Alaskanomics

Resource Development Council’s Annual Meeting- Alaska’s Contributions to Energy Security

At the Resource Development Council’s (RDC) Annual Meeting and Luncheon, Janet Weiss and David Holt both painted encouraging pictures for the future of energy development in Alaska. This was Weiss’s first RDC Annual Meeting as President of BP Alaska. She took over the position earlier this year when John Minge was tapped to lead BP America. Weiss is the first woman to lead BP Alaska, as well as the first long time Alaskan resident to take the helm. She described the industry’s excitement around the passing of Senate Bill 21, which made Alaska more competitive for energy investment, relating it as a pivotal moment in Alaska’s history. BP Alaska has committed $1 billion to increased development that includes 2 new rigs that are slated to be drilling dozens of new wells on the North Slope starting in 2015,  as well as exploration on the west side of Prudhoe Bay with an additional $3 billion. BP is also re-evaluating their previously marginal fields that could now be economically viable to produce under the new tax structure. Wrapping up, Weiss impressed on the audience that SB21 was about paying it forward and making Alaska globally competitive in the energy market.

David Holt continued the presentation asking if the road to US energy security still ran through Alaska. Holt is the President of the national Consumer Energy Alliance (CEA) and thanked the many members of the Alaska CEA who were in attendance. He then outlined a number of ways that Alaska was still an important force in US energy security. The oil flowing through the Trans-Alaska Pipeline System (TAPS) runs the West Coast’s energy market. Two examples included providing energy for the major agriculture markets and commodities that feed millions across the country and around the world. TAPS also supports the diesel fuel for backup generators that power the data centers in Silicon Valley.

Moving the discussion to LNG, Holt noted that Alaska’s supply of natural gas could heat every single US home for 35 years. He also explained that if Alaska was able to develop its liquid supply the US need for foreign imports could be reduced by 15%. This includes trillions of cubic feet of known reserves in places like Prudhoe Bay, ANWR, NPR-A and the Chukchi Sea. The ability to displace foreign imports allows for local community reinvestment, more local jobs and a stable US tax base. This means increased money for schools and local infrastructure that will increase the vitality of communities throughout the US.

Holt wrapped up his presentation by explaining how the CEA was helping to gather support for Alaska development and production from the lower 48. The CEA is helping educate voters about important energy issues and show that decreasing foreign import demand helps lessen our reliance on unstable sources of imports. Holt thanked Governor Parnell, who was in attendance, for his leadership as the Chairman of the Outer Continental Shelf Governor’s Coalition, sharing that the coalition was helping states work together to build US energy security. Holt circled back to state that “Yes! The road to US energy security absolutely runs through Alaska.”

For more information about energy issues, visit RDC’s website at www.akrdc.org and the Consumer Energy Alliance at www.consumerenergyalliance.org

Alaska’s unemployment rate remains unchanged in May and is lower than the national average

The Department of Labor and Workforce Development released its monthly unemployment numbers on Friday and Alaska’s seasonally adjusted unemployment rate remains unchanged from April's number at 5.9%. This is well below the national average of 7.6% during May.

Summer economic activity began to pick up during May due to seasonal increases in the tourism industry.  Unemployment rates fell in 21 of 29 boroughs and census areas. The biggest declines were in Skagway and the Denali Borough, where tourism is strong during the summer months. The rates fell by 11.7 and 9.7 percentage points respectively. Skagway’s rate was 2.7%, which is the lowest in the state.

The largest rate increases were seen in the Aleutians East Borough and the Aleutians West Census Area. May is sandwiched between winter and late-summer western fisheries, and typically a slow month for the Aleutian chain.

The unemployment rate in the Anchorage/Mat-Su Region was 5.1%, which was .2% lower than April and .9% lower than May 2012.

Tax change brings new development to Alaska

Much has been written around the oil tax reform Senate Bill 21 (SB21) that Governor Parnell signed into law on May 21, 2013. The change to the tax rate has helped Alaska be more competitive with other oil producing states and regions. This has already been seen with the announcements from multiple companies who have promised increased development in Alaska.

In an Alaska Economic Report supplement, author Tim Bradner gives a thumbnail of what SB21 does for the State of Alaska and the oil industry. “The statute basically lowers the tax rate and adds a number of specific incentives for new oil that the current law lacks. ‘Total government take’ (the measure considered by legislators) would fall from an average of 74% per-barrel profit under ACES (Alaska’s Clear and Equitable Share) to between 60% and 66% depending on oil prices, under SB21.” Bradner continues by saying, “Alaska’s current oil production tax, ACES, has a tax rate that is among the highest in the world at current oil prices. Unfortunately for Alaska, the prospects for new discoveries on lands under state tax jurisdiction are modest. The limited outlook for larger discoveries, combined with the high cost of developing new oil and the high tax rate, create an economic environment that is not healthy. The result is that industry investment in new oil in Alaska is flat or declining, in contrast to other oil-producing US states and regions of the world where new investment is rising. Because the industry is not investing enough here in developing new oil (because of the adverse economics) our production is declining.” 

SB21 brings a new, competitive tax structure to the industry and progress has already been seen with announcements from multiple companies with stakes in Alaska’s oil industry. In a press release dated May 21, Governor Parnell states that “Our state is on track for an Alaska oil comeback. Alaskans are already seeing the positive effects of a more competitive tax regime with encouraging announcements from several companies.” ConocoPhillips is planning on sending an additional rig to the Kuparuk field and is in the beginning stages of the regulatory and permitting stage for engineering in the National Petroleum Reserve. BP has announced that it plans to reinvest $1 billion in its North Slope fields as well as explore new development projects on the west side of Prudhoe Bay with an additional $3 billion. Both companies credit the new tax change as the reason for their development plans. Other companies are developing new plans for investment, with more announcements to come in the near future.