Alaskanomics

Interior Department to Revise Royalty Terms for Oil Production on Federal Lands

The U.S. Department of Interior issued a press release today announcing a proposal to revise the way royalty rates are calculated for oil and natural gas produced offshore and on federal lands. The proposal bases rates on geography and market prices, rather than on a case-by-case basis as is the practice now. The advanced notice of rulemaking is scheduled to be published this week, with a 60 day comment period. Hayes told members of the committee that the proposal was designed to be revenue neutral. Check back with Alaskanomics for information about the proposal's impact on Alaska.

Denali Discontinues Gas Pipeline Project

After three years of work, a $165 million investment, and 760,000 manhours of work, Denali - The Alaska Gas Pipeline announced today that it will withdraw its Federal Energy Regulatory Commission pre-file application and, over the next few months, close out its operations. Denali President Bud Fackrell said they were unable to secure binding agreement with shippers necessary to move the project forward. Read the Denali statement here. The Office of the Federal Coordinator issued a statement commending Denali for their efforts. Larry Persily, the Federal Coordinator, expressed his hopes that BP, ConocoPhillips, ExxonMobil and TransCanada will join forces at a later date to advance the pipeline project.

 

ISER: Four Scenarios for Alaska's Future

Alaska's Institute of Social and Economic Research (ISER) has just released "Four Scenarios for Alaska's Future," a paper based on ISER's Investing for Alaska's Future research initiative. Author Scott Goldsmith describes four potential directions for Alaska's economy, given declining oil production, lower prospects for a natural gas pipeline, and challenges for petroleum development on federal lands and in federal waters.

We are the Chosen Ones or No Room at the Fishing Hole

This scenario relies on continuing good luck - high oil prices, the opening of ANWR to development, better royalty terms with the federal government, lower petroleum taxes leading to higher petroleum industry investment, and a gas pipeline to the Lower 48. These factors result in an "affluent Alaska economy" with some negative consequences, like traffic congestion and combat fishing.

The Big Crash or I Can Handle the Hangover because the Party was Awesome

In this "boom and bust" scenario, the good times continue for awhile, but the price of oil plummets and state government, which is 90% dependent on petroleum revenues - runs out of cash. State budgets are slashed, the Permanent Fund is tapped, personal income taxes return, and taxes on business increase. People flee the state for better economic opportunities elsewhere.

The Slow Squeeze or Up a Lazy River

This scenario envisions flat commodity prices as world supplies increase, reducing the calls for increased domestic production that might spur more development on federal lands. This scenario also assumes that Alaska is unable to craft a tax policy that stimulates investment, and instead Alaska's leaders adopt a "get it while you can" policy to maximize short-term revenue. The short-term surpluses are invested in dubious "economic development" projects that, like the projects before them, fail to live up to expectations. The economy shrinks and young people leave the state. Those who are left return to the pioneer Alaska lifestyle, living out their days enjoying the scenery.

Strategic Planning or Socialist Takeover

The fourth scenario envisions Alaskans actively managing the state's nonrenewable petroleum resources for the maximum benefit of Alaskans. Rather than let world oil markets, the federal government, or other outside interests determine Alaska's fate, the state's leaders look to the future and 1) maximize long-term revenues from petroleum production, 2) control growth in state spending, and 3) diversify revenue sources. Following this scenario would result in less petroleum revenue and state spending today in exchange for a more stable future with benefits for future generations of Alaskans.

While ISER points out that these scenarios are not predictions, the paper describes each scenario in detail, supported by examples from Alaska's history. Read the full paper here.