What did NO on Prop 1 do for Alaska . . . NOTHING.

SB21 brought industry commitments.
So say T.J. Presley and Nick Moe, the two who pushed the SB21 Prop 1 NO campaign.
Industry commitments?
 What industry commitments?
 What did Alaska trade with SB21? Another one-way deal brokered by Hawker and Chennault, Conoco's boys.
BP is laying people off.
The work being done is maintenance that was ignored for many years. Now, maybe, in 2016, there will be a favorable Congress elected and a President who just might open ANWR and allow offshore oil and gas development. Makes sense to spend the money, just in case.
How will offshore development help or benefit Alaska? Alaska does not get a cut of those royalties. Aside from whatever village becomes the staging area, there is no benefit.
Then, there is the idea of upping production in a time of 'glut'. How many tankers from Valdez full of Alaska crude are turned away from West Coast refineries, because of the wealth of shale oil being produced?
Is our oil wanted in the market right now?  No.  There is an excess of oil, with surpluses being produced in the Middle East as a hedge against any crisis that might cause a spike in demand.  
Saudi Arabia is trying to produce sufficient surplus oil to cause a downturn below $80/bbl as part of a plan between the Saudis and the Obama Administration to create financial stress on Putin's Russia.  At $80/bbl, Russia can pay for government, at $79.99/bbl, it cannot.  Now, you know why the price of oil has been declining lately.
What happened to the NG from Qatar that was supposed to supply the U.S. domestic needs for 25 years? The first LNG tanker was turned around and sent to Asia last May. That gas now supplies 60% of the Japanese LNG market.
Even though the Japanese are looking for new suppliers, Alaska's governor and Legislature are not interested.
 Our governor and Legislature could have cared less about the Japanese delegations that came to Alaska to secure LNG post the Fukishima meltdown.  The Gov and the Legislature evidently work for Conoco and Exxon. That is clear, otherwise, why would $3B in potential investment into an Alaska natural gas pipeline and LNG train have been allowed to walk to Kitimat and Chenier in LA? Alaska was not interested in the deal, so the money walked and was invested elsewhere.
What did NO accomplish? More money for the oil companies, less for Alaska.
I am a no tax kind of conservative. I believe that Alaska should have stuck with royalties and never bothered with taxes on the oil industry. We would have been much better off, and the oil industry would have thrived here with a vibrant oil and gas service industry instead of the few companies engaged in oil and gas anything in Alaska--fiscal certainty and all of that. However, we became greedy, allowed our gov't to milk the oil companies and now, we play stupid games. Our Legislature and governor studies and studies and studies and we languish wondering if there will ever be any new development in the oil sector and in the gas sector?
People move to Alaska hoping, only to find an expensive place to live with the economy largely being fueled by gov't money.  Eventually, those taillights will be headed south--sooner the better.
The oil companies promised nothing and that's what we received with SB21. Nothing.
There is no leadership in Juneau. The increasing spending is a demonstration that we have devolved from building infrastructure with our oil royalties largess to maintaining and keeping the plebes happy with social entitlements. No leadership, no direction, no commitment to do other than kiss the oil companies' corporate posteriors in the vein hope that they will pull the rabbit of economic prosperity out of the declining oil revenue hat before we use the entire PF to keep the illusion of fiscal solvency alive. That is the problem, has been the problem ever since Sarah Palin was elected, left Alaska, and the boy wonder, otherwise known as Captain Zero, became Governor six years ago. Yeah, six years, we've been blessed with . . . nothing.
Now, we have a $7M per day deficit spending with Governor Parnell's spending excesses.
 SB21 is still the law, meaning less money to the State.
Fine.
Now what?
November will be the 'what'. The Legislature will not change. The same "me toos" will be back in Juneau to do what Hawker and Chennault say.
Hopefully, Bill Walker and Craig Fleener will have their shot at running the State. At least we will have a governor who has a plan to move forward with economic prosperity and fiscal responsibility as the goals.




http://www.adn.com/article/20140825/defeat-oil-tax-referendum-puts-alaska-win-win-territory

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/

CANCELLED!: Meet Bill Walker and Craig Fleener, Wasilla this Friday 4pm to 7pm at Re/Max in Wasilla!

CANCELLED DUE TO ROAD CONDITIONS!

Please join us, 4pm -7pm, Wasilla Re/MAX building to meet Bill Walker and Chris Fleener, candidates for Governor and Lt. Governor.

Bill Walker will not hesitate, but Parnell just sits and waits for . . . ?

With the oil and gas conversation in Alaska politics focusing on the upcoming referendum on HB21, the Governor’s recently passed reduction in oil taxes, there has been little news on the natural gas pipeline front since the Producers promised further "studies". The last news from the producers was that they had made a preliminary decision with respect to the port of export. They chose Nikkiski, but were again studying the situation further, meaning no decisions to actually build a pipeline until a time uncertain into the future.

The Producers’ had to know of the impending legislation in Congress that would give a right of way through Denlai National Park. S.157 and H.R. 586 were introduced in June, 2013. This legislation allowed a natural gas pipeline to be built along the 7 miles of existing highway right of way that runs through Denali National Park lands. A take-off to the park facilities through an existing utility corridor would extend from the park entrance to the park facilities to allow the Park Service access to the gas. The Secretary of Interior would be required to issue a permit for the line crossing federal park lands if it meets environmental reviews and meets ANILCA requirements. Per Eric Elam of Young’s office, the legislation passed the House and Senate and was signed into law on September 18, 2013. The bill also provided funding for the Kantishna Micro-Hydro Project, a 50kw hydro-power project to provide power to the Kantishna Roadhouse owned by Doyon RNC.

With the signing of the legislation into law, a major hurdle in the construction of any natural gas pipeline down the Parks corridor using either the Alaska Railroad right of way or the highway right of way has been eliminated. This does not mean that litigation will not ensue on the part of the anti-development forces aligned against any development of Alaska’s resources. These forces have had two major victories to date.

The Pebble Mine project is all but history with Anglo Mining pulling out. Usibelli Coal has not been able to move forward on the Jonesville Coal Mine in the Matanuska Valley for the same reason. Therefore, the likelihood that the greenies will let any natural gas pipeline construction move through Denali, even using the highway right of way, without litigation to extract blood money is unlikely. Alaska’s history is rife with opposition to major resource development by Outside groups who have no other vested interest other than using the courts and Alaska as a revenue source.

The only pipeline corridor that is free of any litigation is the TAPS corridor, which is the choice of Bill Walker in both his 2010 and current gubernatorial campaigns.

Legislatively, the way is now clear for a pipeline down the Parks or a pipeline down the Richardson highways. The choice is which way, and most importantly when?

Japan is facing a shortfall in LNG due to interruptions from some LNG suppliers, such as Nigeria. Japan will be facing higher gas prices over the winter, because of the necessity of purchasing LNG spot cargoes rather than receiving LNG as part of a long term contract supply. The situation is rife for potential for Alaska’s North Slope gas. December deliveries to Japan is $17/MMbtus. Last year, the average was $13.25/MMbtus. Qattar will not be able to supply additional LNG to Japan over the winter, with supplies contracted to other buyers. Qatter supplied gas to Japan helping to keep the price down to $13.25/MMbtus.

The Wood-MacKenzie Report demonstrated a delivery to Japan of Alaska LNG North Slope gas of approximately $8.50/MMbtus. Using a 10% inflation per annum figure since the report’s release in 2010, gives an estimated delivered cost of approximately $11.31/MMbtus today, without respect to market considerations, and depending upon whether or not one believes the government’s inflation figures or what is experienced in the rising prices of other commodities. 

October Japan LNG market prices are $15.15/MMbtu. By December, the Japan LNG market prices are already contracted at $17.20/MMbtu. China is competing with Japan for LNG, causing increasing prices for existing supplies.

The specter of Alaska LNG competing with LNG from Kitimat is very real with Shell’s planned LNG terminal. Shell let a $4 billion contract to TransCanada to build a 2 bcf-2.5 bcf natural gas pipeline to 700 kilometers from B.C. shale fields Kitimat. (Yes, the TransCanada partnered with Exxon . . . ) Shell has partnered with Korea Gas, Mitsubishi and PetroChina to build its Kitimat LNG terminal.

Meanwhile, Governor Parnell waits, the oil companies study, and Alaska faces an increasingly uncertain fiscal future.

Either Governor Sean Parnell does not want to remain governor, or he is getting some bad advice with respect to his failure to move aggressively into the Japanese market.

His competition for the governor’s job will not be so hesitant. Bill Walker has been a relentless advocate of moving Alaska’s North Slope to market as LNG before the LNG market in Asia is diminished by other suppliers. Japan has been a primary focal point in his marketing of Alaska LNG. Walker and the Alaska Gas Port Authority have been tireless in their promotion of Alaska’s natural gas to Asian markets. Remember, the all-Alaska natural gas pipeline being promoted by AGPA and Bill Walker was the basis for Sarah Palin’s campaign for governor. If Governor Sean Parnell will not make a decision, Bill Walker and his Lt. Gov. candidate Chris Fleener will.

For more information:

LNG Insight: Utility buyers change buying strategy for winter
http://www.platts.com/videos/2013/october/lng-buyers?video_uuid=ngt147ob

http://www.platts.com/podcasts-detail/spotlight/2013/october/lng-prices

http://business.financialpost.com/2013/08/15/shells-kitimat-lng-project-gets-boost-from-asian-partners/?__lsa=128e-8da1

Congressman Young’s press release

http://donyoung.house.gov/news/documentsingle.aspx?DocumentID=348902

NOV 7 MEET AND GREET FOR BILL WALKER AND CRAIG FLEENER

If you cannot read the details in the above graphic, the link below will take you to the website with the announcement.

http://campaign.r20.constantcontact.com/render?llr=qiugaddab&v=001dXbC6UqaAI5fRUYGv57teBrwJ7cG9Z1nZrcgSMSgNh_gBde_5g0YO56KOq2nr6WjMe8yfwBH1o4VnGRjFryVwvF6T6P1xFeq4otpRkZLd218yGCEqC6niSjqxLc_g88HyS8vReTEWZ5zQ78WgMOudxEkq5dhDBaIGHD3rI6CwfZO1ypSqm9seH3D0sIgfY1oyAfXGcBZZaJSEW1ZiUEGkin6KOs1WnhzRLfzoKMN0hOFstCN5U0xXyiwrHckbZe9VCMSGr8bZLU4Y-mVbn349XVYMQYYnPJdGCPPjdIlBLc%3D

Campaign website:  http://www.billwalkerforgovernor.com/

Bill Walker Valley greet and meet and fundraiser Oct 23, 2013 at Jalapenos in Wasilla

 

Join us for a meet & greet/fundraiser for Bill Walker on October 23rd.  See invitation with details below.  Please forward this on to family and friends.  If you are unable to attend but would like to support Bill, you can donate here.      billwalkerforgovernor.com                                                                 (907) 332-2455                 Paid for by Bill Walker for Governor Campaign 731 N St., Anchorage, Alaska 99501

HB4 is a bad idea and a slap in the voters' faces

HB4 creating the Alaska Gas Development Corporation was passed by the Alaska House on 2 April, 2013 by a vote of 30-9. This bill is the culmination of over 10 years of effort on the part of the Legislature and the Governor to end the Alaska Natural Gas Development Authority created by 138,000 votes for Proposition 3 in 2002. HB4 is now before the Alaska Senate, where it will probably pass, given the list of sponsors in the Senate: Senators Dyson, Huggins, Giessel, McGuire, and Micciche. There are only 20 members of the Alaska Senate. Senator Charlie Huggins is the Senate President. Therefore, the likelihood of this legislation failing to pass is nil.

Alaska’s history of attempting to get a natural gas pipeline built to move natural gas from the North Slope to market has been convoluted. HB4 further complicates this confusing and contradictory history.

Prop 3 passed in 2002 mandated the State to create a natural gas development authority (AS 41.41) to build the all-Alaska natural gas pipeline from Prudhoe to Valdez, with a 250 mmcf spur to south central. The capacity of the all-Alaska natural gas pipeline (AANGPV) to be built was approximately 2.5-3.0 bcf/da with most of the gas converted to LNG and then shipped to market in the U.S. or to foreign markets. Proposition 3 created the Alaska Natural Gas Development Authority (ANGDA), which was to be have been the vehicle that would oversea the natural gas development potential for Alaska. From the very start, ANGDA was vehemently opposed, disrespected, and diminished by Governor Frank Murkowski, Governor Sarah Palin, Governor Sean Parnell and the Legislature from 2002 forward. With their opposition to ANGDA, the aforementioned belied any intention of respecting the peoples’ will where building a natural gas pipeline was concerned. This disrespect has been amplified in the creation of the Alaska Gas Development Corporation (AGDC) and the Alaska Stand Alone Pipeline (ASAP).

Governor Frank Murkowski rejected the will of the voters with his churlish opposition to ANGDA and the all-Alaska natural gas pipeline (AANGPV). Murkowski funded ANGDA with an initial appropriation of $50,000 and the Legislature gave more money later in 2003. ANGDA’s yearly budgets then and since barely covered the cost of the few positions created. Compare this situation with the $400 million that will be shoveled into the AGDC’s Alaska Stand Alone Pipeline (ASAP) by the Legislature under HB4 and the $214 million previously appropriated for the various iterations of the ASAP line. Today, ANGDA’s website lists four on the ANGDA Board and one employee as Executive Director. Harold Heinze, a former CEO of ARCO, was the previous Chief Executive Director until he stepped down on December 8, 2011.

ANGDA accomplished much during its colored history. ANGDA explored moving gas south by truck to Fairbanks, permitting of the 250 mmcf spur line from Glennallen to Palmer’s Enstar natural gas hub, and building a natural gas pipeline from the Kenai Penninsula north to communities along the Parks Highway, which would have provided an incentive for further exploration and development of the Cook Inlet oil and gas fields. Given the dearth of resources and the failure by the Legislature and the Governors, and their opposition to ANGDA, to provide for bonding capacity, as has been done for the AGDC through Alaska Housing Finance Corporation and the Alaska Rail Road, ANGDA’s accomplishments were not insignificant. Under Harold Heinze and Scott Heyworth, ANGDA moved to meet its statutory mandate as was allowed by hostile administrations and an indifferent and, since the 2009, an increasingly hostile Legislature.

During his term, Governor Frank Murkowski had promised a natural gas pipeline and worked diligently on a 4.0 bcf/da pipeline proposal to make his promise reality. His efforts allegedly culminated in a contract with Exxon, Conoco and British Petroleum Alaska to build his pipe dream. The Palin campaign was able to successfully promote the all-Alaska natural gas pipeline in opposition to Murkowski’s efforts. It was revealed that what Murkowski called a contract was nothing more than an intent on the part of the oil companies to study the viability of building a 4.0 bcf natural gas pipeline to Alberta.

The size of any pipeline has also been an interesting side issue, and one often overlooked in any debate. The natural gas pipeline strategy effected under Murkowski, Palin and Parnell has been for a 4.0 bcf/day natural gas pipeline from the North Slope to Alberta. The theory being that there must be sufficient volume to replace declining revenues produced by the North Slope’s declining oil production. The all-Alaska natural gas pipeline proposed in 2002 was to be a 2.5 bcf with Bill Walker expanding that to 3.0 bcf under his campaign proposal. The AANGPV would terminate at an LNG train to convert the methane to Liquid Natural Gas (LNG).

Bill Walker’s AANGPV proposal would have provided for use of the gas liquids in-state to grow Alaska’s private sector, whereas Palin/Parnell’s AGIA, both the Canadian route and the LNG proposal under consideration to Valdez, and Murkowski’s proposal intended that the gas and gas liquids be shipped out of state for consumption and use elsewhere with little benefit to Alaskans beyond the in-state pipeline and LNG train construction and a direct infusion of cash at the State level.

The Alaska Oil Gas Conservation Commission (AOGCC) has set a limit on the amount of natural gas that is available for sale in order to maintain sufficient pressure on North Slope legacy fields to allow production of remaining oil reserves. AOGCC has set a limit of 2.5-3.0 bcf available per day to deliver to a pipeline. Over 8 bcf per day is now reinjected back into the oil fields on the North Slope in order to maintain pressurization of the fields to make oil production feasible. AOGCC has been pretty consistent in its requirement that at least 5 bcf of the 8 bcf of gas produced per day be reinjected. The priority is in maintaining the State’s oil revenues.

During her 2006 campaign, Sarah Palin supported the mandate imposed by Proposition 3 and the construction of the AANGPV. Upon taking her oath of office, then Governor Sarah Palin turned her back on her support for that mandate and project, and moved forward with her Alaska Gas Inducement Act, which, to date, has produced nothing. AGIA was almost a mirror of Murkowski’s proposed pipeline plan. Instead of relying upon the Producers (Exxon, BP and Conoco), AGIA granted an exclusive to the winner of the competition promoted by the Palin Administration. Unfortunately, there was only one competitor, and that was TransCanada. Her successor, Governor Sean Parnell has not been able to move the proverbial natural gas pipeline football forward one inch towards a commitment for construction, a timeline to do anything, or even claim a successful open season.

During the 2010 campaign for governor in the Republican Primary, Bill Walker championed the AANGPV in his bid for the Republican nomination for Governor. Walker added a new dimension to the pipeline conversation that has been ignored since Parnell’s victory in the Republican Primary. That new dimension was the idea of value added resource development in the use of some of the gas to provide cheaper energy for the agriculture, timber, and mineral industries. Walker’s proposal would have seen take offs to communities down the Richardson Highway and at Glennallen. There was discussion regarding another spur across the Denali Highway to Cantwell. Fairbanks would have benefitted from the pipeline as the pipeline would have gone through with the gas liquids stripped at Fairbanks. The propane and butane would have been used as alternative fuels, with the ethane, hexane and other components being used to provide the building blocks for a plastics and petrochemical industry, giving a benefit to Alaska’s economy well beyond just the construction of the AANGPV. Walker’s proposal was the only proposal for a natural gas pipeline that went beyond just exporting Alaska’s gas to a foreign or domestic market.

The ASAP proposal was previously known as Harry Noah’s pipeline under Sarah Palin/Sean Parnell. The economics were never viable, but $14 million in State funding was appropriated to Noah’s pipeline study group for what was then known as the Bullet Line. Rep. Mike Hawker and Rep. Mike Chennault brokered deals to create the Alaska Gas Development Corporation by creating a frankenmonster of an entity to end the public’s mandate represented by ANGDA, but doing what the Legislature never did for ANGDA: providing for the ability to bond to finance any gasline projects using the resources of the Alaska Rail Road and the Alaska Housing Finance Corporation.

The Republican Primary in 2010 saw three competing natural gas pipeline projects: former Rep. Ralph Samuels promoted the ‘Bullet Line’ (ASAP), Governor Sean Parnell promoted AGIA, and former Mayor of Valdez Bill Walker promoted the AANGPV.

For some reason, it was fine by the Republican legislative majority and voters to support the Bullet Line, even though it was to be 100% state financed, and limited to a maximum volume of 500 mmcf/da under AGIA, but having the State of Alaska buy into the AANGPV for a 20% interest in order to control the timeline for construction was ‘socialist’ and a subject of great controversy. The estimated cost of the Bullet Line was $4B-$7B at that time, and the estimated cost of the AANGPV was $20B-$24B. Since, the ‘Bullet Line’ cost estimates have grown to almost $8B, but the AGIA version of the AANGPV costs have increased from the 2010 AANGPV estimates to $45B-$65B according to the October 1, 2012 letter to Governor Sean Parnell from Exxon, BP and Conoco.

Note the disparity in cost increases between the two pipelines. Does it make sense that the estimated costs of the AANGPV should increase by three times over the cost factors of the ‘Bullet Line’/ASAP pipeline? Is this a case of TransCanada/Exxon, BP and Conoco inflating the AANGPV to reinforce their reluctance towards moving North Slope natural gas to market?

The upswing in shale gas production has eliminated the domestic U.S. natural gas. A projected 200 trillion cubic feet of natural gas reserves in continental U.S. shale deposits made the idea of shipping Alaska natural gas to a U.S. market moot. Now, Alaska natural gas will have to compete with domestically produced U.S. shale gas on the world market, given the export permits applied for to move shale gas as LNG to Asian markets.

One of the greatest errors on the part of the Parnell Administration was ignoring the needs of Japan after the 2011 earth quake. A delegation came to Alaska seeking an audience with our governor. They did not meet with him. Another delegation came last year in June and met with DNR Commissioner Dan Sullivan. After leaving Alaska, the delegation comprising four Japanese companies, including Mitsubishi, travelled to British Columbia and Louisiana where they invested almost $4 billion between Cheniere Energy’s Sabine Pass LNG export expansion project and in Shell’s LNG export facility at Kitimat, B.C.

Alaska has a long term (43 years) relationship with Japan with respect to LNG exports. Conoco’s LNG train at Nikiski has been producing LNG for export to Japan since before the completion of the TAPS.

It certainly appears that AGIA has cost Alaska in lost business opportunities.

The ASAP’s primary purpose is no longer just the idea of supplementing Cook Inlet/Kenai gas production until storage and new exploration and development activities eliminate the specter of natural gas shortages that saw the closure of the Agrium ammonium nitrate fertilizer plant in Nikiski several years ago with the loss of 65 jobs. The ASAP will provide natural gas for Conoco’s LNG train at Nikiski for export to Asia. Given that the ASAP will be constructed at State of Alaska expense and its operation subsidized by the State, that is a very good deal for Conoco. At lease some of Alaska’s natural gas will make it Asia’s LNG market.

Cook Inlet has approximately 19 trillion cubic feet of estimated reserves remaining to be discovered. Exploration and development has picked up over the last two years, with more drilling planned this year. Unfortunately, there needs to be an upgrade in transportation infrastructure and storage to get the natural gas from the producing field to sufficient storage to carry south central’s demand through increasingly colder winters. It is not a declining production that is the issue, it is the lack of a suitable intra-field pipeline system to get the gas to the storage facility. As a result, Alaska may see the first importation of natural gas from Russia later this Spring.

With the 2014 gubernatorial elections looming, Governor Sean Parnell is in much the same situation as former Governor Frank Murkowski was at the time of his reelection bid against Sarah Palin. Under Parnell, the AGIA 4.0 bcf pipeline option to Canada is dead. The only viable option is the AGIA LNG option similar in size and scope to the AANGPV, excepting for no spur to Palmer and no in-state use of the gas liquids. Given the conflicts of interest on the part of Exxon, BP, Conoco and TransCanada, LNG from Alaska is unwelcome in the Asian market, because of competing developments on the part of the aforementioned.

Given that his administration cannot state any firm date for the construction of a pipeline, could it be that Governor Sean Parnell is exploring the possibility of running against Senator Mark Begich with the intent of bailing from the Governor’s office before the house of cards that is AGIA falls in on itself?

Such could be inferred from the remarks made by Lt. Gov. Mead Treadwell today. Treadwell commented on the recent upheavals in the Alaska Republican Party and its ability to promote and support the campaign against Democrate Senator Mark Begich. Treadwell stated that it may not be him running against Begich, but possibly Governor Sean Parnell. Treadwell had previously announced his intent to explore a run against Senator Mark Begich on November 30, 2012. If so, Treadwell will certainly run for governor in Parnell’s stead.

Bill Walker may have another shot at the Governor’s mansion if Parnell runs for the U.S. Senate. Under Parnell, Treadwell has not been terribly prominent in the public eye.

It should be noted that Governor Sean Parnell has not opposed theAGDC/ASAP proposal of Rep. Mike Hawker and Rep. Mike Chennault as demonstrated by HB4, nor did he oppose the previous iteration of that project proposed by Harry Noah under then Governor Sarah Palin. This lack of opposition leaves him in a position of being able to claim some degree of success with respect to moving Alaska’s North Slope natural gas to market. Ignoring of course, the fact that the ASAP project is limited to 500mmcf under AGIA, meaning the cost of transport to market will have to be subsidized by the State for the life of the pipeline. The cost of constructing the pipeline would also be borne by the State of Alaska.

Bill Walker’s AANGPV was the best option to date, as his plan provided for instate use of the gas liquids and natural gas to provide for cheap energy for agriculture and industry, alternative fuels for the Bush, and a petrochemical industry for Alaska. TransCanada and Exxon will send the gas and the gas liquids to Asia, if they bother to build a pipeline at all. Further, the AANGPV provided for a 250 mmcf/da spur into the Enstar Hub at Palmer to help mitigate the anticipated storage shortfalls from Cook Inlet natural gas production. A spur from Paxon west to Cantwell was also anticipated providing for a spur feeding to Nenana and connecting to any ANGDA pipeline from Nikiski north to Cantwell.

Competing with any potential Alaska LNG exports, Exxon has several large scale natural gas development LNG projects in the Pacific (Australia, Indonesia, New Guinea), and also needs a market for its portion of Qatar gas with the loss of the U.S. domestic natural gas market to domestically produced shale gas.

TransCanada is part of the Foothills Pipeline Company, which is involved in the Kitimat LNG port project. TransCanada was recently awarded a contract by Shell for a 2.4bcf pipeline to Kitimat, B.C.

Conoco has its portion of Qatar natural gas to move to market, now in Asia, because of the loss of the domestic U.S. market to shale gas. Conoco also has two Australia LNG projects that will compete with Alaska LNG for the Asian market.

Given the conflicts of interest on the part of Exxon Mobil, Conoco Phillips and TransCanada, is it any wonder why there has been no forward movement on AGIA?

Given the conflicts of interest on the part of Exxon and TransCanada, Governor Parnell has to be either totally brain dead, or simply ignoring reality, given his insistence on pursuing AGIA in the face of competing projects on the part of the TransCanada, Exxon, Conoco and BP. There is no provision under AGIA to declare breach of contract based upon a conflict of interest.

Given the increasing availability of natural gas in the world market, it may be better for the State to pay $500 million to $1.5 billion in penalties get out of AGIA. The lost opportunities will cost the state several orders of magnitude of any penalty under AGIA.

What are the differences between the ASAP natural gas pipeline and the all-Alaska natural gas pipeline option to Valdez?

Cost of construction is borne by the State: ASAP–100%; AANGPV–20% State ownership interest

Capacity: ASAP–500 mmcf/da; AANGPV–2.5-3.0 bcf/da

Benefits: ASAP will increase south central consumer gas costs by up to 13%; AANGVP will reduce or maintain present consumer costs, provide for growth in the private sector, because of in-state use of gas liquids, benefit beyond Alaska for growth in Asian customer’s economies

Cost of construction: ASAP–$8B; AANGPV–up to $45B-$65B (oil companies’ estimate) with LNG train and harbor improvements

Route: ASAP–North Slope to Nikiski across several salmon streams, Denali National Park and Denali State Park, but will not go through Fairbanks with no spur for consumers down the Richardson Highway south to Valdez; AANGVP–TAPS corridor from Prudhoe to Valdez covering all communities along the route through Fairbanks, with a 250 mmcf/da spur from Glennallen to Palmer and passing through Fairbanks down the Richardson Highway with a potential spur across the Denali Highway, LNG route--Valdez to Asia

Permitting status: ASAP–no permits issued; AANGVP–existing permits from Yukon Pacific Corp.

Estimated completion: ASAP–2019; AANGVP–two-three years from funding

Cost of gas to delivery per million cubic feet: ASAP–$9-$11.25/mmcf for Anchorage consumers (p13 of ASAP Project Plan); AANGVP–<$10/mmcf from the North Slope to Japan, including TAPS, LNG conversion costs, and LNG tanker costs (p15 of Wood-Mac study)

Gas liquids: ASAP–stripped at North Slope and reinjected; AANGVP–stripped at Fairbanks for use in Alaska

Testimony on HB4 was heard before the Senate Finance Committee today. HB4 is expected to pass out of the committee.

For more information:

ASAP Project Plan, Dec. 20, 2011–Joint In-state Gas Caucus

http://housemajority.org/neuman/pdfs/27/Gas_Caucus_New_Scenario_20121220.pdf

Wood MacKenzie Alaskan LNG Exports Competitiveness Study

http://www.arcticgas.gov/sites/default/files/documents/11-07-alaska-lng-competitiveness-study.pdf

Exxon Mobil LNG:

http://www.exxonmobil.com/Corporate/energy_production_lng.aspx

Conoco Phillips LNG:

http://lnglicensing.conocophillips.com/EN/lngprojects/Pages/index.aspx

British Petroleum LNG:

http://www.bp.com/sectiongenericarticle.do?categoryId=9015376&contentId=7028020

http://www.bp.com/sectiongenericarticle.do?categoryId=9015513&contentId=7043288

TransCanada:

http://www.transcanada.com/coastal-gaslink.html

Other related articles:

http://www.examiner.com/article/agia-transcanada-s-conflict-of-interest

http://www.examiner.com/article/agia-exxon-s-conflict-of-interest

http://www.examiner.com/article/senator-lisa-murkowski-is-selling-lng-to-japan-when-parnell-will-not

http://www.examiner.com/article/support-for-the-all-alaska-natural-gas-pipeline-appears-local-campaigns

http://www.examiner.com/article/the-legislature-and-the-governor-neither-of-whom-can-make-a-decision

 

http://www.examiner.com/article/denali-is-dead-now-what

Fiscal Cliff: Alaska's problems lie elsewhere

There is a great deal of press on the so called fiscal cliff that Congress has been wrestling with since 2011. After working on the issue for almost two years, no progress has been made. What is at stake, what is the potential impact upon Alaskans?

The fiscal cliff is a failure on the part of Congress and President Obama to reconcile the Administration’s desire to push the United States further into deficit spending and wealth redistribution with fiscal reality. The Obama Administration wanted a tax increase on those earning over $250,000 per year, without any reductions in spending. The Republican majority in the House had to this point refused any tax increases and had worked instead on spending cuts. The amount in contention with respect to the ‘fiscal cliff’ negotiations is about $600M. The total deficit for 2012 is approximately $1.1T.

The tax increase is an about face for President Obama who said in July, 2011 that no tax increases were necessary, that deductions and loopholes would provide the necessary revenues.

The United States is borrowing $4.8B per DAY to fund government. President Obama’s administration has accomplished the greatest expansion of government since FDR’s New Deal Administration in the 1930s. In the first two years of his adminstration, the federal government grew by 117,000 employees.



In 2011, an attempt was made to resolve the $1.6T in deficit spending for that year. Congress failed to reach a consensus and appointed a bipartisan supercommittee to negotiate a budget. The supercommittee failed. No budget was produced, and the federal government has been operating on debt limit increases since.

However, Congress did agree that if no budget was passed, sunset provisions would end the Bush tax cuts and a 10 year reduction in military spending termed sequestration would occur. The military budget would be cut 9% per year, or $55B per year, beginning in 2013, and continuing for another 9 years. Another $55B would be cut from domestic programs: social security and Medicare. Personal income taxes across the board would increase as the Bush tax cuts would also sunset.

The expected increase in taxes to the average middle class taxpayer is over $2,000 with the Obamacare increases in set to begin this coming year.

Bottom line is that the Republican Congress will most likely cave on the no tax position on the upper income bracket increase. However, that may not be enough for President Obama, as he does not want any decreases in spending. Therefore, it appears that the Republicans in Congress are in a no win situation, as the Obama Administration and the Democrats have them in a no win situation. If the Republicans cave on the tax increase on the upper income earners, there will be no accompanying decrease in spending and the deficit will continue to increase. If the Republicans hold their ground and House Speaker Boehner does not cave, then they will be blamed for the sequestration cuts, the end of the Bush tax cuts, and the negative impact upon the economy.



The reality is, that the Democrats have never failed to increase taxes when it suited their agenda. Therefore, they feel that they will not be the losers if there is a failure to remedy the ‘fiscal cliff’ scenario. They will simply blame the ‘intransigence’ of the Republicans.

The national debt figure that is admitted by the Obama Administration is estimated at $16T, an impossibly large number for most people to comprehend. However, that figure may be just an indicator, and nothing more. Former Representative Chris Cox, former Chair of the House Republican Policy Committee and the Securities and Exchange Commission, and former Representative Bill Archer, former Chair of the House Ways and Means Committee, both of whom served on President Clinton’s Bipartisan Commission on Entitlement and Tax Refore in 1994, wrote in the November 26, 2012 WSJ that the national debt is being purposefully understated to hide the true cost of government and the liabilities of entitlements to the people. They stated that were the federal government required to account for future and present liabilities to Social Security, Medicare and federal employees retirement benefits, these liabilities exceed $86.8T.

Corporations are required by law to report these liabilities, but not the federal government.

Former Reps Cox and Archer disclosed that U.S. liabilities are increasing at a rate of $8T per year. In order to reduce deficit spending, tax revenues of $8T would be required to balance the deficit. Unfortunately, the total adjusted gross income of all Americans earning more than $66,193 per year is $5.1T, leaving a deficit of $2.9T necessary to balance the budget. In otherwords, there is not enough money available/collectable by the IRS to balance the budget. Ever.

The truth is, the United States went over the ‘fiscal cliff’ years ago.

As America’s remote northwestern step-child, given the 222 million acres of federal lands to the approximately 103 million acres of State lands granted by the federal government at Statehood in 1959, Alaska is particularly vulnerable to any cuts in federal spending. 239 villages are largely dependent upon federal grants and other funding under BIA programs. Alaska further depends upon federal highway funding to repair and maintain existing roads, airports, and harbors, and to construct new infrastructure.

According to the Institute of Social and Economic Research, UAA, federal spending in Alaska in 2010 amounted to $10.9B. The federal government provided $3.5B in grants, $2.6B in payments to individuals (BIA), $3.3B in defense spending for wages and procurement in the State, and $1.5B in federal agency spending in wages and procurement. Governor Parnell’s budget for the same year was $10.5B in capital improvements and State operating budget.

Alaska is not like the rest of the United States in that Alaska came into the Union in 1959 as a largely undeveloped frontier State. It was recognized that the amount of money it would take to give Alaska parity in transportation and communications infrastructure exceeded the money available from federal resources. Congress gave Alaska a 90% royalty from any resource development as a means of self-funding needed roads, airports, and harbors. Today, most of Alaska is still accessible only by boat or airplane.

The State does not receive any royalty from development on federal lands, including offshore leasing for oil and gas development. Shell Oil Company’s off shore development in northwestern Alaska’s continental shelf will not produce any royalties for the State of Alaska. The benefit will be to the local villages that provide services and labor for the project.



The State of Alaska has managed to save approximately $45B in the State’s Permanent Fund (PF), largely invested in the stock market from royalties and taxes produced by the North Slope oil development. The PF is intended to fund State government should there be a severe economic downturn and declining State revenues. Every year, Alaskans enjoy a dividend check from the PF from a percentage of the PF’s earnings. This is one of the first programs that will go by the wayside, if federal expenditures and federal funding is sharply reduced. Especially, in the face of declining oil production. Expect to see legislation for a State income tax in the near future.

The PF is very exposed because of the amount of money invested in the stock market. During the dot.com massacre of 2000, the PF lost $10B in a matter of a few days. The money has since been restored, but the potential negative impact of severe downturns in the stock market is still there.

The oil industry revenues contribute approximately half of Alaska’s 374,000 jobs, largely State and local government. Directly, the oil companies account for 4,497 jobs, and another 8,410 jobs in the oil service sector. It is estimated that another 28,837 jobs are created through the trickle down of oil company Alaska wages and procurement. The oil industry has provided over $170B in revenues to the State since Statehood. (ISER 2010)

The reality of Alaska’s economy today is that it is oil driven. There is very little in the way of diversity in our economy. Alaska’s economy is oil and government and the retail and construction sector that support oil and government. Alaska has been fortunate to have a defense spending priority because of the strategic geographical position Alaska has with respect to Asia and the Pacific.

The defense initiatives benefitting Alaska has seen an increase in the number of National
Guard personnel on full time active duty.



The Alaska Air National Guard has seen a tremendous growth with a C17 heavy lift squadron and three aerospace rescue and recovery squadrons based at JBER near Anchorage, and a KC135 aerial tanker squadron at JBEW near Fairbanks. These are active duty squadrons with strategic support and war support missions.

The Army National Guard has seen some changes structurally with a new Military Police Battalion replacing an infantry battalion. The Alaska Army National Guard gained the security and operations responsibilities for the Ft. Greeley Missile Defense Base near Big Delta, Alaska. The Army National Guard in Alaska has a UH60 Blackhawk company and a C23 Sherpa company at JBER near Anchorage, an Eskimo scout battalion located in various villages throughout the interior and western Alaska, and a transportation battalion located in the Matanuska Valley. The AK ARNG is now organized as a battlefield surveillance brigade, rather than an infantry brigade consisting of cavalry, infantry, and organic air support.

The National Guard has pumped a lot of money into Alaska since 9-11 and provides jobs or an extra paycheck for part-timers for more than 2,000 Alaskans who serve in the National Guard in Alaska.

However, the USAF recently announced a 5,000 man reduction in manpower with some personnel to be transferred to the federal USAF, along with a reduction in ANG fighter squadrons nationwide. It is doubtful that Alaska’s ANG will be affected, as the ANG role of heavy airlift squadron and aerial refueling are strategic missions, and global in nature. Thus far, only midwestern States’ ANG fighter squadrons have been mentioned as being in jeopardy for the reduction or transfer of personnel and equipment to the USAF.

The U.S. Army has a Stryker Brigade at JBEW as it primary maneuver element in Alaska. The USAF has a squadron of F22 Raptors at JBER and a squadron of F16s at JBEW. Therefore, there is little impact locally with respect to any reduction in federal military forces in Alaska. It looks like the 9% reduction in the DOD’s budget, should sequestering happen on 31 December, will have little impact because of Alaska’s strategic geographical position.

The increased emphasis on the development of Arctic resources has seen the stationing of a U.S. Coast Guard cutter at Pt. Barrow and air patrols of the northern and northwestern coast of Alaska above Kotzebue. This has mean money and opportunity for the villages in the area used as support bases.



This year’s State budget is $12.5B. An incredible amount of money for a state with about 650,000 residents. Even with the incredible budgets beginning with Governor Frank Murkowski in 2003, Alaska’s leadership has failed to diversify since the first oil and gas lease sales on the North Slope in the late 60s. This has left Alaska in its present predicament of being largely a single source economy, fueling a bloated and socialist State government. Granted, the PF will keep the State afloat for three or four years post any shut down of the Trans Alaska Pipeline System (TAPS). Last years budget was declared unsustainable by Rep. Bill Stoltze, Co-Chair House Finance. Yet, an even larger budget was passed for 2013.

Whether it be Fiscal Cliff or the shut down of TAPS, Alaska has some hard times coming if the leadership of the Legislature and Governor Sean Parnell cannot come to grips with the long term implications of the failure to act on an in-state natural gas pipeline to tidewater and the inevitable increase in south central natural gas prices by at least 8%-13% due to the need to import natural gas into Cook Inlet. Since the early 1990s, some legislators and mayors of south central boroughs and cities have been warning of the shortfalls in the production of Cook Inlet gas insufficient to meet the needs of Alaskans during winter months. This coming year will see the first Russian LNG tanker loaded with LNG coming into Cook Inlet.

The bottom line is that it does not look like the federal government will cut spending in Alaska anytime soon. It is not the desire of the Obama Administration to cut government spending, but to increase spending and the to increase the size and reach of the federal government. What is inevitable, given the past history of democrat administrations, is that our taxes will go up. Given the incredible reality of a $86.8T debt, the U.S. is in serious, serious trouble financially. Eventually, this mess will impact Alaska’s economy in a very negative fashion. However, reality is not what Washington, D.C. is about. The worst is yet to come.

54% of Americans who voted, voted for a socialist expansion of government with the increase in deficit spending and increased liabilities that come with the lack of reality associated with socialism. They have given their future generations an incredible burden, but shirked their responsibility with Obama’s reelection.

Already, the Obama Administration is planning a carbon tax, which will certainly impact Alaska’s coal and diesel power generation costs and increase the cost of power to all Alaskans. Obamacare will increase medical costs to Alaskans, and restrict services.

Unfortunately, the Fiscal Cliff and Obamacare are not the real threat to Alaskan’s welfare or cost of living, as we are in the same boat there with the rest of Americans. The real threat to the economic well being of the State of Alaska and her people is the shortsightedness of our Governor and the Legislature to provide a sound, diversified economic base for the future with sufficient low cost energy to insure that future. 35 trillion cubic feet of the energy available is in natural gas under Alaska’s North Slope. After 35 years, that energy has yet to be tapped.

Exxon's conflict of interest--why there will be no Alaska natural gas pipeline.

Governor Sean Parnell and oil company bosses

Exxon and Alaska’s oil and gas

Exxon is Alaska’s bad boy of oil development. Who does not remember the Exxon Valdez spill in Prince William Sound and the aftermath? As a result, Exxon has been cast as the "heavy" in any oil development conspiracies abounding regarding Alaska’s North Slope oil taxes controversy and oil development in general in Alaska. Exxon is the largest oil company in the world and the wealthiest. Exxon is the great white shark of oil development, the rest are remoras or pilot fish who go where the big fish goes and feed off the leavings. In the Book of Five Rings (Go Rin No Sho) by Miyamoto Musashi, a 17^th century Japanese Samurai, he describes five states of military strategy. They are air, fire, water, void and the mountain. Exxon is the mountain. When Exxon speaks, the world oil and gas industry listens.

After the North Slope oil and gas lease sale in 1972 that netted the State of Alaska $900M, the oil companies were not in any hurry to build a pipeline to bring Alaska’s North Slope oil (20,000,000,000 barrels) to market. Then Governor William "Bill" Egan (D) had to take the proverbial bull by the horns. In 1973, after months of wrangling with the oil companies, Egan threatened the oil companies that if they did not announce plans for a pipeline within the week, the State of Alaska was going to build an oil pipeline to Valdez. By the end of the week, the oil companies had announced plans for the Alyeska Pipeline Service Company which would build and operate the Trans Alaska Pipeline System (TAPS). Construction began in April, 1974.

Oil development on the North Slope had been moving forward since the 1960s.

The cost of TAPS, a 48 inch diameter steel casing pipeline 800 miles long was estimated at $900 million. By the end of construction in June, 1977, the cost had risen to $8 billion. The oil companies did have a 30 year tax write off for all expenses associated with the construction and operation of the pipeline. TAPS was allegedly paid for in the first 3 months of operation transporting 2,000,000 barrels of crude per day to Valdez for shipment by U.S. flagged tankers to refineries on the West Coast.

The cost of oil production on the North Slope steadily declined as the cost of construction and infrastructure was recouped over the years. Today, the profit margin for North Slope oil production varies, but using Conoco’s figures 2011 saw a profit of $25 per barrel of oil from North Slope Alaska production. It is this relatively high profit margin for a barrel of oil in relation to other hydrocarbon reservoirs world-wide that is the basis for resistence to any change in the Alaska’s Clear and Equitable Share (ACES) oil production tax.

Like AGIA, ACES was a product of then Gov. Sarah Palin’s Administration.

The North Slope profit margin of $25/barrel is much higher than the $1/barrel profit allowed under the Iraqi oil bids by Exxon in 2009.

In the1980s, a proposal was put forth to the oil companies on the North Slope and the State by Yukon Pacific, a consortium of companies including Sempra Energy, attempted to promote a natural gas pipeline project to Valdez. Yukon’s project was a 2 bcf/da-2.5 bcf/da capacity pipeline to terminus LNG port at Valdez. Meeting stiff resistance from Alaska’s governors who had their own pipe dreams, Yukon failed to make any progress after spending hundreds of millions of dollars on permits. Yukon sold most of its permits to AGPA.

Exxon’s position with respect to building a natural gas pipeline to take Alaska North Slope natural gas to market has aways been to settle the Thompson Point lease controversy with the State, then move forward. Or, to do nothing.

In 2006, Exxon had allegedly reached an agreement with Governor Frank Murkowski along with BP and Conoco to move North Slope gas to market. As was revealed when the "contract" was made public, the pipeline was just a pipe dream on the part of the Murkowski Administration. Exxon and the other North Slope Producers promised nothing, other than to study the issue, and, then at some indefinable point in the future to consider building a pipeline.

Exxon stated to its shareholders and to anyone who would listen during Murkowski’s Administration (2003-2006) that it was Exxon’s position that Alaska North Slope gas would begin flowing to market around 2025, given a construction start estimate of 2018-2020.

In 2009, in a suprise move, Exxon joined with AGIA contractor TransCanada to build a natural gas pipeline under AGIA. However, at that time, the focus was still on bringing Alaska natural gas and the valuable gas liquids to the Alberta Hub. It was suspected that Exxon’s involvement was self-serving, both acting to delay any pipeline decision or to redirect Alaska’s gas for Exxon’s benefit in the recovery of oil from Alberta’s tar sands.

It was demonstrated in 2010 during the Bill Walker for Governor campaign that this route was not profitable, and that Alaska’s natural gas would most likely end up in Ft. MacKenzie being used to recover oil from the massive Alberta tar sands desposits. The price of natural gas at the time was about $5/1,000 cf. The cost of transporting the gas from the North Slope to the Alberta Hub was estimated at $5, leaving no profit for Alaska to tax. The ‘unprofitable’ Alaska gas would then have been transported to Alberta freeing Canadian gas to go to market in the U.S.

The October 30, 2012 letter to Governor Sean Parnell declared Exxon, BP, Conoco and TransCanada were willing to study the feasibility of a pipeline to Valdez for conversion to LNG and transport to Asian markets.

Thompson Point is a massive high pressure gas deposit. By October, 2012, Gov. Sean Parnell’s Administration had reached agreement with Exxon regarding Thompson Point. The way was now clear to move forward with development of the Thompson Point gas field. The development of Thompson Point was considered necessary to produce the volume of natural gas to make any North Slope to tidewater natural gas pipeline project viable.

Exxon’s conflict of interest

Exxon’s 2009 move to join with TransCanada was surprising to most. Previously, in 2008, both BP Alaska and Conoco, the other two major North Slope Producers, had announced their own natural gas pipeline project. The Denali gasline project was another 4.5 bcf/da natural gas pipeline from the North Slope taking gas to the Alberta Hub.

What was paradoxical was that with Exxon’s joining with TransCanada in a competing project, all three Producers were now aligned with competing projects. Yet, all three companies’ gas production was necessary to make any natural gas pipeline viable. Therefore, neither AGIA nor Denali were viable. For whatever reason, neither Governor Sean Parenll nor the Legislature ever figured this out or completely ignored the reality of the situation. Governor Parnell continued to mouth platitudes about the viability of AGIA, Open Season and that AGIA would happen. The Legislature, however, took off on its own down an entirely different route.

Exxon’s conflict of interest where AGIA is concerned is in its foreign natural gas commitments.

In 2011, the first exports from Qatar where Exxon had invested $12B in upgrading the Northern Field LNG train to export LNG to the U.S. were delivered to the U.S., and immediately turned around for transport to Asia. "In cooperation with our partner Qatar Petroleum, ExxonMobil used its experience and knowledge of gas marketing around the world to successfully access traditional LNG markets in Asia, such as Japan and Korea, and develop new opportunities in Europe and the United States. ExxonMobil is proud to have played a role in helping Qatar become the world’s largest exporter of LNG." The shale gas revolution had impacted what was to be a 25 year commitment to bring Qatar LNG into the U.S. domestic gas market. That market no longer exists due to the low price for U.S. domestically produced shale gas.

(https://www.exxonmobil.com/Corporate/energy_production_lng_qatar.aspx)

The August 28, 2012 Platts and the Wall St. Journal reported ExxonMobil and Qatar Petroleum had formed a joint venture named Golden Pass Products which had applied for a domestic U.S. produced shale gas export permit overseas, including Asia. GPP is seeking to export 740 bcf of natural gas yearly from its LNG terminal at Port Arthur, TX. GPP would spend about $10B in upgrading the LNG train for export. The Port Arthur, TX LNG port would be able to export 2 bcf/da of natural gas.

(http://professional.wsj.com/article/SB10000872396390444375104577595760678718068.html?mg=reno64-wsj; http://blogs.platts.com/2012/08/28/worlds-biggest/; http://www.alaskadispatch.com/article/exxon-qatar-petroleum-apply-texas-lng-export-permit )

By contrast, the AGIA or AGPA LNG option to Valdez would ship up to 1,095 bcf of North Slope natural gas to market per year as LNG (3 bcf/da X 365 days).

On October 12, 2012, Bloomberg reported that Exxon, Conoco and TransCanada were estimating the cost of the AGIA natural gas pipeline to Valdez and LNG train to cost at between $45 to $65B and to take up to 10 years to construct.     (http://www.businessweek.com/news/2012-10-04/exxon-bp-estimate-alaska-lng-export-project-at-65-billion )  Exxon is developing the Australian Gorgan gas field located 130 kilometers off shore. Exxon owns a 25% share in the development. The Gorgon gas fields have a recoverable reserve of natural gas of an estimated 40 tcf. The market for Gorgon gas is Australia and Asia. In 2009, Exxon signed a deal worth $41B with PetroChina to provide the PRC with LNG. ( http://www.exxonmobil.com/Australia-English/PA/about_what_wa_gorgon.aspx ; http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a1_DE7dmIwE8 )

Exxon is negotiating with with CBM Asia Development to partner in the development of coal bed methane gas deposits in the Barito Baswin, South Kalimantan, Indonesia.
(http://finance.yahoo.com/news/exxon-mobil-cbm-asia-negotiate-133313186.html)

Exxon bought Celtic Exploration, Ltd.’s leases in the Duvernay and Montnay Alberta shale gas formations for $2.86B Canadian. Exxon also has leases in the Horn River British Columbia shale gas formation.
(http://www.bloomberg.com/news/2012-10-30/exxon-favors-gas-over-oil-sands-in-m-a-deals-corporate-canada.html )

　

Does Exxon have a reason to delay any Alaska natural gas development of its North Slope fields, including Thompson Point, given its Pacific basin and Qatar natural gas developments?

Does Exxon have a reason to delay the construction of any natural gas pipeline to move Alaska North Slope gas into a world market where that gas would compete with other foreign sourced gas projects in which Exxon has invested?

Is there any reason why the State of Alaska should not declare a breach of contract under AGIA for conflict of interest on the part of Exxon and TransCanada?

Are we really closer to a natural gas pipeline? Nah.

http://www.examiner.com/article/closer-to-a-natural-gas-pipeline

In an Anchorage Daily News op-ed piece on May 11, 2012, Governor Sean Parnell extolled that his Administration was closer than ever to a large diameter natural gas pipeline being built, because of the settlement with Exxon over the Pt. Thompson development. One has to wonder just what this guy is on in terms of meds? He must be on the same psychotropic, hallucinogenic medications that the Legislature is on.


Otherwise, how could one reconcile the Legislature’s seemingly mindless following of Rep. Mike Hawker’s and House Speaker’s Mike Chennault’s incredible determination to wipe the 2002 vote and mandate of 138,000 Alaskans off the record, to remove same from State Statute, and to prove that the State will expend hundreds of millions to demonstrate that LNG from Russia can be imported cheaper to south central than their pipedream. This in the face of $14/tcf-$17/tcf LNG delivered in Japan.

What is it about the all-Alaska natural gas pipeline option that causes it to never be spoken of by our Governor and by our Legislature, never considered as a viable option, never mentioned by the Press, yet, demonstrated by the market as being incredibly prescient, given that this option was voted on and passed—you know, mandated—by the vote of 138,000 Alaskans way back in 2002? The only Republican candidate to champion this option was Bill Walker with his run for Governor in 2010.

Governor Parnell has asked nicely for TransCanada and the Producers to consider the LNG option to Valdez under AGIA. TransCanada and Exxon said sure, and now, studies will be made to determine the viability of that option through December of this year, and beyond. Is that not all that Governor Frank Murkowski’s so called contract achieved? A promise to “study”?

In the meantime, prices in Japan are $14/tcf-$17/tcf for LNG delivered to Japan. The cost of Alaska LNG delivered to Japan estimated by the Wood-Mac report for AGPA was $8.50/tcf. The proposed all-Alaska natural gas pipeline to Valdez championed by Bill Walker’s run for governor in 2010 called for a 3bcf per day pipeline from the North Slope to Valdez with 250mcf being taken off at Glennallen and delivered by a spur line to the Enstar Hub at Palmer. That left 2.75bcf per day for delivery to world markets. Under Walker’s proposal, the gas liquids would have been retained in Alaska for use to build a petrochemical industry and to provide alternative fuels for the Bush.

Every day, the governor has his head up his posterior, the Legislature is entranced by Hawker’s and Chennault’s Pied Piper routine, the State denies itself $15,125,000 at a sale price of $14/tcf delivered. Over the course of a year that is $5.52billion. Kiss another $5.52B good-bye by December 31 of this year.

The oil companies down south are moving, developing, and continuing to explore based upon $2.02/tcf of methane. Methane that may be exported, which will compete with Alaska gas and may even displace our gas in Asian markets, given our governor’s and our Legislature’s inability to see the handwriting on the proverbial wall.

Japan is shutting down its nukes, and Alaska has a market for our natural gas, if we want it. Two delegations from Japan have come to talk with the State, the first rebuffed by our Governor just after the 2011 earthquake.

Our DNR Commissioner met with the most recent Japanese delegation, our Lt. Gov. had dinner with them, but . . . nothing. Our DNR Commissioner goes to the PRC to investigate the LNG market, but not to Japan. After 41+ years of trade in LNG to Japan, Alaska is unwilling to discuss the potential with the Japanese.

Unlike our governor and his administration, Senator Lisa Murkowski is trying to do just that with her recent meetings with the Japanese Prime Minister and members of the Japanese Diet. Murkowski is trying to sell Japan on Alaska LNG, but is wasting her time in the face of a hostile Parnell Administration.

What's wrong with this picture, Alaska?

The Legislature with CB9 and CS9 have told the people to stick it with our 2002 vote, that our vote meant nothing. We have been proven right in the market, but our State leaders have shown their contempt for our will by completely ignoring what we mandated.

This governor and our Legislature have ignored us, when we were right all along.

Yet, now, Governor Sean Parnell extols that Alaska is closer than ever before to getting a pipeline??!!!!