Alaskanomics

Resource Extraction 10-Year Project Projection

The Anchorage Economic Development Corporation released its annual Resource Extraction 10-Year Project Projection report on October 16. The report is sponsored by Northrim Bank and the research is supported by Petroleum News and North of 60 Mining News. The projection is in its 10th year after originating in 2004 from a request to the Kenai Peninsula Borough Mayor’s Oil and Gas office from the University of Alaska sponsored Workforce Development Conference. Its goal is to give perspective on what the future might hold for resource extraction projects in Alaska. The original projection spurred a more detailed projection that could be updated annually. This year’s projections focus on the State’s ongoing effort to bring North Slope natural gas to market, as well as other projects in various stages of planning and execution.

2014 has been a big year for Alaska’s resource extraction industry. The enactment of SB21 and the voters electing to keep the tax structure in place has resulted in more clarity of future conditions in the industry. There is optimism throughout the industry that the climate is good for development and production projects. Cook Inlet has already seen an increase in production. Since fiscal year 2010, production in Cook Inlet has nearly doubled going from 8,900 barrels a day to over 16,000 barrels per day in 2014.

The report predicts that the North Slope could see similar results in the coming years. With the stability for the future of the oil and gas industry, there is new hope that the decline in the production curve will flatten out. There are many proposed projects that are now moving forward towards new production on the North Slope.

It’s not all rosy for the oil and gas industry. There are still major issues for projects in the Outer Continental Shelf. With the current federal conditions, it is not likely that increased production will be seen in the near future.

The mining industry has had good progress with the momentum behind the Bokan Mountain and Donlin Gold mines. Both of these projects bring new investment and opportunity to mining in Alaska. There are still significant concerns for the progress of the Pebble Project. There is great uncertainty for the future of this major project.

The industry as a whole is driven by the effort to bring North Slope natural gas to market. The potential for an Alaska gas pipeline is a huge project and will bring significant investment and jobs to the state, both inside and out of the oil and gas industry. There have been substantial investments in this project, which bring hope that the pipeline may be a reality in the next 10 years.

The report shows that there is a potential for roughly 20,000 jobs at peak construction and $68 billion of private sector investments in 14 extraction projects that are proposed for Alaska in the next decade. The Resource Extraction 10-Year Projection outlines projects that are producing units, active drilling and exploration sites, projects in early stages and mining resources. The full report can be read at: http://aedcweb.com/images/10_15_2014_Resource_Extraction_Report-FINAL.pdf

Alaska’s Construction Spending to be up 18 percent in 2014

The Associated General Contractors (AGC) of Alaska together with supporter, Northrim Bank released the 2014 Alaska Construction Spending Forecast. The report highlights the upcoming year for both private and publicly funded projects in construction throughout Alaska. Construction spending is expected to be $9.2 billion, up 18 percent from 2013.

The oil and gas sector is expected to account for nearly half of the total with $4.3 billion. This is over $1 billion higher than the total for oil and gas last year. Private spending, excluding oil and gas will be about $2 billion, which is slightly higher than the 2013, which was $1.9 billion. Public spending will also increase from 2013. It is expected to be $2.9 billion, up from $2.7 billion last year.

There are four major factors for the robust projection for 2014. The largest reason is due expanded investment plans by the oil and gas industry. Other factors include a larger Department of Defense budget, a reallocation of unspent funds federal highway funds, and strong spending by the state government.

The oil and gas industry is expected to see a 33 percent increase over 2013. It is suspected that this is due to the climate of optimism with the passage of the new oil tax structure for 2014. Not only will new construction be a factor in the coming year, aging infrastructure will be will addressed on both the North Slope and in Cook Inlet.

Mining is expected to see a drop in 2014 due to the fact that the price of gold is dropping. More than half of the expected spending in the mining industry will be on maintenance, continued exploration, and new facilities at the operating mines in Alaska. The six large mines currently in operation are Red Dog, Fort Knox, Pogo, Kensington, and Greens Creek all mineral mines and Usibelli, is the state’s only coal mine. There are also smaller projects that will have construction activity throughout the state.

Utilities are expected to see a jump in 2014 with two new large plants being built for MEA (Matanuska Electric Association) and ML&P (Anchorage’s Municipal Light and Power). There will also be hydroelectric projects and renewable resource projects, like wind and biomass. There will also be an increase in telecommunications in 2014. Spending will be a mix of new firms (Verizon) coming into the market and GCI and Alaska Communications expanding and upgrading current facilities. Utility spending is a combination of private and public spending.

On the public side of the forecast, much of the increase for public spending will be seen by defense spending. There will be a huge increase in military spending for facilities on bases and formerly used defense sites. Fort Wainwright has seven new projects including a new warm-storage hangar, which will cost $36 million. Fort Greeley will also see a large increase in projects, including a $1 billion expansion to the missile defense system, which will last over the next seven years.

Other areas of public spending will see slight decreases that are offset by the increase in defense spending. Overall, there will be a modest 6 percent increase in public spending, in comparison to the 24 percent increase in private spending.

The construction trade is Alaska’s third largest industry, paying the second highest wages. Accounting for 20 percent of Alaska’s total economy, the construction industry reflects the pulse of the economy. These numbers do not include construction workers that are in other industries, such as oil and gas, mining, and utilities. It also doesn’t account for self-employed construction workers. In 2011, it was estimated that there were 9,000 self-employed construction workers in Alaska.

The economy has continued to grow in Alaska. This means more jobs and a growth in the population. This growth has been a catalyst for the residential and commercial construction sector. The oil and gas sector is an obvious driver for this growth, but the other areas discussed above are also helping add to the positive forecast for 2014.

The 2014 Construction Spending Forecast was compiled and written by Scott Goldsmith, Mary Killorin and Linda Leask of the University of Alaska’s Institute of Social and Economic Research (ISER). Visit Alaskanomics’ Resource Section for the full report.

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/

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."

The Pebble Project: Economics and Employment

A recent economic impact study conducted by IHS Global Insight cites the potential for 15,000 Alaska and US jobs during operations of the Pebble Project. This is to include nearly 5,000 jobs in Alaska alone during the construction phase, which is slated to take 5 years. The study, commissioned by the Pebble Limited Partnership, outlines the potential economic benefit for the state of Alaska and includes national economic benefits as well.

To view a Pebble deposit economic infographic, visit http://www.visualcapitalist.com/the-pebble-project-economics-and-employment.

The full version of the IHS Global Insight's report The Economic and Employment Constributions of a Conceptual Pebble Mine to the Alaska and United States Economies can be accessed at http://corporate.pebblepartnership.com/files/documents/study.pdf.

"Energy Comeback" for Alaska Begins Now

Governor Parnell Signs Historic Bills, Celebrates Future Economic Growth

On Tuesday of this week Governor Sean Parnell signed the oil tax reform Senate Bill 21, the More Alaska Production Act, into law.  This historic legislative package could very well move Alaska forward and spur new investment and production.  Parnell signed the bill surrounded by legislators and young Alaskans whom he declared "this bill is for you."

Commenting on all the achievements his administration and the legislator accomplished this year, Parnell stated “It’s been an historic year for our state, it’s been a phenomenal year, a comeback year.”

Although critics say that it’s a giveaway to the oil companies, we must look at the facts of what drives business investment in the state to create jobs – the basis of a strong economy.  It is unclear how much the new tax structure will cost the state, but Parnell noted his proposed five-year fiscal plan to control State Government spending.   That is key when you consider Alaska’s general fund operating budget increased 154% from 2006 to 2012, and the general fund capital budget rose 339%.  As oil prices and tax rates rose, spending increased. 

Parnell also signed several other bills, including HB4, authorizing the creation of the Alaska Gasline Development Corporation.  Its intention is to establish an in-state gas line project underway.  HB129 was also signed, which will help to streamline the permitting process, along with SB27 to allow Alaska to take responsibility for dredge-and-fill permits from the U.S. Army Corps of Engineers. 

Cook Inlet Revival Continues with Significant Lease Sales

According to the State of Alaska Department of Natural Resources (DNR), the state received nearly $4.5 million in high bids for oil and gas leases in Cook Inlet and a bid for a geothermal lease on Augustine Island during a series of lease sales on May 8, 2013.

Since the state area wide lease sale program, started in 1999, this is the third largest of its kind and the sixth largest in acreage.  The Cook Inlet Basis is amongthe oldest oil and gas basins in Alaska, started in the 1950’s.  Production peaked in the early 1970s at 230,000 barrels per day (bpd) and is now at about 12,500 bpd. 

Among other bidders, Hilcorp Energy Company picked up 19 new leases, spending $2.6 million, nearly half of the high bids offered for 28 tracts sold. 

Just three years ago, Cook Inlet was considered a dry hydrocarbon basin, but Hilcorp and others believe there is more production to be had.  Hilcorp will be investing $300-$350 million this year to increase output at the fields. 

With legislative action to make Cook Inlet more competitive, a strategy at DNR to secure and attract new investors, and a partnership between all the stakeholders, there has been a dramatic increase in oil and gas investment in the area.  And, this investment activity is now becoming reality with increased drill rigs, oil exploration and gas production in the inlet.

According to the DNR, this success in new development could point to what is possible on the North Slope to turn around its production decline.  And with the signing of the
recent bills by Parnell, that turnaround is more likely than ever before. 

Gov. Sean Parnell signed the oil tax reform Senate Bill 21, the More Alaska Production Act, into law during a special meeting of the Anchorage Chamber of Commerce at the Dena'ina Center on Tuesday, May 21, 2012. Gov. Parnell also signed House Bill 4, legislation authorizing the Alaska Gasline Development Corporation to develop, finance and operate an in-state gas pipeline. Senate Bill 27 and House Bill 129, legislation to streamline the state's permitting process. Photo credit: J.J. Harrier, VP Communications Director, Anchorage Chamber of Commerce. 

Read more here: http://www.adn.com/2013/05/21/2910748/gov-parnell-signs-four-bills-into.html#storylink=cpy

Video: 2013 Alaska Construction Spending Forecast

Associated General Contractors Executive Director John MacKinnon and Economist Scott Goldsmith from UAA’s Institute of Social and Economic Research discuss expected Alaska construction spending in 2013 during the recent Associated General Contractors annual Alaska Construction Spending Forecast.

According to the forecast, construction spending in Alaska in 2013 is estimated to be about $8.4 billion, up 8 percent from spending in 2012. Increased spending in the oil and gas sector will account for most of this growth. Spending in this sector is expected to be up 13 percent, from $3.2 billion last year to $3.6 billion in 2013. Also adding to expected growth, a large state capital budget for fiscal year 2013 and $453 million in general obligation bonds that voters approved for transportation projects in the November 2012 election.

 

Click here to download the full construction spending forecast.
Research and printing underwritten by Northrim Bank.

Alaska DNR releases draft Yukon Tanana Area Plan covering 9 million acres; recommends additions to State Forest and other changes

Alaska's Department of Natural Resources (DNR) has released a draft Yukon Tanana Area Plan covering 9 million acres of land. The plan will direct how DNR will manage state lands within the planning area. The last land use plan covering this area was developed in 1985 and partially revised in 1991.

Since the original plan was developed, the amount of state land in the area has declined significantly - particularly in populated areas along the Parks, Elliot and Dalton Highways - as a result of state land being conveyed to local governments, native corporations, the Mental Health Trust, the University of Alaska, and to private parties through land sales and settlements.

Highlights of the plan include:

• Recommended additions to the 1.8 million acre Tanana Valley State Forest to be managed as a "working forest" for timber harvest, recreation, and fish & wildlife habitat.
• Nearly 620,000 acres designated for "settlement" - seasonal and year-round residences and a limited amount of land for private commercial and industrial use. Settlement land disposals would be phased over the 20-year life of the plan.
• Oil and gas resources are likely, and coal resource potential is high, in the plan area. All of the lands covered by the plan are available for oil, gas and mineral development (unless specifically closed by legislation) following separate leasing and permitting processes set out in state law.
• The plan area includes two million acres of land that the state has selected, but which has not yet been conveyed to the state by the federal government. Fort Wainwright and Clear Air Force Station are included in these lands; those military reservations would only become state land if the military vacated the land.
• Recommended designation of a portion of the Nenana River as a State Recreation River and of portions of the Toklat Springs area as a Critical Habitat Area.

Public meetings on the plan will be held in August; dates have yet to be scheduled.

Sixteen Alaska Resource Projects would Create Nearly 20,000 jobs; but AEDC "not optimistic" they will move forward

The Anchorage Economic Development Corporation's (AEDC) 2012 Resource Extraction 10-year Project Projection analyzes planned resource extraction projects in Alaska over the next ten years that have the potential to drive private investment and employment. Of the 16 projects, 11 are oil and gas projects and 5 are mining projects. The report also lists existing projects that support current investment and jobs as well as projects that are not as far along, but have potential for future development.

The report's executive summary lists a number of challenges facing resource projects in Alaska:

• Timely permitting reviews and awards
• Litigation
• Lack of key infrastructure such as roads, ports, communications and power
• Lack of social compacts with communities affected by proposed projects
• Taxation
• Commodity markets
• High costs
• Lack of agreement among Alaskans on a vision for Alaska’s economic future

The report notes "Alaskans have resource development opportunities that most other states, regions and even countries can only dream of..." but because of many challenges, success in developing the state's resources has been limited.