Alaskanomics

Resource Development Council Day 2 and the Alaska LNG Project

The second day of the RDC conference provided a more in-depth look at a number of Alaska resource projects. Discussions included the global LNG market and how it relates to Alaska, the Pebble Project, coexistence between Alyeska Pipeline Service Company and the city of Valdez, and the More Alaska Production Act. Richard Guerrant, Vice President LNG with ExxonMobil Gas and Power Marketing Company started the morning with an overview of the current LNG industry. The differences between oil and LNG are numerous. The handling and marketing of LNG is much more complex than oil and transportation is four times as expensive. The market for LNG is much more regional than the global supply and demand for oil. Demand for gas will increase by 5% per year through 2040, with the majority of that demand coming from the Asian Pacific markets. New projects will be needed to fulfill the increased demand and only the most economically viable projects will be able to proceed through to production. While there are challenges to an Alaskan LNG project, there are also advantages that could make the project viable. Alaska’s proximity to the Asian markets makes it very attractive. The high quality of known resources in Alaska is also another benefit. The experience and strength of developers also helps the project. Alaska knows how to operate in harsh, arctic conditions and ExxonMobil believes that Alaska’s advantages make it a prime spot for a large LNG boom.

Steve Butt with the Alaska LNG project outlined the accomplishments of the local project. In February 2013, the Alaska LNG Project finalized the integrated design concept. That summer, necessary field studies were conducted for environmental impact assessments. The benefits of the project are abundant and BP, ConocoPhillips, ExxonMobil and TransCanada believe that they can all work together to bring Alaska’s single largest investment to fruition. The major challenges for a project of this size include the need for labor, resources and equipment that can handle the extreme environment of remote Alaska, as well as, minimizing the environmental and socioeconomic impacts. The good news is that each part of the project has been done here in Alaska. Producers know where the gas is and how to extract it for use. Even with the challenges, Alaska is a good option for LNG. Project organizers will continue field studies and environmental baseline assessments. They will also continue engineering and design work for the integrated project and prepare for state and federal permit and license applications. The project moves forward in hopes of making Alaska a viable solution to increased demand for LNG throughout the world.

The 2013 Resource Development Council Annual Conference was another great event where attendees learned that even with the challenges in the resource development field, the possibilities for Alaskan development are numerous and education is key help continue work in the fields of oil and gas, fisheries, forestry, mining and tourism. Responsible, sustainable development is being done every day in our state and our economy relies on furthered development.

For a full list of the presentations at the RDC conference or to watch a particular session, please visit http://www.akrdc.org/membership/events/conference/2013/presentations/

Resource Development Council Conference Day 1

The Resource Development Council recently hosted its 34^th Annual Alaska Resources conference. Attendees were treated to two full days of speakers and the chance to network with friends and colleagues. Neal Fried, Economist with the Department of Labor, started off the morning with a review of the past few years before speaking to the trends that he expects to see in 2014. Five years after the recession, Alaska is third in the nation for job gains; behind only North Dakota and Texas. Since late 2008, Alaska’s unemployment rate has been below the national average. Fried continued by outlining highs and lows in each of the industry areas. Employment in Alaska’s timber industry has been at a low level since 2009 and is looking for growth.  Going the other direction, mining has more than doubled since 2002. Fishing has seen nice growth in both processing and harvesting. Even with the decline in oil production, there has been steady growth in jobs since 2004. In the past decade, Alaska has seen a 12% increase in all employment.

The morning session continued with an industry update from oil and gas, fisheries, forestry, mining and tourism. Each presenter gave an outlook on what had happened in 2013 and what was on tap for the coming year. Kara Moriarty with the Alaska Oil and Gas Association noted that Cook Inlet was making a comeback and had grown by 38% from 2012 to 2013. The next step is to bring offshore production online and to realize the full potential of offshore drilling for Alaska and the nation’s economy. Moriarty concluded her portion by outlining the issue facing voters in the August 2014 primary election. The oil tax referendum is a threat to Alaska’s economy. She asked attendees to stand united against the referendum and not only vote ‘No’ on 1, but educate others as to the harmful nature of returning Alaska to a failed tax system.

Greg Baker, CEO of Westward Fishing Company gave his update on the fishing industry in Alaska. The management of fisheries in Alaska is a world recognized model of sustainability. 60% of America’s commercial seafood is harvested off Alaska. The fishing industry has been strong in the recent past and will continue because of the work done to sustain the resource, while still being profitable.

Shelly Wright, Executive Director of the Southeast Conference, shed light on the forestry industry. While timber has not been strong in the recent years, the total harvest hasn’t dropped from year to year. A challenge to the timber industry is that the federal government owns nearly 95% of the forest land, 80% of that is the Tongass National Forest.

Karen Matthias, Executive Director of the Council of Alaska Producers, discussed the status of mining in Alaska. While the controversy with the Pebble Project gets much of the attention regarding mining in Alaska, Matthias highlighted the 6 producing mines throughout the state. Red Dog, Fort Knox, Usibelli, Pogo, Kensington and Greens Creek are all currently in production stages and contribute to the 4,800 direct mining jobs in Alaska. There are 8 projects that are currently in advanced exploration stages and look to increase mining employment if they are able to move forward. There are many challenges to the mining industry including the uncertain investment climate, the overreach of the federal government in permitting and public perception. Each of these areas makes it difficult for producers to move forward with mines that are still in exploration phases.

Ralph Samuels of Holland America Line rounded out the group with an update on the tourism industry. He stated that 2013 was a good year for tourism and 2014 was looking to be another good year. Tourism not only brings visitors to the state, but it also promotes local products in hopes that travelers will share their experiences and products with family and friends. An exciting project that is in the works is the South Denali Visitor Center. This project is located at mile 135 of the Parks Highway and will be another stopping point for visitors and residents to enjoy interior Alaska. Phase 1 of the project should be completed by fall 2014 and will include construction of an access road, six miles of interpretive trails, and a campground. Phase 2 will include a push to Curry Ridge and will build a visitor center.

Each industry representative shared recent successes and challenges and were hopeful for the coming year. Throughout the conference, speakers encouraged attendees to take an active role in resource development outreach. As the ranking members of the committee, Senator Lisa Murkowski (R-AK) and Senator Ron Wyden (D-OR) discussed the work being done in the Senate Energy and Natural Resources committee. Both shared a mutual admiration for the bipartisan work being done to strengthen the nation’s resource industry and promised that the work would continue.

For the full presentations from each of the first day’s speakers, please visit http://www.akrdc.org/membership/events/conference/2013/presentations/

Energy Challenges and Interior Alaska

In terms of energy, the challenges facing Interior Alaska are numerous. Many companies and individuals are working to identify these complex issues and try to determine feasible solutions for Fairbanks and beyond. The solutions to these problems won’t come easy, but they are necessary for Alaska’s 2^nd largest city. Fairbanks sees extreme cold during the winter and that cold comes with an extreme price tag for homeowners. Monthly expenses for heating can be upwards of $1200 during the coldest months of the year. Electric bills are also higher in the winter because power generation is mostly oil-fired.

One group that is working to find a solution to the problem is the Alaska Industrial Development and Export Authority (AIDEA). This summer, AIDEA’s board of directors approved $7 million for the purchase of long lead-time equipment for a North Slope natural gas liquefaction plant to serve and LNG trucking operation to Fairbanks. The state legislature approved state financing of $275 million for this project during the 2013 legislative session. Governor Parnell would like to see the “Interior Energy Project” ready by the end of 2015. AIDEA has received proposals from three organizations looking to work on the LNG plan; Golden Valley Electric Association (GVEA) and two private firms, Fairbanks Natural Gas LLC and Spectrum LNG. Each organization could potentially partner with AIDEA to assist in brining affordable heating solutions to interior Alaska.

A plant in full operation would allow about 50 trucks of LNG to be brought to Fairbanks on a daily basis. Some have expressed concern regarding the increased traffic along the Dalton Highway. However, it is estimated that because of the seasonal nature of energy demand, the plant would operate at 60% or less for part of the year. The summer months would have much less traffic than the high demand winter months.

AIDEA states that the assumed 9 billion cubic feet per year of gas converted to LNG will be used for space heating and not for power generation by Golden Valley Electric or by Flint Hills Resources. Given that GVEA has submitted a proposal to work with AIDEA, it is likely  that they will also become a customer of the project. The plant at Prudhoe Bay can be expanded to accommodate the additional demand for LNG. 

AIDEA conducted a feasibility study of trucking LNG to Fairbanks to help ease the cost of heating. The study shows that the use of LNG could reduce the average homeowner’s heating cost by half of what they are currently paying for heating oil. This would result in an average annual savings of $2,500-$3,000 per household.

Another factor that is driving this project is the need for cleaner fuel in Fairbanks. The use of wood heat is high in Fairbanks due to the high prices of heating oil, but the smoke from wood burning stoves creates a lot of air pollution. The ability to use LNG would help reduce the air pollution in Fairbanks by reducing residents’ dependence on wood heat and burning heating oil.

There is concern about relying on trucking LNG to Fairbanks because the Dalton Highway is often difficult to traverse in the winter months. The Alaska Energy Authority has explored many emergency supply options for this problem. This includes having storage capacity in Fairbanks to hold a 10 to 14 day supply of LNG in case of road closures, as well as making an arrangement with ConocoPhillips to supply LNG from its plant on the Kenai Peninsula.

Many believe that LNG is the way to address the challenges facing the interior, specifically Fairbanks. The state legislature, AIDEA, Fairbanks utilities, and private industry believe that they can help with the cost of energy, provide a cleaner fuel option, and provide a reliable heating source for Fairbanks. The solutions aren’t easy, but groups are willing to work to find a solution that is viable for Interior Alaska to address the issues brought on by the energy crisis that Fairbanks is currently facing.

Municipality of Anchorage Receives AAA Rating from Standard & Poor’s

Mayor Dan Sullivan announced today that the Municipality’s general obligation rating has been upgraded to AAA by the rating agency Standard & Poor’s (S&P). This marks the second time in a year that the Municipality’s rating has been raised. Last year, the rating went from AA to AA+, a boost that only a few cities received. In a press release from the Mayor’s office, Sullivan states, “The AAA rating will save taxpayers money in the form of reduced interest expense on the bonds that the Municipality issues going forward, including the school bonds we anticipate selling this month. This action by S&P continues to demonstrate that investors have the highest level of confidence in the Municipality of Anchorage.”

The AAA rating in Anchorage is a first for an Alaskan city. Fairbanks currently holds a double-A rating from S&P. Of the 4,000 local governments rated by S&P, only 338 hold the AAA rating, putting Anchorage in the top 10 percent of local governments.

Chief Financial Officer Lucinda Mahoney says that the new rating will save the Municipality up to $7.8 million over the next 10 years if the city issues the same amount of bonds in the coming years as it did this year. The Municipality is scheduled to issue $43 million in school bonds on Wednesday. The increased rating means the Municipality will pay less interest on those bonds.

The current review of the Municipality shows continued improvement in the fund balance policy and further diversification of the Municipality as an economic center for Alaska. The report also cited very strong management conditions with strong policies, very strong budgetary flexibility, adequate budgetary performance with a stable revenue base, very strong broad and diverse economy, very strong liquidity providing very strong cash levels to cover both debt service and expenditures, and adequate debt and contingent liabilities position. In the press release, the Mayor expressed his gratitude to the employees of the Municipality who have established and maintained a fiscally conservative environment. The upgrade is a testament to the strength of the Anchorage economy, especially coming out of the recession of 2008, where many local governments were downgraded.