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/

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?

Unlike the Gov, Sen. Lisa Murkowski is trying to sell LNG to Japan

Senator Lisa Murkowski (R-AK) raised the prospect of Japan buying Alaska natural gas to overcome the shortfall in power generation with the shutdown of 51 of Japan’s 53 nuclear reactors after the 9.0 earthquake off of the coast of Japan last year. Sen. Murkowski spoke with Prime Minister Yoshihiko Noda at a State Department Dinner hosted by Sec. of State Hilliary Clinton. Sen. Murkowski is the Vice-Chair of the U.S. Japan Interparliamentary Group. Sen. Murkowski has used this opportunity and her position to discuss the prospect of using Alaska natural gas in Japan in her discussions with her Japanese counterparts in meetings over the last week.

Senator Murkowski is meeting today with the acting secretary general of the Democratic Party of Japan.

Senator Murkowski has also asked President Obama to support the export of Alaska natural gas to Japan and to write a letter to the Japanese Prime Minister expressing his support Japan’s purchase of Alaska natural gas.

Sen. Murkowski seems to be doing something that our Governor and his administration have not bothered with. Sen. Murkowski is attempting to do the Governor’s job of selling Alaska’s natural gas to a viable customer who needs a reliable, long term supply of LNG.

Unlike Governor Sean Parnell, has refused to meet with two Japanese delegations sent to Alaska seeking to discuss the purchase of Alaska natural gas. The week after the March 11, 2011 earthquake and tsunami that devastated Japan, a Japanese business delegation came to Alaska to meet with Governor Sean Parnell. Parnell refused to meet with them. The week of Feburary 27th , a Japanese delegation again travelled to Alaska and attempted to meet with leaders of the State government. Two members of the Japanese delegation met with Dan Sullivan, Commissioner, Dept. of Natural Resources (DNR). Nothing was disclosed by Sullivan regarding the discussions other than to say that the meetings were of an “introductory nature” rather than defining any business goals. Bloomberg was reporting that Japan was sending delegations to Louisiana and Texas to discuss the possibility of buying U.S. natural gas to meet their energy shortfalls from the shutdowns of their nuclear power plants. Meanwhile, the only meetings the Japanese were able to hold in Alaska were with the Commissioner, DNR, that produced nothing of any consequence. On February 29, 2012, Lt. Governor Mead Treadwell had dinner with the Japanese delegation. Nothing has been disclosed since regarding any outcomes of those meetings with State officials.

Alaska has a 41 year history of exporting natural gas to Japan from Nikkiski. This is a history and partnership that can be used to Alaska’s benefit in marketing our gas to Japan. Yet, Governor has ignored this opportunity and advantage. Keiretsu and face are major components of the Japanese business deal. If one has good keiretsu (business associations, dealings, reputation) and good face (character, reliability, solid, honest), then one is in a very good position to do business in Japan. Alaska has such a relationship with Tokyo Power and Light, the customer for Alaska’s natural gas over the last 41 years. Yet, our governor and our Legislature ignore this fact and act as if Alaska has no interest in Japan as a market. When Dan Sullivan went to Asia recently to inquire about the viability of a market for Alaska natural gas in Asia, he did not go to Japan. Like the all-Alaska natural gas pipeline to Valdez championed by Bill Walker during his gubernatorial campaign supported by both the Alaska Gas Development Authority and the Alaska Natural Gas Development Authority (ANGDA), the idea of selling gas to the one reliable, long term customer that needs it, Tokyo Power and Light, is ignored by the Parnell Administration.

One can only wonder what could cause the Governor and the Legislature to ignore a certain customer with a very real need? Japan has been paying as much as $17 per thousand cubic feet of LNG delivered to Japan. Domestic U.S. price of natural gas was recently $2.02 per thousand cubic feet. There is no domestic market for Alaska natural gas in the lower-48.

The portent of the return of 300,000 barrels of North Slope Crude oil to the oil terminal at Valdez by the Alaska Explorer 11 April, 2012 should be a wake up call that Alaska is facing much larger problems than just a competitive natural gas market. Alaska’s literal fiscal future is at stake with oil flowing through a pipeline that may have to be shut down, not because of a lack of oil on the North Slope, but because of a glutted domestic market for oil.

Alaska will become a much quieter place in the near future if our Governor cannot bring himself to kill AGIA, to end the fiscal idiocy of committing another $200 million to a pipeline concept that cannot make money, and commit the State to build the all-Alaska natural gas pipeline to Valdez. Negotiating the best price for our gas and a long term commitment with Tokyo Power and Light and Mitsubishi would give Alaska the anchor customer necessary to finance the project.

Governor Parnell and this Legislature have done an incredible job of ignoring reality. That reality is about to bite all of us in the proverbial . . . posterior. Alaska’s future is growing dim and distant, with its youth and young adults the beneficiaries of a lack of foresight and concern that is incredible in the face of the information available to those in leadership positions.

Thank you, Sen. Lisa Murkowski for trying to the right thing for Alaskans in the face of a Governor and a Legislature that continue to ignore the obvious.

The oil glut just caught up with Alaska's oil dreams . . .

The shale oil revolution in the lower-48 has finally impacted Alaska.


On April 11, the 940 foot oil tanker Alaskan Explorer returned to Valdez from a two week journey to a refinery in Washington state after delivering almost 1,000,000 barrels of Alaska crude from the North Slope. For the first time since the Trans Alaska Pipeline System (TAPS) began transporting North Slope crude to the Alyeska Pipeline oil terminal at Valdez, 300,000 barrels (12,600,000 gallons) of Alaska North Slope crude oil was being returned to Valdez for the first time. (1 barrel = 42 gallons)

The day the crude oil was returned to Valdez by the Alaska Explorer, the oil storage tanks at Alyeska’s oil terminal were 90% full. The oil storage tanks have not been this full since the start of oil flowing down TAPS. Having to return oil added to the lack of capacity. This is a serious situation with respect to maintaining the oil flow from the North Slope.

One of the major concerns of Alaska’s politicians has been when will North Slope oil production fall to such a level that the TAPS will no longer be able to move the oil? This amount has been estimated to be a little as 300,000 barrels per day to as much as 500,000 barrels per day. If TAPS operations has to be stopped at present levels due to an oil glut in the lower 48, there is a very real possibility that TAPS operations may not be able to be restarted.

Last year, Thomas Barrett, the president of Alyeska Pipeline Company, warned the Legislature that any shut down of TAPS that lasted for more than three days could result in a permanent shut down of TAPS. The automation of TAPS in the 1980s removed the pumps from some of the pump stations, thereby reducing the ability to pressurize the pipeline. Present volumes are marginal with respect to restarting TAPS. The estimate of the shutdown volume was 300,000 barrels per day until 2010, when it was admitted by Barrett that the actual shut down volume could be as much as 500,000 barrels per day.

The reason the oil was returned to Valdez has been the increasing volume of oil produced from the Bakken Shale deposits in North Dakota and from other shale deposits in Texas and Pennsylvania. The same technology that has increased the natural gas reserves of the United States to as much as 200 years at present rates of consumption has now allowed access to oil previously considered unrecoverable.

Another factor is the reduction in the use of gasoline in the U.S. due to higher mileage vehicles. This has led to a decreased demand for crude oil in the face of increased supplies. The U.S. is now exporting refined gasoline in quantities not seen since the 1960s to Central and South America.

The Parnell Administration failed to publically note the return of Alaska crude to Valdez. To have made the public aware that Alaska crude was returned because of an oil glut Outside might have caused a problem for an Administration that has been heavily criticized for its lack of progress on a natural gas pipeline.

One thing is for certain, due to high international demand for crude in Asia, the price of gas is not going down appreciably anytime soon. The domestic price of crude is set by the international market.

The return of Alaska’s oil to Valdez has serious portent for the future of TAPS and for the market for Alaska’s crude. It would truly be ironic for TAPS to have to shut down because there is a glut of oil in the lower-48.

Leadership and Ralph Samuels

There has been much made about the lack of leadership shown by the current governor. Governor Sean Parnell has been described as lackluster, mediocre, behind the scenes and hard working, and a nice guy. Ralph Samuels has chosen “Leadership Now!” as his campaign slogan to emphasize his perception of the lack of leadership shown by Parnell. This is an interesting ploy on the part of Samuels, but akin to the pot calling the kettle black. Samuels has his own baggage as regards demonstrated leadership ability.
Samuels’ claim to fame, as touted by his avid radio entertainment advocates, was his solitary vote against former Gov. Sarah Palin’s Alaska Gas Inducement Act, or AGIA. Ralph Samuels was the only legislator to vote against AGIA.
On the surface, this is a bold statement as to his principles. However, it is an indictment against any claims of leadership ability. You see, Ralph Samuels was the House Majority Leader at the time.
Leadership is the ability to induce others to do what the leader wants them to do, whether or not they want to do the task at hand. In the case of Samuels as Marjority Leader, his job was to guide in direction, course, action, opinion, to influence his fellow Republicans in the majority caucus to act united in supporting or defeating whatever legislation was at hand. Where AGIA was concerned, Ralph failed miserably to exercise his leadership position.
Sarah Palin was hardly the pinnacle of cooperation and encouragement for the Legislature. Former Gov. Sarah Palin was a magnet for criticism. AGIA was not quietly passed, but argued vehemently at times. Where were those who argued against AGIA during the legislation’s travails through the legislative process? Why did they fail to stand with Ralph?
Samuels’ standing alone was not a case of a subordinate stubbornly refusing to follow the superior’s orders in good conscience. There was little or no risk in his opposition. Sarah Palin could hardly fire him. This was a case of a ranking member of the Legislative Branch standing against the Governor’s pet project. A governor who was not exactly engaged in any process at any time. A governor too busy with soap opera theatrics to demonstrate any leadership whatsoever during her tenure as governor. Therefore, Samuels’ singular opposition was hardly a case of political courage.
Nor, was Samuels act that of the commander of the Forlorn Hope given the impossible task for which survival of any so ordered unlikely. There was no personal danger involved. No threat to livelihood. No risk whatsoever. How was his sole vote an act of . . . leadership?
I will concede the issue of principle. To Samuels’ credit, he did stand his ground. To what end? If he was so in opposition, why was he standing alone? Why could he allegedly see what others were blind to?
House Majority Leader Ralph Samuels failed to influence his caucus to rally against Gov. Sarah Palin’s AGIA. Not one of his majority caucus minions followed his lead. Not one.
Yet, to hear Dan Fagan and Rick Rydell on their respective talk shows, Ralph’s vote against AGIA is the equivalent of Patrick Henry’s hanging, or Washington crossing the Delaware. Only one politician in Alaska’s political history deserves any real accolades, and that is former Governor Walter J. Hickel who challenged the federal government’s usurpation of sovereignty. He managed to get AS 38.05.500-505 passed. Yet, Samuels could not get one other to vote against AGIA.
To be cynical, was Samuels’ act an act of calculated political strategy? Did Samuels see in a distracted Gov. Sarah Palin the opportunity to challenge what was increasingly perceived as a weak and ineffectual governor?
It is interesting that her Lt. Governor has managed to accrue the same lack of respect. And, Samuels’ challenge.
Ralph Samuels campaign slogan of “Leadership Now” is either a demand by him for someone to step up, or a claim that he is the missing link for leadership. In either case, he is not the panacea that others claim. He is a failed leader.
Ralph Samuels held a powerful legislative position with a clear majority. Yet, he was not able to impede or to hinder the passage of AGIA.
In this time in Alaska’s history, given the decades to get major projects underway, the steady decline in oil production that constitutes 90% of the State’s revenues, and the fiscal catastrophe that will befall this State once TAPS declines to 300,000 bpd to market and is shut down, can we afford a governor who is a failed leader?

AGIA is dead but for the politics

Obviously, AGIA is not dead. However, the announcement Friday of a cost increase of an estimated $41B is not conducive to supporting a belief that either AGIA or Denali can be feasible economically. Especially, since the completion date is estimated to be at least 2020.

Given that costs of operations on the North Slope have risen 68% from 2001 to 2009, one can reasonably figure that AGIA’s costs will increase between now and any anticipated start date, say 2015. Since AGIA’s estimated cost was about $15B-$25B, depending upon the source during the Palin v. Murkowski campaign, one can estimate that the completed cost will be somewhere between $75B and $100B by estimated shipment of the first gas in 2020.

Shell announced that it is cutting back its expansion of production of oil from Alberta’s tar sands from a target of 700,000bpd to 225,000bpd for the foreseeable future. Shell will be shifting its emphasis to offshore and onshore exploration, something the company had not emphasized until a recent change in management. Increased cost in the reduction in the expansion of the tar sands recovery was cited as the reason.

It is my belief that AGIA is dead, given the shale gas production Outside and in Canada. Exxon spent $41B buying the company with the largest shale gas holdings in the U.S. One also has to remember that Exxon is committed to a 25 year commitment with Qattar to bring gas to the U.S. The expansion of LNG terminals in the U.S. to 4.5bcf is an interesting number, as that was the planned capacity of big diameter pipelines from Alaska to Canada to the U.S. Any introduction of Alaska gas at that rate would have a depressing effect on the price of natural gas in the region in which it is introduced.

There are those who believe that the President will not allow Alaska to export LNG. That given this belief, the all-Alaska pipeline would not be feasible as Alaska’s gas could not then be exported. This position is belied by the fact that Alaska has been shipping gas from Nikkiski to Japan for the last 40 years. Given this fact, the all-Alaska pipeline would have a market in Asia, primarily in Japan.

The big question now, is what will be the outcome of the AGIA Open Season? Will the producers step up to send gas to Canada? Not likely, for the reasons stated above. However, AGIA was flexible, with a 2.0bcf pipeline to Valdez as the LNG option. That option may see interest, as Asia offers higher prices to Outside markets now uncertain because of shale gas development.

The outcome of the AGIA Open Season will not be known until NOVEMBER, after the general election is over. This plays in the favor of Gov. Sean Parnell. However, if the arguments on the part of Bill Walker regarding the viability and benefits of the all-Alaska pipeline option continue to find favor with Alaskans, Gov. Parnell will need something substantive to show the people that AGIA will produce results before the August Primary.

It is obvious, with the filing of HB312, that Rep. Jay Ramras, Rep. Mike Chennault, Rep. Mark Neumann, Rep. Bill Stoltze, Sen. Lesil McGuire, Sen. Charlie Huggins are hoping to confuse the idea of the Noah Parks Highway 500mcf pipeline sufficiently to get the people to forget that we voted for the all-Alaska route back in 2002 and again in 2006 with the election of Palin/Parnell. These legislators forget that they have ignored the will of the people as egregiously as did governors Murkowski, Palin and Parnell.

The reality here is that although there was no announcement, AGIA’s viability is suspect, due to the doubling of the price tag over less than 4 years. That fact cannot be attractive to potential investors.

The only sure thing is the all-Alaska natural gas pipeline proposed by Bill Walker, and voted upon by Alaskans in two separate elections. That pipeline is permitted, and ready to begin construction. All it needs is a governor to lead the way.

Shell and Sean Parnell--oil and gas development offshore

Governor Sean Parnell announced today that his administration will seek to expand oil and gas exploration and development offshore on Alaska’s coastal continental shelf.

This announcement follows the August 28th 9th Circuit Court of Appeals’ decision that the 2007 oil and gas lease sale in the Beaufort Sea did not violate environmental laws.

In testimony given on August 20th to Sen. Lisa Murkowski, Gov. Parnell outlined areas in which Alaska can play a major role in helping the U.S. obtain energy independence and security for Arctic resources. I’ve included the text of his testimony to the Senator.

“Introduction
Thank you, Senator Murkowski, for this opportunity to address the Homeland Security Subcommittee of the Senate Appropriations Committee on one of the greatest challenges facing the Nation and the State of Alaska – the changing Arctic and the national policies necessary for its understanding, its protection, and its responsible development.
Before I begin my remarks, Madam Chair, I would like to take a few moments to recognize and thank Admiral Thad Allen, Commandant of the United States Coast Guard, and all the members of the Coast Guard for their bravery and hard work in Alaska.
Just this week, the Coast Guard helped save the lives of nine people in Alaska. A Coast Guard helicopter found two missing adults and a child near Ketchikan. With help from Alaska State Troopers, family and friends, the Coast Guard rescued another six people when a 20-foot pleasure boat overturned at Tee Harbor near Juneau. Unfortunately, one person lost their life in that incident. My thoughts and prayers are with his family, and we deeply appreciate the men and women who keep America’s coastlines safe and secure.
As you know Senator Murkowski, Alaska is America’s Arctic – it’s our home, our history, our heritage, and our future. And Alaska is the only national link to the Arctic and the only state that shares a border with two other Arctic nations. Arctic policies affect every state and every citizen – Alaskans most of all, not just because of our strategic location on the globe, but because of what we have to offer. The Arctic’s abundant resources – human and natural – and our strategic location for national security demand our attention. The people of Alaska understand and eagerly accept our role in the examination and development of national Arctic policy.
We worked closely with the previous Administration on national and homeland security directives outlining broad policies on the Arctic. We hope to continue that collaboration with this Administration and Congress.
Today, I present Alaska’s view of U.S. Arctic policies in five areas: resources, national and homeland security, science, and foreign policy. In the Arctic, these policies are inextricably linked. And, while I describe these issues individually, it is vital that this committee and the Administration understand and act on them jointly. Domestic energy supplies support national and homeland security. Security enables development and protects the environment. Foreign policy enables international participation in scientific research. This must all be discussed in the context of climate change and how Alaska is adapting in light of Arctic policy.

Resources
Let me begin by focusing on Alaska’s resources – most of all, our human resources: Alaska’s people. Make no mistake, Alaskans have been adapting for years. Changes in the Arctic affect us directly, every day. No one is more vested in Arctic policy than the people who subsist from the land – hunting, fishing and gathering, not just for food, but for the survival of their culture. Collaboration with our Arctic residents and local governments is a must. Alaskans understand the need for balance.
Any conversation about the Arctic must also include Alaska’s natural resources – coal, gold, zinc, silver, copper, natural gas and oil. These resources make the Arctic vital to American energy security. Alaska is America’s Arctic energy breadbasket. We have traditional and renewable sources of energy in staggering volumes here. Alaska can play an even greater role in reducing the amount of oil and gas we import from abroad. And we can be America’s test-bed for renewable and alternative energy sources.
The onshore Arctic areas, such as the NPR-A and the coastal plain of ANWR, hold great promise.
Alaska is home to the Trans Alaska Pipeline System, which carries 685,000 barrels of oil a day to the lower 48 states. This major supply of oil is key to our national energy security.
Offshore Alaska … the Beaufort and Chukchi Seas can be explored safely in the near-term, producing oil and gas for decades. Without these known, traditional sources of energy, we risk higher cost energy, higher taxes, and greater dependence on foreign oil. We can do this on our own soil. Let us not be led down the easy path to investing America’s foreign aid dollars in exploration abroad. Let’s keep it here – where Americans can get the jobs, and where environmental laws safeguard our land, seas, and wildlife.
Putting the brakes on domestic energy production does not prevent global warming or end threats to species. Instead, delaying responsible exploration and development increases the problem by shifting resource extraction to less environmentally preferred fuels and locations.
Turning to cleaner fuels, the State of Alaska is also pursuing the construction of a pipeline to bring the North Slope's abundant, clean natural gas to American markets. We have two competing private sector groups working diligently to permit a natural gas pipeline that can deliver 4.5 billion cubic feet of natural gas a day to the continental United States. Again, if we can turn on the supply of clean, American natural gas – from Alaska – we will reduce our dependence on imports and bring less expensive energy to homes across America.
Unfortunately, current language in proposed climate change legislation would likely make the project uneconomic and would lead to the use of higher cost fuel sources before technology catches up.
Alaska remains fully committed to alternative and renewable energy, as well. This is the place to field test every alternative. From wind turbines to hydro-electric, to chip-fired systems that burn wood for fuel – Alaska is America’s alternative energy center.
I am confident that together we can bring traditional, renewable and alternative energy to market and increase Alaska’s contribution toward our nation’s energy independence for years to come.
Homeland Security Alaska is America’s Arctic Guardian. Our strategic location, resources and people compel strong funding for homeland security. The Department of Homeland Security and its agencies have been strong partners in providing for the safety and security of Alaskans and our economy.
Melting sea ice and increased military and commercial activity require a greater Coast Guard presence. The Coast Guard needs to move north and improve its capability — our heavy ice-class icebreakers are on their last legs. To provide homeland security the Coast Guard must have new Arctic-class icebreakers equipped for search and rescue missions, border protection, law enforcement, fisheries enforcement, infrastructure and environmental protection.

Support for funding for those icebreakers is up to this committee. We need to fund a new Coast Guard duty station or port on Alaska’s coast between Nome and Barrow to meet the new challenges of the Arctic.
The Coast Guard needs to keep the promise of the Oil Pollution Act of 1990 and establish a research program for the Arctic. With information in hand, we can continue to work with the Coast Guard to improve our ability to prevent and respond to oil spills in the region.
In addition, the Department of Homeland Security and the Federal Emergency Management Agency must have authority to act on disasters we can predict, not just those looming around the corner or the one we currently face. In western and northern Alaska, the sea ice no longer shields the coast from fall storms. The resulting erosion threatens the sustainability of some communities. The federal law was not written with such hazards in mind and does not provide the large-scale response these small communities need.
Exploration and development will bring more coastal and maritime infrastructure, such as ports, repair facilities, fuel depots, pipelines, and transportation. These assets will need effective, enforceable security buffer zones to ensure continuity under all hazards.
National Security As the summer ice retreats, opportunities for commerce, tourism and transportation advance. Already we see more mineral, oil and gas exploration – more vessel traffic and science missions. As we have seen throughout the world’s oceans, increased maritime traffic elevates both risks and threats. Currently, the North Slope Borough and oil and gas producers on the slope fill much of that void. We need the federal government to step in. We can no longer assume that the threat from the north to our oil production fields is not real. We can no longer assume that the Arctic is an impenetrable barrier.
The United States must increase national focus on the Arctic, add resources to collect scientific data, and increase Coast Guard presence to address these new challenges and opportunities. This will provide the ability to develop the American Arctic’s vast natural resources and is critical for the protection of strategic national infrastructure and assets.
Alaska’s strategic position as the northern crossroads also places us squarely in line between potential adversaries and the rest of the United States. I urge the Congress to support the ground-based missile defense system in Alaska and reconsider the proposal to scale back the placement of interceptors at Fort Greely. We play a critical role in national security and in the security of American allies.
Science Despite centuries of exploration and study, much about the Arctic remains a mystery. Standard weather and climate models are not sufficient for understanding and predicting trends and patterns. New models require fresh data and up-to-date research.
The State of Alaska strongly supports the National Oceanic and Atmospheric Administration and its initiatives to improve its observations and research across the Arctic and to develop innovative forecasting models for next week’s weather and next century’s climate.
I encourage scientific collaboration among the academic world, the Arctic nations, and non-governmental organizations to improve our understanding of fisheries, marine mammals, land animals and vegetation in the Arctic ecosystem. This research must be open and rigorous.
The State continues its support of the use of unmanned aerial systems for Arctic operations and research. The Alaska Aerospace Development Corporation and NOAA are working on a plan for how best to make that happen. The technology exists; the stakeholders are ready; but the current regulations are inflexible and outdated.
And the Arctic, literally, needs to be put on the map. Scientific research and economic exploration are set back by low-quality, decades-old mapping data. There is no accurate baseline to measure change, to

identify trends and patterns, or to predict potential outcomes. We need high-quality maps of the Arctic – both land and sea. Funding for such priorities should not be based on population density, but instead on current and future strategic economic and environmental values.
Foreign Policy For much of its history, the Arctic has been both ungoverned and ungovernable. Even as the eight Arctic nations have increased economic activity, the Arctic climate has impeded economic and social development, transportation, and research. That era must end.
I strongly urge the Senate to ratify the United Nations Convention on the Law of the Sea. Once ratified, the treaty will allow us to claim jurisdiction over the offshore continental shelf behind the 200-mile limit. U.S. boundaries could grow into areas that may hold large deposits of oil, natural gas and other resources. Russia, Canada, Denmark, and Norway have claims to Arctic territory under the auspices of the Law of the Sea. Without ratification, the U.S. cannot fully participate in adjudication of these claims.
Climate change Alaskans have extremely close ties to the land and the sea and are sensitive to their subtleties and variability. The changes in the Arctic ice – their timing, extent, and nature – give us cause for concern.
To define and address these concerns, Governor Palin formed the Climate Change Subcabinet to respond to immediate needs in rural villages, plan for the long term and determine research needs. The subcabinet has turned recommendation into action. We’re now working on coastline stabilization, emergency and evacuation planning, hazard mitigation planning, training and exercises for the communities most in need.
The climate change strategy is in the final stages and will be presented to me this fall. We’ve had noteworthy partnerships with several federal agencies in this process, and we look forward to continued work with the federal government as we address climate change.
Conclusion In conclusion, I applaud you, Senator Murkowski, on bringing to Alaska this hearing on the strategic importance of the Arctic in U.S. policy. These policies, whether long-standing or emerging, will have a profound effect on the nation and on Alaska for generations. We must take a balanced approach to protect our food sources, thousands of jobs and the energy security provided by Alaska’s oil and mineral development.
Alaska and the U.S. government share a policy that is balanced and recognizes the diversity the Arctic offers. And it highlights the Arctic’s unique characteristics and consequent need for unique treatment.
I urge the Congress and the federal Administration to continue the good work on Arctic policies and encourage the development of a National Arctic Doctrine that includes all stakeholders in the future of the Arctic. Alaska will participate and Alaska will contribute. We are eager to work with Congress to manage all our resources.
On taking office last month, I asked Alaskans and myself several questions: In the next 50 years, will Alaska move forward, or will time pass us by? Will each of us be a vital player, or will we stay on the bench? Will we just survive, or will we choose to thrive?
Today Alaskans join me in stating that our state – and our nation – must not be idle and passive; that we must not drift; that we must choose our destiny and work hard to achieve it.
The Arctic is our future. We choose to move forward, and we choose to thrive.
Thank you for your leadership and your service to our great State and to our Nation. “

Commentary:
This is a good policy statement reflecting Alaska’s role in the energy future of the U.S. and emphasizing the importance of Alaska in the looming rush to the Arctic for resources by those nations bordering the Arctic. The request for a Coast Guard presence in Western Alaska is long overdue.

The Russians have been very aggressive over the last several years in establishing a military and geographical basis for their claims to resources under the Arctic Sea. It is imperative that the U.S. establish its claims and moves to develop off shore oil and gas opportunities before others do so.

Unfortunately, Parnell’s words will fall on deaf ears in Washington, as we have a President set on the path to appeasement and apology, and a Congress sold to the environmental lobby. I doubt there is anyone with a strategic vision in the Obama cabinet. Plenty of idealogues, but few with vision with respect to protecting the strategic interests of the U.S. in the Arctic.

I have written on Governor Palin’s Climate Change Strategy Sub-Cabinet before, and the fact that Parnell continues to give lip service to this waste of money, not to mention federal incursion into the State’s domain, is not good. However, in his favor, Parnell is in a situation of slowly divorcing himself from Sarah’s lack of governance. If he makes a break too soon, he admits to any potential competition for the governor’s job that the Palin Administration was a failed administration, and that he supported failure. As it is, there are now 4 candidates who have announced for governor. Unfortunately, Parnell will have to defend the previous administration before he can put his stamp on policies he can call his own. This testimony is a good start for his administration.

In announcing his administration’s support for offshore drilling, he will now endure the storm of the environmental lobby’s wrath, both in Juneau and in Washington. It will not be long before the ads start on TV and the radio decrying the damage to the environment.

BP just completed a 7 MILE (35,000 ft) well offshore for Mexico. The estimated reserves are greater than 3 billion barrels. If BP can drill successfully at that that depth, safely, and without harm to the environment, then drilling in Alaska’s relatively shallow coastal waters should be a piece of cake.

I spent 5 months in Canada working on an oil field services related R&D project. I have seen the impact of energy development on the communities in Alberta to B.C. Alaska is pathetic when it comes to energy development policy. Gov. Parnell’s move to support offshore drilling is progress in reversing the adversarial position of most of Alaska’s administrations to oil and gas development, including that of former Governor Sarah Palin.

Hickel's not happy with Exxon/TransCanada deal.

Former Gov. Walter Hickel harshly criticized the deal between Exxon and TransCanada.
His disaffection with Sarah Palin began over her decision to go for a big pipe through Canada versus an all-Alaska natural gas pipeline to Valdez.

And, he is correct.

Neither AGIA nor Denali have all the producers on board. AGIA has Exxon, and Denali has Conoco and BP. Takes 3 to make any large project work.

Then, there are those little details that everyone forgets. Such as, Alaska is short about 80 tcf of NG to keep either AGIA or Denali fed with gas over the 30 years of the life of the financing. Too, Exxon stated earlier this year, that there is too little gas available on a daily basis to make a big pipeline work. 4.5 bcf is available, but 2.5 bcf must be reinjected to pressurize the oil fields daily. This leaves 2 bcf for market, and that is with Pt. Thompson included in the mix.

All of the above was argued during the gubernatorial campaign. Nothing has changed.

The price of oil is 18 times that of NG right now. Guess what use Alaska's NG will have? Keeping the North Slope fields pressurized and separating oil from Alberta tar sands.

While big news, the Exxon TransCanada deal is really so much fluff.

Alaska's Natural Gas and Oil can benefit the U.S., or not.

Former Gov. Walter Hickel wrote an editorial in another paper that tried to demonstrate that there was a basis for an all-Alaska pipeline from Prudhoe to Valdez. His premise was that Red China, and I mean RED China must be acknowledged as a potential player in any future natural gas market for Alaska natural gas. His editorial was also critical of the Palin Administration backing of the only AGIA applicant, Trans-Canada, a Canadian company that has proposed a 4.5 billion cubic feet per day natural gas pipeline from Prudhoe through Canada to the U.S. market.

He quoted Sen. Charlie Huggins as holding to the philosophy of positive engagement through world trade rather than exclusion as the route to economic prosperity and peace.

Red China, or the Peoples Republic of China (PRC), Japan and the rest of Asia are heavily dependent upon imported fuels and natural gas. These economies are in competition with Europe for the world’s oil and natural gas.

The principle suppliers of oil and natural gas being the Middle East, Russia, and Indonesia.

Brazil may become an oil exporting nation, provided the recent discoveries off the coast can be developed.

I agree with the need in Asia for Alaska NG, which is just part of the justification for an all-Alaska NG pipeline to Valdez. The fact that NG is exported from Nikkiski is a demonstration of the viability of the Asian market. A market that Alaska could certainly develop. However, I agree only if the U.S. continues to be stupid and refuse Alaska gas and oil development to ease dependence upon foreign oil and natural gas.

Alaska, as a sovereign State in the Union of States should have the opportunity to develop its resources to benefit Alaska, if the U.S. fails to understand that the primary desire of Alaskans is for our oil and natural gas to be used to benefit the U.S. first, and foreign markets second.

It has always been a paradox as to why natural gas was being exported to Japan from Cook Inlet reserves by LNG tanker, but Alaska could not develop its North Slope reserves to ship to U.S. markets by LNG tanker?

Were all of Alaska’s NG produced exported to foreign markets, Alaska could reasonably export by LNG tanker up to 4.5bcf per day, or the expected import of foreign NG into the U.S. market.

Alaska’s NG would most certainly affect the U. S. market by displacing largely imported Middle Eastern NG, and, because of competition, result in a lower price to the U.S. consumer of natural gas. A situation unremarked by the Producers in any discussion of marketing Alaska’s natural gas.

It is this displacement of foreign natural gas being imported at exorbitant prices into the U.S. market that is the dream of every Alaskan. Not just the benefits to the State: jobs, infrastructure, income, and, if a portion of the liquids are retained, industry from those liquids.

The energy policy of the U.S. can be viewed as insane on one level, and shrewd on another. If we suck the Middle East dry of oil and gas, then, we eventually eliminate the benefit of the income provided to those oligarchies who then contribute to the jihadis that want nothing more than to kill us infidels. On the other hand, we are paying high prices for oil and gas that is funding our enemies. That is the insane part, especially in the face of ANWR, off shore, and U.S. and Canadian oil and gas potential. Alaska could supply the 4.5 billion cubic feet of natural gas per day that will be imported from Qattar, Indonesia, and Saudia Arabia by the end of 2012. Alaska’s natural gas reserves would completely displace Middle Eastern supplies.

Let the PRC buy those Middle East supplies and also take in the thousand of young wahabbist Saudis that now come into the U.S. under the deal brokered by G.H. Bush along with the $50 million spent each year by the Sauds to build new mosques in the U.S.

Somehow, we (the U.S.) are expected to absorb this burgeoning 5th column of Islam and continue on without any affect upon our economy or society. I would think the pictures of police carrying fully automatic M16s and HK MP5 variants in full body armor would clue someone that this policy is costing us. Especially since most of the hijackers who commandeered the jets on 9-11 were Saudis. This shortsightedness has cost the U.S. billions and will continue to cost us billions to keep the threat of now home grown jihadis in check. Yet, we still import oil and gas from the Middle East to fuel this hate.

The U.S. has more coal than anywhere in the world. Under the North Slope of Alaska is a high grade, low sulfer bituminous coal. It is my understanding that this field extends across most of the North Slope. Add that to the U.S. reserves, and there is no raw material shortage for fuel or gas.

The U.S. military is pioneering the development of new coal to diesel and kerosene jet fuels for aircraft. This is an extremely promising development in my mind and a significant policy shift. The question is, will the Obama Administration allow these projects to go forward?

Off shore reserves of oil and gas are just now being realized. New technologies in drilling and production are making deep sea recovery possible. The large reserves off of Brazil are an indication that oil exploration is far from over on the continental shelves around the world. Off of Israel new gas reserves verify this, even in the Mediterranean.

Unfortunately, Obama is now considering one again denying off shore development.

Yes, Alaska can send its hydrocarbon resources elsewhere, if necessary. Or, Alaska can contribute to the reduction of the impact of foreign oil and natural gas to the detriment of our security, economy, and culture. Alaska’s hydrocarbon resources can fuel Red China, a burgeoning enemy, or the U.S.

Your decision.

Why are Alaskans paying the highest prices at the pump?

In May of 1973, at the start of the OPEC oil embargo, the price for regular gas at the pumps in Palmer, Alaska was about 47¢ per gallon.

The major suppliers in the Alaska market at the time were Standard Oil, Tesoro, and Texaco.

In Palmer, the Texaco station was about 200 yards from the Tesoro station, in the building where the Alaska Fireplace, Co. is now located.

Tesoro was fairly new to Alaska having recently built a refinery at Nikkiski to process Cook Inlet crude into fuels for Alaska.

Texaco and Standard Oil moved refined fuels into Alaska by tanker.

(What?!!! That was done here? Ohhhhh. Uh . . . wait a minute, why then, has crude been moved from Valdez to the lower 48 and not refined fuels all of these years? Just think of all those jobs and infrastructure that could have benefited Alaska! Oh, it has to be refined Outside, because it’s . . . what? Too expensive to move it from Alaska refined? But, fuel was shipped to Alaska refined. Oh. Don’t ask. Oookaaay. Uh, I was just in Iowa where refined fuels come to the state by pipeline and then distributed. Gas there was $1.64 for unleaded without ethanol at the pump. What do you mean that’s there and not here?—The foregoing for all you Rick Rydell and Dan Fagan listeners out there who believe “big oil can do no wrong”.)

When the embargo was officially announced, and oil production cut by OPEC, Texaco and Standard Oil raised their prices immediately to about 92¢ a gallon at the pump citing decreasing supply issues and market forces.

Then “little” Tesoro stated publicly that Tesoro had no intention of raising its prices at the pump.

What do you think happened?

The other two oil companies sued Tesoro for unfair trade practices.

Tesoro claimed that there was no reason for it to raise its prices.

After the press on the issue had quieted down, Tesoro quietly raised its prices to match those of its out of state competitors and the suits by Tesoro’s competitors were dropped.

Two things came of that situation which had little or no notice from the press.

Tesoro began refining fuel for Texaco and Standard oil for the Alaska market.

Tesoro has matched its competitors’ prices ever since.

How do I remember this?

I was working for MTA at the time making $3.25 an hour as an apprentice central office switchman who was married with a kid on the way. The price of gas mattered even then.

Upon my return from Iowa on the 23d of December, the local price of gas at the pump was about $2.35. This morning (31 Dec.) the price was $2.45 per gallon for unleaded at the big Palmer Tesoro on the hill.

All because the Israelis bombed the Palestinians who have no oil, as the pundits would have us believe?

Our Legislature recently completed an investigation of pricing at the pump and pronounced no price fixing or other factor which would cause artificial inflation of our fuels in Alaska. That the prices are just what we have to pay.

Uh, huh.

I believe that the Palin Administration should fund a comprehensive study to be performed by the University of Alaska Fairbanks and Anchorage to determine whether or not we are paying a reasonable price for gas at the pump. The scope of the study should begin back in the last year Alaska was completely reliant upon refined fuels being shipped in by tanker through the present.

As in, “How much for how long have we been overpaying . . . or not”?

Why the U of A?

U of A would use business grad and undergrad students not beholding to the oil companies or any group whose re-election is dependent upon funding from oil companies.

I do not believe the State could hire a consultant to do the job, as the result would be clouded by politics.

The Legislature is certainly the last entity that I would trust to provide an unbiased finding.

It is time Alaskans had the truth about the cost of producing fuel and why we pay the highest prices in the U.S. for fuels at the pump versus what the real price at the pump should be.

How about it, Sarah?

Concoco-Phillips Denali Project

The decision by BP and Conoco Phillips to build a pipeline to take North Slope NG to Canada is a definite change of heart for two out of the three Producers on the North Slope.

I believe the reason for this change is not because all of a sudden BP and Conoco want to get NG off the North Slope, but rather because the alternatives are lacking for another high priority project.

Between unstable tundra along the proposed route due to permafrost melting to legal challenges by Deh Cho and other Native groups, and as yet unsettled right of way regulatory issues, the NG from the MacKenzie River Delta that was intended to fuel the separation of oil from the Alberta Tar Sands is not going to be available within the time frames originally envisioned for the MacKenzie River Delta pipeline project. An alternative had to be found, and Alaska’s North Slope gas reserves is that alternative.

The increasing price of oil is driving the recovery of oil from Alberta Tar Sands at an ever increasing pace. A supply of cheap NG is necessary to the economic viability of the separation process.

The only long term viable source of NG without rights of way issues at least to the Canadian border is found on Alaska’s North Slope. The rights of way and other issues would still have to be worked out to get the NG to Alberta, but, undoubtedly, BP will wield considerable influence in dealing with the Canadian side, given the Crown’s interest in BP along with the imperative to get the Tar Sands oil to market.

It is unlikely that Exxon will seek its own means to transport NG off the North Slope, especially with the promises made regarding development of the Pt. Thompson NG reserves made in order to retain those leases. Exxon is in a market it or else situation with the Pt. Thompson NG reserves. Therefore, it is reasonable to assume, that although unannounced, Exxon will eventually join with BP and Conoco Phillips.

Exxon was a player in the MacKenzie River Delta pipeline project, and a major advocate of taking Alaska’s NG over the top and plugging into the anticipated MacKenzie River Delta pipeline system.

Through a subsidiary, Exxon is also a major player in the Alberta Tar Sands project.

A major concern of those who live in the Mat-Su Valley is whether or not there will there be a provision for a spur line from Big Delta down to the Palmer Enstar NG Hub to provide NG for south central?

It is already a fact from the last round of this game under Murkowski that Alberta was all too willing to provide a ready market for Alaska’s NG liquids, such as propane and butane.

Will the Governor and the Legislature allow these valuable NG liquids to be transferred to Canada without proper consideration given to the long term benefits of value added processing in Alaska?

Stripping them out and using these gas liquids here would provide the building blocks for a petrochemical industrial base. A benefit with economic benefits far beyond just resource extraction that the pipeline represents.

Obviously, value added development of our NG resources would allow Alaskans greater opportunity beyond just the construction of a pipeline. Once the last pipe is welded into place, the pipeline jobs go away. Value added industrial development would be a lingering base upon which to ensure that the benefits from our NG resources go beyond fueling bloated, growing, and ever greedy state and local governments.

If the money goes directly to government, we all lose. If there is value added development, then we the people will benefit along with the Producers and government through jobs and infrastructure upon which to build industry.

The challenges for the Palin Administration, the Legislature and the Producers will be to balance the interests of all parties against the imperatives of the looming south central NG crisis, the economics of the proposed pipeline, and the constitutional requirement of the State to gain maximum benefit from the exploitation of this nonrenewable resource versus the interests of the Producers with respect to their profit motive.

Until there is a NG pipeline from the North Slope generating revenue, our responsibility as citizens will be to see that our elected officials do not spend revenue that is not there. And, to see that maximum benefit is exactly what is bargained for across the board.

Another blog dealing with this subject is to be found at http://www.blogged.com/about/denali-pipeline/