside of Norway. Alaska has done the same.

There is no requirement under Alaska statutes for a percentage of Alaska’s Permanent Fund to be invested into Alaska. (AS 37.13)

Increased production threatens Norway’s oil revenues as oil prices are expected to fall with new production coming on-line in the U.S. and elsewhere from shale deposits and new technologies improving recovery. Alaska faces the same potentially draconian economic future.

Alaska is also particularly vulnerable to such a decrease in oil revenue. This year is expected to be the first year of deficits between spending and revenue, by -$500,000,000, since the precipitous drop in the price of oil in the 1980s and in 1999, when oil dropped to $20 per barrel. Delays in building a natural gas pipeline to tidewater further accelerates Alaska’s coming fiscal collapse, because of the failure of the Legislature to understand the LNG market and Governor Sean Parnell’s insistence in adhering to Sarah Palin’s failed AGIA policy until very recently.

Governor Parnell has finally closed the Alaska Gasline Incentive Act (AGIA) office. Prior to his Natural Resources Commissioner recently announcing that the State would consider a direct investment to secure 20% of the project ownership, Parnell steadfastly stood by Sarah Palin’s Alaska Gas Inducement Act (AGIA) guidelines. Now, it looks as if the Parnell Administration has realized that Bill Walker was correct in his promoting the State’s involvement in a major natural gas infrastructure investment.

Unfortunately for Alaska, Parnell has yet to ask the Legislature to provide the legislative authority to make such an investment and to set a time table for construction. Governor Parnell continues to wait for the oil companies to make that decision. Something that they have been extremely reluctant to do, as they do not want Alaska’s North Slope gas doing other than pressurizing the North Slope oil fields until technology can allow the recovery of most of the 20 billion barrels of oil from oil sands deposits under the surface of the North Slope. The "money" for the oil companies is in oil production, not natural gas production. They have plenty of natural gas from foreign sources and shale plays in the lower-48. They do not need nor want Alaska’s natural gas in the world market competing with these other interests.

There are serious conflicts of interest on the part of the oil companies with their foreign developments, which would compete with Alaska LNG for market share in Asia. TransCanda also has a conflict of interest with its contract with Shell for a natural gas pipeline to Kitmat, B.C., Alaska’s competition as an LNG export terminus. Unfortunately, the AGIA legislation and subsequent contract with TransCanada never required "conflict of interest" as a condition to justify cancellation by the State of Alaska. Only economic conditions are stated as a basis for cancellation by the State. An example of poor business judgement on the part of former Governor Sarah Palin.

Meanwhile, Japanese LNG customers are paying $16 per million British thermal units (MMbtus) for delivered LNG. In 2010, a study by Woodward MacKenzie demonstrated delivery of Alaska LNG to Japan could be done for approximately $8.50/MMbtus. Yet, in the intervening time period since the 2010 elections, the Parnell Administration failed to move any natural gas pipeline proposal forward, preferring instead to seemingly ignore the natural gas issues altogether, putting any lack of progress into the lap of the oil companies. The Legislature was given free reign by this governor to establish policy and direction. Parnell did manage to reduce the oil companies’ production taxes in a modification of Sarah Palin’s Alaska Clear and Equitable Share Act (ACES) of 2007.

What progress has been made on a pipeline proposal has been in favor of the Alaska Stand Alone Pipeline (ASAP), which is the former bullet line. In late 2012, Congress authorized a 7 mile right of way through Denali National Park using the Parks Highway right of way. This surprise on the part of the Obama Administration coincided with the oil companies (Exxon, Conoco and British Petroleum) decision to "study" a pipeline terminus at Nikkiski, rather than use the established TAPS corridor to Valdez for any natural gas pipeline to move North Slope natural gas to tidewater. The economic viability of the ASAP line has been debated since first proposed as the bullet line under then pipeline coordinator Harry Noah appointed by then Governor Sarah Palin. AGIA limits the volume to no more than 500 million cubic feet per day (MMcf/da), making the ASAP pipeline, like the bullet line, uneconomical. The interesting aspect is that the State would have to fully finance the construction.

Bill Walker was heavily criticized during the 2010 gubernatorial primary for suggesting even a partial State buy-in as part of his all-Alaska natural gas pipeline plan. Such a buy-in to control management and to set time lines was termed "socialism", even by Ralph Samuels who was a proponent of the to be 100% State financed bullet line scheme concocted under then Gov. Sarah Palin.

By contrast to Alaska’s lack of measurable new oil and gas exploration/development since the 2010 elections, Texas is now back up to 2 million barrels a day of oil production from shale deposits, doubling its production of two years ago. Texas expects to exceed that production and to see production rise to the levels of the 1960s and 1970s when oil production was well over 2 million barrels per day. As of December, 2012, oil production in North Dakota reached 770,000 barrels per day. North Dakota’s oil production now exceeds Alaska’s oil production. Alaska’s oil production is declining rapidly and is presently at 549,936 barrels of oil and natural gas liquids per day.

Improvements in production technology is resulting in the ability to recover more and more oil from shale plays and oil sands deposits. New technology is also allowing recovery from wells where production was reduced to the point of being uneconomical, because of paraffin impeding the oil flow. Increasing domestic U.S. oil production has led to demands by the oil companies for legislation allowing the export of crude oil from domestic U.S. production for the first time since the 1960s. For the first time in decades, energy independence is being spoken of with certainty in the U.S. The increasing supply should lead to a decline in oil prices.

Norway’s oil fund is limited to investing no more than 4% of its NOF in Norway. The bankers and accountants who consulted to the Norwegian government applied a model of immediate return. Ignored by this economic investment model are the major government-level investments that are designed to facilitate growth in industry, to insure an educated and motivated work force, and to provide the transportation infrastructure needed to support commercial growth. However, the bankers and accountants won out with the argument that to invest in Norway’s small economy beyond 4% would cause inflation that would eventually devastate the local economy. The Alaska Permanent Fund was set up using a similar, shortsighted philosophy.

This same mentality of a quick turn around for money, investment in financial schemes rather than creation of equity through manufacturing and building, resulted in the ponzi schemes of the 80s and 90s of the ".com" stock failures and the sub-prime mortgage disaster, leading to the current recession with the bailouts, quantitative easing by the Fed, and the incredible spending of our Congress and President to no good end.

Europe was doing its own version, and the economic fall out is continuing there like it is here, with high unemployment, currency inflation, and an ongoing recession. Asia, mainly the PRC, is feeling the pinch as well, as the West is the primary beneficiary of its cheap labor and communist controlled economy.

Yet, the historical precedent for the growth of the Western economies was based upon the idea that government facilitated such growth by investing in the public sectors of utilities, transportation, and education to give the private sector the tools necessary to grow the country’s economy. The Tennessee Valley Power Authority is a prime example of a national initiative to increase power production in the U.S. in the 30s.

Instead of growing Alaska, Alaska’s leaders of the time, as had Norway’s leaders previously, decided to grow government as the means of giving the greatest benefit to the people of Alaska. A government that soon tired of public projects, and devoted itself to keeping the ‘hands out’ crowd happy and complacent by increasing welfare gratuities and growing government to do so, thereby directly benefitting fewer and fewer people, largely government employees. "Can’t" has become the new Alaska State Government policy to excuse the continuing lack of infrastructure. The only thing created these days is more welfare spending programs and a bigger bureaucracy at every level of government.

There are people who worked in Alaska for a city government, vested, then vested with a borough government, then did the same with the State, as some local subdivisions required vestments of only five years. Once they retired from the State, they left the State with multiple retirement vestments from three levels of government, full life-time medical, and great retirement benefits. In other words, they raped us, and they are still doing this today.

Former Governor Jay Hammond, the father of Alaska’s Permanent Fund and Permanent Fund Dividend program, never intended that the PFD become an entitlement. It was always intended that either the PFD would be offset by an income tax, or discontinued when the oil production declined beyond a sustainable level for government to justify the payment to the people. The PF was to be used as a ‘rainy day’ fund, similar to the intent for the Norwegian Oil Fund. This flawed strategy is now coming home to Alaska’s current Legislature and Governor Sean Parnell. Neither is doing anything to prepare this State for a post oil economy.

In a 2011 analysis "What Does Norway Get Out of its Oil Fund, if Not More Strategic Infrastructure Investment", economist Michael Hudson warned of impending problems with the Norwegian Oil Fund investment strategy. Norway has been investing its National Oil Fund in Brazil, Russia, India, China, and in questionable real estate in Europe and the U.S. The investments in China, Brazil and India being used to create industry and infrastructure that will compete with Norway’s indigenous industries.

In the current world economic recession, such investments are questionable in the long term, given the economic uncertainties and the current penchant for currency inflation to make products more competitive by the aforementioned countries. The infrastructure investments that are the responsibility of government to keep Norway competitive in a changing global economy remain underdeveloped and ignored, while the social welfare burden continues to increase in the face of declining oil revenues. Even in the face of $740 billion in its NOF, Norway has managed to accrue $657 billion in foreign debt. Norway has borrowed money even with the NOF.

The United States became the economic power house that it did, because the government invested in the infrastructure to facilitate the growth of business and to access natural resources through roads, airports, harbors, schools, utilities, and regulatory oversight. Regulatory oversight at the time was designed to facilitate, not to impede growth. Part of the infrastructure created being necessary to the national defense. The U.S. interstate highway system is a good example of military necessity also serving the needs of commerce.

Mr. Hudson opined that 60% of the Norwegian Oil Fund should have been invested in Norway to build non-oil industry infrastructure to hedge against the competing oil production increases resulting from the U.S. and other foreign shale and normal production and improvements in recovery technologies. With the increased supply in the market, oil prices should decline. Norway’s investment in foreign growth is now paying a negative dividend to the future of the Norwegian economy.

Hudson gave the following example of the shortsightedness of the use of Norway’s oil fund money by comparing how those countries that benefitted from Norway’s investments are using their funds:

"While investing at home to improve their quality of life, China, Singapore and other nations manage their Sovereign Wealth Funds with an eye to shaping their economies for the next twenty, thirty or even fifty years. They are buying control of the key foreign technologies and raw materials deemed most critical to their long-term growth. This broad scope invests export earnings directly to make their economies more competitive while raising living standards."

Norway’s oil wealth has gone to the benefit of other countries through investment in business and in direct investment in infrastructure projects, all of which serves to build their economies at no direct benefit to Norway’s economic future. Foreign investment makes it easier for those governments to make the needed investments in their infrastructure, and to procure foreign raw materials sources for future growth, because the Western investor is paying for the growth of their companies, both private and state owned enterprises, without consideration of the long term impact upon their home countries’ economies.

Unfortunately, for Alaska and Alaskans, our Permanent Fund is largely doing the same: investing outside of Alaska without benefit other than a check once year to each Alaskan, the continued expansion of a bloated self-serving government, and an increasingly demanding welfare state that will collapse with the decrease in oil production in the very near future.

Alaska’s Regional Native Corporations follow the same strategy, which benefits a few, and pays off the many to keep them quiet with respect to seeing any benefit locally. However, they can sell their losses to solvent companies as a tax break to that company.

Norway, like Alaska is a literal one-trick pony, almost completely reliant upon oil for its revenue to run its government, and to meet its growing social welfare state obligations.

Alaska’s Permanent Fund (PF) does not invest in Alaska. Anywhere but Alaska seems to be the strategy. The PF investment goal is an increase of Fund assets by 5% per annum. Our Legislature and Governors have concluded that Alaska is a bad investment: do not use the PF to build roads into the Bush, to improve harbors and airstrips in Alaska to reduce the cost of living and to provide for the defense of Alaska, or to access our natural resources for development, to increase the exploration and development of our hydrocarbon resources, or to provide for the basic services that government is charged to do for all Alaskans. Our budget, State and Federal funds last year was over $10B. Yet, not one mile of new road was built, nor were the current roads improved or repaired. Meanwhile, the PF continues to invest in the stock market, which is literally gambling with Alaska’s oil wealth. As of this year, Alaska’s public indebtedness was $8.2 billion.

Norway is not the standard to be followed. The debt structure alone is enough to dissuade the prudent man from believing that Norway’s government has been a good steward of the benefits of its oil reserves. Norway’s debt of $657 billion is foreign held debt. Meaning, Norway has borrowed money in the face of their oil fund’s wealth.

Alaska is again issuing bonds to finance purchases.

Without diversification of Norway’s economy by government investment to build the infrastructure to support non-oil related industry, Norway is ill prepared to compete in a world market once the oil is gone. Norway will have to compete with those very economies in which Norway’s oil wealth has been invested. China, Russia, India and Brazil continue to garner more and more world market share across industry sectors, while Norway is frozen in the belief that it can continue to expand its welfare state without investing in its economic future.

Sadly, Alaska follows this shortsighted course by our Governors’ (primarily Palin and Parnell) and the Legislature’s refusal to recognize the hydrocarbon market trends and act accordingly to invest in the infrastructure necessary to access and to support development of the tremendous resource wealth of this State. Instead of investing in Alaska, we have invested in our competitors’ economies, and in policies and regulations by a distant federal government through federal bonds that serve only to further restrict Alaska’s ability of self-determination. Alaska’s debt structure is not as far along as Norway’s, but our lack of a viable transportation infrastructure makes much of Alaska as remote and our resources as unreachable as in most of the third world. Only there, they do not have a hostile and interfering federal oversight that serves other interests to deny Alaska its rightful self-determination as a State in the Union of States.

Given Alaska’s $10B budgets of late, $8.2B in indebtedness, how long will our $50B in the PF last? The trend is ever larger State budgets in the face of an average 6% loss of North Slope oil production each year. If there is a drop in the price of oil below $80 a barrel, Alaska will be in serious financial straits. Further, it is doubtful that the TAPS can deliver oil when production reaches 300,000 barrels per day or less. That day is not long off, given the 549,936 barrel per day level of production at present.

The Parnell Administration has continued to ignore the construction of a natural gas pipeline to tidewater that would, with the right governor at the helm, increase State revenues slightly, but have the potential to do much more. The long term benefit of such a project would be to provide any remaining gas liquids for use in Alaska to create a petrochemical industry for the Interior, and use part of the gas transported with the export volume to provide cheap heat and power for Alaska’s communities in the Interior and in South Central Alaska. Such in-state use of North Slope natural gas would impact industry across the board, and enable kilns for timber, refridgeration for agriculture, and the creation of jobs across industry to provide opportunity beyond just building and maintaining a pipeline. There is the true benefit of our resources, not in a mere export scheme to feed a bloated and inefficient State government that benefits a few, and not the many.

Such an in-state energy infrastructure project would further enable increasing the available gas in Cook Inlet, until exploration and development could catch up with increasing demand. The LNG terminal at Nikkiski would continue to export Cook Inlet LNG to Japan, as is still being done after 43+ years, without concerns about shortfalls in supplies for home heating.

A good indication that increasing natural gas supplies will positively impact the State is the December, 2012 air quality permit by Agrium to restart the fertilizer plant at Nikkiski on the Kenai Penninsula. Agrium shut down its Nikkiski plant in November, 2005 resulting in the loss of 230 local jobs.

Long term, well paying jobs would be the benefit of the correct application of governmental responsibility and involvement in large scale infrastructure projects, the natural gas pipeline being such an example of potential State participation. 30% of Alaska’s private sector jobs are oil industry related. Such State support would increase the size of the private sector beyond just the oil/gas industry support and services. The all-Alaska natural gas pipeline proposed by the Alaska Gas Port Authority during Sarah Palin’s campaign of 2006, and again in 2010 during Bill Walker’s run for governor in the Republican Primary was such a project.

High oil prices have kept the wolves of recession away. This keeps a private sector that largely serves government from facing the reality of the current world recession. However, the fires of growth are cooling, contrary to our federal government’s protestations to the contrary. Like Norway, the prospect of lower oil prices, declining production, and an indifferent Governor and Legislature point to uncertain and turbulent times for Alaska’s economy.

In 1999, the price of oil hit $20 a barrel. Today, that would mean the Permanent Fund would have to be used to defray the costs of government until the price of oil returned to sustainable levels. Something that could take longer than the PF would last.

Alaska First must be the only policy on the part of our Legislature and Governor, or Alaska will be the last to the world LNG market party and the loser by virtue of a retiring, reluctant and recalcitrant State government that has failed to see the need to invest in Alaska First. Vision, courage, commitment and leadership must replace the "can’t" in the Governor’s vocabulary. That means a change in governor.

Norway’s example as a steward of its oil wealth for the benefit of its people is not a good example for Alaska. Once again, our leaders have been short sighted in their consideration of Alaska’s future.

For more information:

Alaska Statutes:

AS 37.13.020

http://www.apfc.org/home/Media/investments/20130523InvestmentPolicyD.pdf

Alaska Division of Oil and Gas, Dept. of Natural Resources, SOA

http://dog.dnr.alaska.gov/

Norway’s Sovereign Wealth Risk Vortex:

http://michael-hudson.com/2011/03/norways-sovereign-wealth-risk-vortex/

Alaska Public Debt 2012-2013

http://treasury.dor.alaska.gov/Portals/0/docs/debt_management/debt_book_2013.pdf



Michael Hudson is the President of the Institute for the Study of Long-Term Economic Trends (ISLET), Wall Street Financial analyst, Distinguished Research Professor of Economics at the U. of MO. http://michael-hudson.com/about/

http://www.bizjournals.com/bizjournals/on-numbers/scott-thomas/2012/05/governments-employ-20-percent-of.html

http://www.spokesman.com/stories/2012/may/15/north-dakota-now-no-2-oil-production/

http://homernews.com/stories/010605/news_0106new005.shtml

http://search.peninsulaclarion.com/fast-elements.php?querystring=%22FERTILIZER+PLANT%22&offset=0&hits=10&hc=y&type=standard&profile=kenai&tags=FERTILIZER+PLANT&addListings=true

http://peninsulaclarion.com/news/2013-06-27/agrium-inspecting-equipment-at-its-closed-plant-work-to-continue-through-fall

http://www.alaskajournal.com/Alaska-Journal-of-Commerce/December-Issue-3-2013/Agrium-Inc-applies-for-key-permit-to-allow-plant-restart/

Parnell is briliant--he's going to reduce the size of Alaska!

Our new old Governor Sean Parnell is slowly steaming ahead with his agenda. I would have never given him credit for this, but . . . Gov. Parnell and the Legislature have come up with a pretty clever way to cut local government and the population of the State of Alaska by about 50% almost immediately! This plan is insidious in its brilliance.

Gov. Parnell’s economic plans should have included –by now—news of TransCanada and Exxon’s plans for a pipeline. Yet, all we hear from industry and other sources is that there will be no pipeline to Canada or to the U.S. for at least 20 years—per Larry Persily, the federal pipeline coordinator. Nor, will any LNG be sent to the U.S. from Alaska. It is just too cheap to ship all of that natural gas Exxon and Conoco converted in their LNG trains in Qattar 15,000 miles to the U.S. by LNG tanker, off load the LNG tanker, recondition the LNG, load it back onto the LNG tanker . . . and export it to Asia another 10,000 miles—and, still make a profit.

Yes, I remember Ralph Samuels sagely opining that it was just too expensive to ship North Slope gas 800 miles to Valdez by pipeline, convert it to LNG, and then ship it to a foreign market. Man, am I glad that we did not make that mistake! We would be just like all rest of those fools shipping LNG all over the world and making far more than the domestic price! Wow. We almost blew it, big time!

What would we do with all of those LNG tankers coming into Valdez to move 3 billion cubic feet of gas a day to market?! Not to mention that the gas liquids would have stayed in Alaska for fuels and industry, thereby creating more jobs. And, why would we build the 250 million cubic feet per day spur line from Glennallen to the Enstar Hub at Palmer to relieve the gas shortages in the Kenai/Cook Inlet gas fields? What would the pols have to commiserate over?! We did not need those jobs, either! Thank you Ralph and Sean!

Alaska did not need all of the jobs and businesses that would have been created by building the natural gas pipeline to Valdez. Remember, 138,000 Alaskans voted to build that pipeline. Just foolishness! Why, we don’t need to worry! We can all work for the State! Right, Gov?

After all, Conoco let the cat out of the bag just before the elections. The intent was to warehouse North Slope gas for at least another 20 years. Yet, Conoco is still going forward with Denali . . . ? Uh . . . some things are better left alone, I guess, otherwise it hurts your head trying to follow the logic.

Oh, you folks that opposed building the all-Alaska natural gas pipeline and shipping our gas to Asia markets were so sage. . . .

What was it Larry Persily opined? No pipeline for 20 years?

I guess that we are just supposed to forget that we have a gas shortage that will result in brown outs and a loss of heat and power for up to two years in south central if a compressor fails in the Kenai fields. What fun that promises!

Just think, over 300,000 Alaskans without heat and power during the coldest part of the winter, maybe two winters. And, most of them . . . armed. Uh, oh.

If that is a means to get property values down, that will do it, alright.

I guess we should also forget that during this last election, it was revealed that TAPS will reach a critical juncture much sooner than expected. The point at which TAPS cannot be restarted due to a shutdown is now much closer.

We were all fat dumb and happy thinking that TAPS would continue to transport oil down to 300,000 barrels per day production. Oh, no. This has been revised to 500,000 barrels per day. Meaning, that within the coming four years, we may see an end to TAPS moving our oil once production reaches 500,000 bpd or less, and there is a shutdown of the pipeline for any reason. With that shutdown ends 90% of the State’s revenue.

Do you think there will be an income tax, not to mention a State sales tax and, maybe even a State property tax proposed over the next two Legislative sessions?

Wait a minute.

We have the Permanent Fund! Let’s see, that’s about $35B or so. At a yearly budget of $11B growing by at least 10% per year, we can hold out for . . . 3 years? Then what? Don’t think about it, our legislators and governor aren’t, so why should we?

How long will the PFDs last? Anyone want to make a bet past 2013?

The only “pipeline plan” being discussed publically is the idea of building a 36 inch or 48 inch natural gas pipeline from the North Slope to Fairbanks. After that . . . who knows? Indecision reigns supreme. Gone is any mention of the “bullet line” from Fairbanks to Anchorage. Avoided like the black plague is any mention of the all-Alaska natural gas pipeline to Valdez. Now, all we hear is that importing natural gas to Cook Inlet is inevitable.

In Canada, poly pipelines are being installed year round for gas distribution to market. You see it all over the west. Just awesome their expansion and aggressive development of their NG resources. The Canadian government just approved the MacKenzie River Delta 1.5 bcf natural gas pipeline project. In the mean time, the success of the LNG export facility at Kittimat, B.C. is no longer doubted by any here or there.

The MacKenzie River Delta pipeline is going ahead, the national energy board in Ottawa said it needs to be done, all the aboriginal malarkey is settled, and it is and will always be . . . Canada first. That project will pretty much see an end to the hot air expounded over any idea of moving our gas to Canada. We won’t be able to give our gas away if this dodo bird attitude on the part of those in Juneau continues regarding LNG exports and instate use of the gas liquids.

Yet, in Alaska . . . well, the sage heads in the Legislature and the Governor’s office have decided that in about 5 years or so the Grinch is going to visit all of us, if not before. “Before” may be a compressor failure on the Kenai, or the inability to restart TAPS after a maintenance or leak shut down. Then what? The silence has been deafening.

The Alaska Legislature and our governors have been very successful in ignoring the obvious. We have to trust them to keep doing just that. After all, a little misery and cold never hurt anyone. Right? Just suck it up and keep moving, soldier.

Enjoy heat and lights while we have ‘em!

And, then, when we all get cold enough and angry enough, let’s enjoy tar and feathering the legislators and the governors who served from 2002 forward who ignored our will. There will still be diesel to heat the tar.

Sarah looks good in black, too.

Just before we do Parnell, we should give him an award for the success of his brilliant plan. After we finish tar and feathering him, we will send him to Washington to advise President Obama on resource development, cutting government, and population control.

Sarah's lackluster legislative session

Governor Sarah Palin's third legislative session has ended. Her disputes with the legislature kept things interesting, but non-productive. Juneau still does not have a replacement for Sen. Kim Elton, who resigned to take a position with the Obama Administration. The governor still does not have a solution for ameiorating the coming crisis regarding south central's declining natural gas supply.
Gov. Palin has once again nominated former Sen. Tim Grussendorf to replace Elton. This choice was rejected by the democrats and will be rejected once again. This situation is not of the Governor's making. The democrats had the responsibility to provide the governor with three names, instead, they have continually promoted Rep. Bev Kertulla.
Kertulla's family has long been involved in Alaska's Legislature. Her father, former Sen. Jalmar Kertulla is a former senator and representative from the Palmer side of the Matanuska Valley where I live. Appointing Rep. Beverly Kertulla would then create another vacancy that would reset the controversy back to square one with the need to appoint a replacement for her seat.
I can understand why Sarah Palin would want to avoid creating another vacancy by filling the current senate vacancy with a sitting represnative.
Given the conduct of the democrats, Juneau cannot blame the vacancy on the governor.
The real disappointment is the failure for the Legislature and the Governor to devote the time and effort necessary to evaluate and to reach a consensus to head off the specter of the State of Alaska, with 35 trillion cubic feet of natural gas reserves proven and estimated, having to suffer the situaiton of having to import natural gas at the LNG port facility at Nikkiski.
At present, the Nikkiski facility exports natural gas to Japan. However, the facility will be converted into a receiving trane in 2012 unless sufficient production can be achieved through additional exploration in Cook Inlet's gas fields.
The difference in philosophy betwee the Governor and the Legislature continues unresolved regarding the so called stimulus funds. Palin does not want to further encumber the State with expanded federal programs under this package that would reqauire the State to continue that expansion at its own expense once the federal funds are expended. The dems and some republicans in the Legislature want all of the money, irrespective of the final cost to the State.
One area of disagreement is the impact upon education funding. Gov. Palin wants the federal stimulus funds to replace State funds proposed the same purpose. The Legislature want their cake and eat it too by adding the federal funds to the State monies in the budget.
Apparently, Alaska's Legislature, and yes, the Governor too, forget that monies in the stimulus will need to be repaid and the bill in the form of inflation has yet to be totaled. Our kids and their kids will repay the Obama Administration's excess.
The Governor has a problem on the North Slope that must be addressed in the form of additional oversight over BP's transport pipe infrastructure. This system has failed not less than 3 times in the last three years resulting in hundreds of millions of dollars in lost production due to a failure to maintain the pipe. Todd Palin works for BP, which makes me wonder if Sarah is not coming down on BP has hard as she should, because of his job situation?
AGIA still has not produced a start date for construction of a natural gas pipeline. This is a situation that is of concern, as Alaska will lag on the impact of the recession for another 6 months or so. Alaska's economic cycle is usually contra-cyclical to that of the lower 48 States.
The only real impact of Sarah Palin's Administration to date has been to provide a spectacle over the pregancy of the oldest daughter and her boyfriend being kicked out of the Palin fold, the spectacle of the Governor's office officials incompetence creating Troopergate. Otherwise, Sarah has managed to outspend her predecessors of both parties.
I am still hoping that the fiscal conservative will show her head and begin the process of cutting back Alaska's bloated and outrageously expensive State government. However, that person may not be Sarah Palin. The Sarah Palin in the office of the Governor of the State of Alaska is not the person we elected.
Alaska is facing the impact of the economic meltdown that is still coming in spite of the spin put on the situation by the Obama Administration and the fools in the Congress. Spending one's way to prosperity does not work and will not work to cure the ils of overspending, bad management, and stupidity on the part of elected officials opening the doors to housing locans loans to people who could not possibily pay them back.
For the first time since the program's inception, the decision to end the Alaska Permanent Fund Dividend Program may have to be made for economic reasons.
We cannot keep spending like drunken sailors and expect to continue to receive the largess of the oil production in the face of a production that is steadily declining, is interrupted by BP's leaking transportation pipe infrastructure, and uncertain oil prices and a Legislature and a Governor who are all too willing to try to outspend each other.
Note: I am still on a project in Canada and will try to update as time allows. My apologies the lack of regular posts.--LDW

Alaska needs the 24 in NG pipeline to south central, NOW!

Last session (2008), the Legislature appropriated $4M to ANGDA to perform additional studies regarding early delivery options for the proposed ANGDA “bullet” NG pipeline, which, I hope, anyway, will provide NG for the Mat-Su Valley, the Kenai Penninsula and Anchorage.

Man oh man. When you want something screwed up, let government get involved.

First, the Governor asked for $8M for ANGDA for the study, and I assume other uses.

The Legislature cut that amount in half.

Normally, I would say, good job on cutting costs.

Then, one finds out what the money is to be used for, which is just another study on top of hundreds of millions spent on studies over the last 10 years regarding moving our NG from the North Slope to market.

Why is it necessary to reinvent the wheel in the face of a 2005 study undertaken by DNR that focused on a bullet line to south central?

ANGDA focused on the immediate--and I mean immediate, as it is 2008, folks--NG crisis in this area. ANGDA’s solution was a 24 inch diameter bullet line to remedy the shortsightedness of the Murkowski Administration’s Canadian give away to the exclusion of the impending NG shortage in this area.

The Conoco Phillips-BP NG pipeline announced a few weeks ago is no solution, as that will not start construction for at least another 10 years.

What good does another study do, when the estimated time when Alaska will have to start importing NG is around 2012, and, if the line were started today, we might have NG flowing down here by 2012, if the environmentalist will allow Alaskans to meet their energy needs with this pipeline.

Of course, we all know, that the second construction is announced, every greenie organization in the nation will jump on the litigation bandwagon to raise money. Alaska has always been a cornucopia of issues for fund raising for these organizations.

Remember TAPS and the years of litigation to halt or slow the construction?

Therefore, why is our Governor and Legislature acting to delay the only solution that promises to provide NG from Alaska before we run out in this area?

I have to ask our Legislators and our Govenror, what’s the point of any appropriation that does not culminate in an immediate start in construction of the ANGDA pipeline?

The permits are in place, the studies have been done, let’s get on with it!


I am puzzled by the need to study additional means of delivering NG to south central or elsewhere for that matter.

Delay, delay, delay and do nothing, but more studies?

In 2012, and at the latest, 2014, we will be buying imported NG from the Producers. NG that will come from a very high priced foreign source--the Middle East, Sakhalin Island or from Indonesia. NG that will cost far more than the local source from the North Slope. And, joke of jokes, imported by LNG tanker.

Remember, it was just too expensive to transport Alaska NG to a U.S. market by LNG tanker.

Conversely, the Producers have already stated that LNG transported by LNG tankers will be means to resolve the Cook Inlet NG shortage if there is no pipeline built by then.

Interesting how in that case it will not be too expensive to import foreign NG to Alaska.

Couple a dramatic increase in the cost of NG to our homes, the rapidly increasing cost of motor fuels—if you think it is expensive now, just wait!—and the ever increasing burden of local government run amuck, who will be able to afford to live here?

Between property taxes and fuel costs, life as we know it now will be considerably degraded, as everything comes by ship, airplane or truck, which means food, clothing, and anything on the store shelves will be ever increasing in price.

Remember the Carter years with 18% inflation?

We can at least mitigate the home heating bill, if ANGDA can get started on a gas line.

To put Alaskans to work immediately, and to provide relief for an impending crisis requires our Governor to direct ANGDA to get to work, and for the Legislature to have the courage to underwrite the project.

Instead, our elected officials did what elected officials always do in the face of impending crisis, they called for another . . . study.

State employees had better not get any cost of living increases or other benefit increases until there is a solution to the NG crisis. They need to feel the pain just like the rest of us peons.

Looks like natural gas to diesel conversion for home heating is going to get a big boost, if the State does not give the ANGDA proposal impetus and money, instead of lip service. Time is something that is running out.

Already, Agrium has closed the ammonium nitrate plant at Nikkiski due to there being no natural gas available for the projection of ferilizer for Alaska's agricultural industry. Not only did that closure cost the State 60 jobs, but will drive the cost of our agriculture up, as fertilizer must once again be . . . imported.

The natural gas LNG plant that is being used to export natural gas to Japan is now scheduled to be converted into a receiving plant for LNG imports INTO Alaska. A minimum of 35 trillion cubic feet of natural gas on the North Slope of Alaska, and Alaska may have to import natural gas if we cannot get a small pipeline built by 2014. Now, that's just wrong.

ANGDA needs a very serious priority. Now.

Otherwise, some legislators and a governor will go down in history as seeing the importation of LNG when a solution was immediately at hand.

Alaska's Budget

There is no solution in sight for the fiscal shortsightedness practiced by our state government since the completion of the Trans Alaska Pipeline System in 1978. Once oil started flowing, the State of Alaska became an oil junkie that cannot seem to wean itself clear of satisfying every special interest that holds out its hand.

Ignored completely in this frenzy to satisfy these demands to NGOs are the requirements set forth under the Constitution of the State of Alaska regarding the duties and responsibilities of government.

The Constitution of Alaska requires that state government provide for education, use of natural resources to the best benefit of all, to provide for the public welfare—such as public safety, roads, airports, bridges, and harbors--and the public health, and to expend appropriated monies in these regards to the benefit of all Alaskans. More particularly, monies can only be appropriated by the State for the public purpose. (Art IX, Sec. 6)

I believe that it can be reasonably argued that in giving money to every outstretched hand, the Legislature violates the intent of the Constitution of the State of Alaska.

Where is the public purpose in giving money to the every NGO that stretches out its hand or has a purpose that has a focus or requirements that confer the benefit of those funds upon a few rather than the many?

I do not believe that the State of Alaska should be appropriating money or giving grants to any entity other than government subdivisions, and then only for the purpose of funding education, public safety, building and maintaining infrastructure, and public health considerations--meaning inoculations against disease, clinics, health aides, doctors, nurses, equipment, and, maybe, subsidizing health insurance for children.

These public health considerations should be designed to promote health and preserve life, not to provide for abortions or to support those NGOs feeding off the killing of the unborn.

The issue of public welfare should be served by creating jobs through the use of our resources, the creation and maintenance of infrastructure—roads, harbors, and airports—and providing for public education and public safety.

The idea of public welfare was never intended to include gratuitous grants to any NGO or other entity that stretched out its hand for a purpose that focused mainly to promote or otherwise benefit a few. Let these people gather monies from their own members, and not the State.

The same restrictions should apply to subdivisions of the State that receive state funds. There should be no passing on of any State funds for any purpose other than that which is intended by the Alaska Constitution.

Gov. Sarah Palin campaigned on a constitutional foundation. If the expenditure was not provided for in the constitution, then she stated that she would oppose that use.

The Legislature cannot be trusted to be so objective. The legislator stays in office by pleasing his/her constituents. Some of whom use those very monies granted to these NGOs to influence our politicians at every level of government. A use that is both illegal and unconstitutional.

Any budget item should first be scrutinized as to the constitutional validity of the expenditure, and then face scrutiny regarding any spending priorities as the second test. If the constitutional test fails, then there can be no further argument regarding that expenditure.

To focus upon the constitution first in examining a budget item would relieve the governor of criticism for those line items that are clearly intended to buy favor by benefiting a few, and not benefit the State as whole.

It is time the government of the State of Alaska gave priority to the Constitution of the State of Alaska in all areas of funding determinations.