Alaskanomics

Getting Alaska Back on the Global Energy Map

The Alaska World Affairs Council and Northrim Bank hosted another luncheon as part of the Oil & Gas Series. Today’s speaker was Trond-Erik Johansen, President of ConocoPhillips Alaska and he addressed Getting Alaska Back on the Global Energy Map. He began his presentation with a brief outline of the ConocoPhillips global stake in the oil and gas industry. ConocoPhillips is the largest, independent Exploration and Production company in the world and has reach in more than 30 countries. They have a very large, global asset base and Johansen affirmed the importance of Alaska in ConocoPhillips’ portfolio. He continued with a few items regarding ConocoPhillips’ assets and business strategy.

Much of the rest of the presentation focused on the ways that ConocoPhillips is increasing production and exploration in Alaska, due to the change in the tax structure with the passage of SB21. Johansen said that the new tax structure allowed for a better investing environment. Alaska faces a number of challenges in the oil and gas industry because it is far from the market, there is an extreme, harsh climate, very stringent environmental regulations, as well as mature fields that are costly to maintain. Johansen acknowledged that opponents to SB21 believe that the new tax structure is a give-away to the oil companies. He noted that even though it is lower than the previous structure, it is still a very high tax. Even though the tax is much more competitive than it was under the ACES structure, it is higher than both North Dakota and Texas by about 10 percent.

Since May 2013, when the new tax structure was signed into law, ConocoPhillips has begun work on an additional rig at Kuparuk, which is already producing approximately 1,300 barrels of oil per day (BOPD) and has created 700 indirect jobs. There are also plans for a new drill at Kuparuk which is estimated to produce 8,000 BOPD and create 200-300 direct jobs. The first oil from this site would be produced in 2015. Finally, ConocoPhillips is planning a new NPR-A development, which is in the permitting process. This project would create 400 jobs during the construction phase alone and has the potential for over 30,000 BOPD, with first oil being produced in 2017. SB21 has made Alaska more competitive within the industry and we are already seeing the benefit of the new tax structure.

ConocoPhillips is also working to progress the Southcentral LNG project with BP, ExxonMobil and TransCanada. This project is slated at $45-55 billion and there are already over 300 people working to develop the project concept. Field work was initiated this summer and the project will continue to be a focal point for many throughout Alaska. There are significant benefits to the project including a long-term gas supply, jobs and State revenue.

Johansen wrapped up his presentation with a summary of how Alaska is poised to jump back onto the global energy map. He stated that Alaska has the opportunity to set the stage for a bright economic future. New projects will reinvigorate the North Slope and provide new opportunities for Alaskans. ConocoPhillips is planning new developments and has already shown success with their additional rig at Kuparuk. Since May 2013, there has been more investment, more jobs and the future is looking up for Alaska.

Unemployment Rate at 6.5 percent in August

The State of Alaska Department of Labor and Workforce Development release its latest unemployment numbers on Friday. While Alaska is still well under that national rate of 7.3 percent, the seasonally adjusted rate in August was 6.5 percent, which was up two-tenths of a percent from July.

The Department of Labor notes that Alaska’s rate declined significantly in the first half of 2013, but has been slowly creeping back to early 2013 levels. The increase in August is not large enough to suggest a change in the 2013 overall trend.

Bristol Bay and Skagway continue to have the lowest unemployment rates in the State at 1.9 percent and 2.5 percent, respectively. The rates were up slightly from July, which is typically the peak of fishing and tourism in those areas.

For detailed employment estimates, see http://live.laborstats.alaska.gov/ces/

Anglo American Leaves Proposed Pebble Mine Project

It was announced on Monday, that Anglo American would be pulling out of the proposed Pebble Mine project after 6 years of work, leaving Northern Dynasty Minerals to assume sole responsibility for the project. Anglo American, a British mining company, owned 50 percent of the share in the Pebble Project. Northern Dynasty believes that there could be as much as $300 billion in resources in the proposed mining area.

The Pebble Mine project is still in an exploration phase, and critics believe that the mine presents a risk to the salmon fishery and watershed in Bristol Bay. Residents of the region are split between the potential job creation in the area and the watershed issues that are raised by the potential mine.

Northern Dynasty Minerals, a Canadian company, has been working on the Pebble Project for the past 12 years. A note from Northern Dynasty's CEO Ron Thiessen stated:

"Northern Dynasty will again own 100 percent of one of the world's most important copper & gold resources and will have the benefit of $541 million worth of expenditures, which opens the door to a number of exciting possibilities for Northern Dynasty and its shareholders and the Pebble Project and its stakeholders. Northern Dynasty and the Pebble Partnership have both the expertise and resources necessary to advance the Pebble Project."

Alaska’s crude oil and lease condensate reserves lagging behind the rest of the U.S.

The U.S. Energy Information Administration (EIA), recently shared an in-depth analysis of crude oil reserves from 2011 and the report shows a large increase in production in Texas and North Dakota, while Alaska only accounted for 4 percent of the net increase.  

In 2011, almost 3.8 billion barrels of crude oil and lease condensate proved reserves were added in the United States by oil and gas exploration and production companies. A recently published report cites an increase of 15 percent, the greatest volume since the U.S. EIA began publishing reserves estimates in 1977.  The previous record was the year prior in 2010 with 2.9 billion barrels.  For proved reserves of crude oil and lease condensate in 2011, Alaska showed modest growth compared to the other four largest crude oil and lease condensate areas (Texas, the Gulf of Mexico federal offshore, California, and North Dakota) which showed more significant increases, most specifically in Texas and North Dakota. 

Texas had the largest increase, about 1.8 billion barrels (46% of the net increase), making it a large margin over the other areas.  This resulted mostly from ongoing development in the western and central portions of the state.  North Dakota reported the second largest increase, with 771 million barrels (20 percent of the net increase), driven by development activity in the Williston Basin.  North Dakota and Texas accounted for two thirds of the net increase in total U.S. proved oil reserves in 2011.  Alaska accounted for just about four percent of the 2011 net increase with approximately 154 million barrels.

Alaska’s reserves have been steadily declining since 1981 and are now below the Federal Offshore reserves, which have steadily increased since the mid 1990s, even with a slight dip in the mid 2000s and then significant increases since 2009.  Alaska has seen this steady decline since 1987, with an increase in 2007, but a significant dip down in 2008, only to see an increase start up again (although more modest) in 2009. 

On the production side, operators throughout the nation reported oil production of 2.1 billion barrels in 2011.  This increase of four percent compared to 2010 represents a third year in a row of annual production increase in the US.  It’s also the first year since 2004 that oil production exceeded 2 billion barrels, according to the report. The reserves have increased production in the US, but Alaska has not benefited from the increased activity.

To read the full report, click here. 

US Leadership in an Emerging Arctic

The Alaska World Affairs Council hosts regular discussions regarding topics that are important to Alaska. Today, the topic was US Leadership in an Emerging Arctic. The guest speaker was Ambassador David Balton, the Deputy Assistant Secretary of Oceans and Fisheries. The Ambassador was introduced by Lt. Governor Mead Treadwell. The Lt. Governor noted that Ambassador Balton is someone who works to bring people together, treats everyone with respect, and is a strong advocate for Arctic issues.

Ambassador Balton began his presentation stating that a new Arctic is emerging and the Arctic Council members are asking what role they will play in this new environment. The Arctic Council is a high-level intergovernmental forum that addresses issues faced by Arctic governments and the indigenous people of the Arctic. The member states are Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden, and the United States. Member states are closely monitoring the changes to the Arctic, including the thawing of permafrost, melting sea ice and the changes to the way of life of people living above the Arctic Circle.

The changes also include new opportunities for the region. Untapped oil and gas resources are located within the Arctic boundaries. There have also been new developments in shipping routes that pass through Arctic waters. The member states are working to meet these new challenges and many are looking inward to see what their nation believes is important when it comes to the Arctic. Ambassador Balton believes that it is important for the US to look to Alaska for experience and knowledge with these challenges. Alaskans can educate the rest of the nation on issues surrounding Arctic resources and the region.

A problem that the Ambassador discussed was that the US has not adopted the Law of the Sea Convention. This United Nations convention defines the rights and responsibilities of nations in their use of the world’s oceans, establishing guidelines for businesses, the environment, and the management of marine natural resources. The reason this is problematic for the US in relations to the Arctic is it provides challenges for claiming rights to minerals and non-living material on the sea floor, beyond the continental shelf. Many groups agree that adopting the convention would be beneficial for the US, but the Senate has yet to agree to ratify the treaty. Opponents believe that the treaty could lead to an extended taxing authority and that free market principles are not being met, even with the most recent version of the treaty.

There are many issues facing the Arctic region and there are also many groups working together to create sustainable solutions to the challenges. Ambassador Balton believes that the US can play a major role and the current National Strategy for the Arctic Region is a great start to the dialogue that is needed to move forward in the changing environment. According to the Obama administration, the US seeks an Arctic region that is stable and free of conflict, where nations act responsibly in a spirit of trust and cooperation, and where economic opportunities are pursued in a sustainable and responsible manner.