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Northern Gas Pipelines, (Alaska Gas Pipeline, Denali - The Alaska Gas Pipeline, Mackenzie Valley Gas Pipeline, Alaska Highway Gas Pipeline, Northern Route Gas Pipeline, Arctic Gas, LNG, GTL) is your public service, objective, unbiased 1-stop-shop for Arctic gas pipeline projects and people, informal and rich with new information, updated 30 times weekly and best Northern Oil & Gas Industry Links on the Internet.  Find AAGPC, AAGSC, ANGTL, ANNGTC,  ANGDA, ANS, APG, APWG, ANGTA, ANGTS, AGPPT, ANWR, ARC, CARC, CAGPL, CAGSL, FPC, FERC, GTL, IAEE, LNG, NEB, NPA, TAGS, TAPS, NARUC, IOGCC, CONSUMER ENERGY ALLIANCE, AOGA,AOGCC, RCA and more...

2009 LINKS: FERC Reports to Congress, 1, 2, 3, 4, 5, 6, 7....; USGS Arctic Gas Estimates; MMS hearings: RDC, Our NGP, AJOC, DH, ADN, KTUU; Enstar Bullet Line: Map and News Links; ANGDA; Alaska Energy Forum; Prosperity Alaska

2008 LINKS: Shell Alaska OCS Study; Mackenzie Gas Project EIS; Join the Alaska Gas Pipeline Blog Discussion; Governor Sarah Palin's AGIA Links; 2007 ACES tax bill links; Department of Revenue 2007 ACES tax documents;  2007 ACES tax Presentations; 2007 ACES tax news; Alaska Gas Pipeline Training and Jobs; Gas Pipeline and Economic Development; Andrew Halcro; Bjørn Lomborg; FERC's Natural Gas Website Links

WASHINGTON: Alaska Natural Gas Pipeline Act; History of H.R. 4; DOE Energy Bill Position, 6-02; Daschle-Bingaman Energy Bill (Alaska, Sec. 1236 & tax credit, Sec. 2503 & H.R. 4 Conferees), Tax Credit; See amendments, "Energy Policy Act of 2002";  "Alaska Natural Gas Pipeline Act of 2001 (Draft)" & Background Paper, 8-9-01;Alaska Legislature Joint Committee position; Governor's position; Governor's 10-Point Plan; Anadarko Analysis; U.S. Senate Energy Committee Testimony, 10-2-01 - text version;  U.S. Senate Energy Committee Testimony, 9-14-00; Report on the Alaska Natural Gas Transportation Act of 1971, prepared by staff of the Federal Energy Regulatory Commission, 1-18-01

ALASKA: 1-23-03, Governor Frank Murkowski's State of the State Speech; 2002 DRAFT Recommendations to 2003 Legislature; '02 Alaska Legislation; Alaska Highway Natural Gas Pipeline Policy Council; Joint Legislative Gas Pipeline Committee; 9-01 Alaska Models: Canadian Routes, LNG, GTL; HR 4 Story; Cook Inlet Supply-Demand Report: AEDC; Commonwealth North Investigation & Our Article; Report: Backbone; Legislature Contacts; State Gas Pipeline Financing Study; 5-02 Alaska Producer Update; Kenai: "Oil & Gas Industry Issues and Activities Report, 11-02"; Alaska Oil & Gas Tax Structure; 2-27-02 Royalty Sale Background; Alaska Gas Pipeline Office opens, 7-01, and closes, 5-02; Betty Galbraith's 1997-1998 Chronology Our copy.

CANADA: 1-10-03, "Arctic Gas Pipeline Construction Impacts On Northern Transp."-Transport Canada-PROLOG Canada Inc.-The Van Horne Institute;Hill Times Reports, 8-30-02; 9-30-02, Cons. Info. Requirements; CBC Archives, Berger Commission; GNWT Economic Impact Study, 5-13-02; GNWT-Purvin & Gertz Study, 5-8-02; Alberta-Alaska MOU 6-02; Draft Pan- Northern Protocol for Oil and Gas Development; Yukon Government Economic Effects: 4-02 & PPT; Gas Pipeline Cooperation Plan Draft & Mackenzie Valley Environmental Impact Review Board Mackenzie Valley Pipeline MOU Draft, 6-01; FirstEnergy Analysis: 10-19-01; Integrated Delta Studies; National Post on Mackenzie Pipeline, 1-02;Northern Pipeline Act;  Haida Nation v. British Columbia; Indian Claims Commission; Skeena Cellulose decision -- aboriginal consultations required, 12-02; Misc. Pipeline Studies '02

COMPANIES: Alaska Gas Producers Pipeline Team Newsletter, 7-27-01; APG Newsletter: 5-02, 7-02 & 9-02; ArctiGas NEB PIP Filing Background; NRGPC Newsletter: Fall-02;  4-02 ArctiGas Reduces Field Work; BP's Natural Gas Page; Enbridge Perspective; Foothills Perspective; Williams Perspective; YPC Perspective, 7-02

 MEDIA REFERENCE: Alaska Journal of Commerce; Alaska Inc. Magazine; Anchorage Daily News; Canadian Broadcasting Corporation; Fairbanks Daily News Miner, Juneau Empire; Northern News Services; Oil & Gas Reporter; Petroleum News Alaska; Whitehorse Star, etc.

EXTENDED CONFERENCE NEWS: Alaska Support Industry Alliance, Anchorage Chamber of Commerce Canadian Institute, Insight Information, Inuvik Petroleum Shows, International Association of Energy Economists, Resource Development Council for Alaska, Ziff Energy Group

 

LEST WE FORGET!

 

 

 

 

 

   

 

 

Northern Gas Pipelines: Extended News/Photos, United States Association for Energy Economics (USAEE)*-Alaska Chapter, Economists, Economic & Revenue References...2001 Archives

(*Formerly, International Association for Energy Economics)

Go to left column 'Up' button for 2002 News

1-8: See yesterday's report below (1-7) of significant developments in Canada.     *     Anchorage Chamber-Yesterday, Alaska Senate President Rick Halford and House Speaker Brian Porter told a crowded audience at the 4th Avenue theatre that while much has been done to repair Alaska's budget woes, more must be done.   Porter began by recounting the Legislature's recent accomplishments, including educational, welfare and tort reform, and engaging the State in a process of 'results based budgeting'.  Before introducing Halford, the Speaker took a poll of audience interest in contributing to the deficit with increased taxes on citizens and companies.  There was broad support for such action.  Halford passed out a 'fiscal gap' chart (Obtain here) and said, "...we are hundreds and hundreds of millions in the hole.  The first thing to do when your in that big a hole is stop digging."  (Please go to our new Chamber page for the complete story.) 

1-7: JUNEAU -- Bill Hudson says the permanent fund dividend is in danger.  But the longtime Republican representative from Juneau says the danger is not the Fiscal Policy Caucus, the bipartisan group of legislators he co-chairs. Rather, the threat comes from the possibility of inaction on a long-range fiscal plan in the 2002 legislative session, he said.     *     Today, Alaska Senate President Rick Halford (Photo-right, 12-14) and House Speaker Brian Porter (Photo-left, 12-14) will address the Anchorage Chamber of Commerce on budget issues, which we will report to you later today or tomorrow.  See our earlier story here.   (Comment:  Northern Gas Pipelines has advised readers that a critical aspect of any Alaska gas pipeline is the State's approach to solving its fiscal crisis.  The reason for this counsel is the fiscal clarity any gas pipeline operator/investor will reasonably require when, as of this date, state leaders are facing a +/- $1 billion/year deficit.  Within 2 years there will be no savings accounts to support what has become a practice in recent years of budget balancing using depleting savings accounts.  Solving the crisis calls for exceptional political courage and statesmanship since new or expanded oil industry taxes would only repel long term investment, exacerbating future budget woes, while imposing taxes on citizens or reducing services will more immediately threaten leaders at election time.  It is a much larger problem for Alaska than the mere challenge of creating a gas pipeline, as traditional state taxes would only reap about 1/4 of projected deficits from a gas pipeline even if it were in operation within 2 years, which it cannot be.  Accordingly, budget policy must be set without regard to whether a gas pipeline is ultimately built.  Lastly, the citizens must assume the primary responsibility and a disciplined role now, after years of demanding services for which the oil & gas industry paid, in a wholly unwholesome atmosphere of 'entitlement'.  The disciplined will of a strong majority of voters, would clarify the path for their elected leaders.  The disciplined pathway embraces sacrifice but leads to to fiscal survival; the historical, undisciplined road can point only to fiscal calamity and further gas pipeline delay.  This story in the Peninsula Clarion sets the stage for Governor Tony Knowles' upcoming State of the State and budget speeches scheduled for delivery to the Legislature, and subsequent action.   This page provides more reference to the state budget challenge and related gas pipeline economic issues.  -dh)

1-1:  Alaska's fiscal crisis: Anchorage Daily News-Time shifted dramatically against Alaska's leaders this fall when updated state revenue estimates showed the drain on the Constitutional Budget Reserve will be more than $900 million in the coming year. That means the CBR likely will evaporate in 2004, a year sooner than previously predicted. It means the day of reckoning is sooner, economic development is deterred -- because investment in a state that just won't put its fiscal house in order is less and less likely all the time -- and honest political leadership is more crucial than ever. Election year or not, the problem can no longer be put off.

2001 Activity

12-21:  Anchorage Daily News, by Tony Hopfinger- An energy consulting firm believes that developing the North Slope's natural gas fields -- the largest untapped gas reservoirs in North America -- is not feasible for at least 13 years. North America is burping with smaller gas supplies that should keep the lights on throughout this decade, said Ed Kelly, North American gas researcher for the prestigious Cambridge Energy Research Associates.  ... The state was among several dozen clients that signed on for the Cambridge Energy study of world LNG markets this year, paying $27,500, said Larry Persily, state deputy commissioner of revenue. The study concludes a multibillion-dollar Alaska LNG project doesn't make financial sense.

12-20:  Petroleum News Alaska-Cambridge Energy Research Associates now believes that the window for Arctic gas has moved out some five years - to about 2015.     *     Anchorage-Members of the "Task Force on Jobs and the Economy since September 11", created by Gov. Tony Knowles as a way to examine impacts on all facets of the state's economy, presented their findings to the governor today.

12-19:  CBC, Yellowknife, N.W.T. - The Northwest Territories is a better place for mineral investment than it was a year ago.  That's the conclusion of the Fraser Institute, a conservative think-tank based in Vancouver.  The territory ranked fourth in Canada, and 11th in the world for its investment attractiveness according to the institute's annual ranking. ..."The policy assessment of the Northwest Territories improved," said Laura Jones, the institute's Director of Environment and Regulatory Studies.  "So in a number of specific factors like environmental regulations, regulatory duplication, and taxation, the score on policy improved." ... The Northwest Territories had a higher ranking than either Nunavut or the Yukon....

12-18: "NEW ARCTIC GAS STUDY--University of Houston Professors Ronald Oligney and James Longbottom announced completion of their study, "The Imperatives of Arctic Natural Gas Development" at the Canadian Institute's recent Arctic Gas Symposium.

12-15/16 (Weekend): FRIDAY- A FLURRY OF BUDGET POSTURING IN ALASKA WHICH COULD AFFECT GAS PIPELINE DECISIONS.  First, Governor Tony Knowles (Photo-right, 9-10-01) proposed an FY 2002 budget, that would be about $200 million higher than the FY 2001 budget, saying "This budget is responsible for today and for a strong future tomorrow,".   Then, the Senate and House leadership (i.e. represented by House Speaker Brian Porter {Photo-left, 12-14-01}, Senate President Rick Halford {Photo-left, below, 12-14-01} and Senate Finance Committee Chairman Dave Donley {Photo-right, below-r, 12-14-01}) held a press conference rejecting such increases in face of current deficit spending.  In the conference (Photos-below), Halford said, "It is difficult to take that kind of proposal seriously when we have such a serious problem with our fiscal regime."  Porter said, "The Legislature will continue using missions and measures to invest state resources wisely in the programs we know deliver results to Alaskans. We will also be considering prudent limits to growth in state spending, and stand ready for debate and possible action on any other realistic proposals legislators may bring forward to meet the state's financial challenges."  Donley added that, "The real obligation here is to take a leadership role and develop consensus."  Northern Gas Pipelines participated in the press conference.  "The Alaska gas producers have said that for any pipeline project to move forward, they need fiscal clarity.  Facing similar fiscal challenges, Alberta's Premier Ralph Klein is in the process of cutting another $300 million from his budget after an earlier cut of over $1 billion.  Do you wish to send the Alaska producers a message that the fiscal gap will be solved by achieving efficiency in government or by increasing their taxes?", we asked.  Halford responded that the fiscal gap has grown incrementally and will be reduced incrementally"; that "a $200 million increase is not the way to begin developing a long range fiscal plan".  Donley said the Senate last year passed two pieces of legislation that could serve as the 'bedrock" of future fiscal policy (See our earlier, related story).  He said the Legislature and Governor need to give citizens confidence that efficiency and reforms will be undertaken before new revenue sources are tapped.  In his statement, Knowles said, "I'll be addressing the equally important revenue side of the picture in detail in my State of the Budget address in the opening days of the legislative session." (See Anchorage Daily News story.)

12-13-01: Budget and Tax Concerns up North

ANCHORAGE--The economic recession and associated, lower energy prices are taking a financial toll on Citizens in both northern Canada and Alaska, as elsewhere.  Yesterday, the Alaska Senate Finance Committee Chairman, Dave Donley, and former Alliance president, Bill Stamps offered two significant presentations on this sensitive subject.  Northern Gas Pipelines pays attention to such fiscal matters since, in addition to regulatory policy, tax and budget matters weigh heavily on the minds of potential northern investors, including those considering gas pipelines. (CALGARY, CBC  - Premier Ralph Klein says more cuts might be needed if revenues stay low.  "If the revenue stream is, as of budget time in 2002, as it is today, then we will have to find about $300-million in additional expenditure cuts." In October, the Alberta government sliced $1.3-billion from this year's budget.    *     DAWSON CITY, Whitehorse StarJack Layton, the president of the Federation of Canadian Municipalities, has a message for the communities of the nation: they’re being short-changed by the senior levels of government when it comes to financing.  “I’m really just trying to underline for our municipal colleagues that our financial situation compared to the federal and provincial governments is untenable. It’s not sustainable and it has to change.”     *     Yellowknife, NNS - City day-care facilities will have to wait until February to see if there will be any new money for them in the territorial budget.  ...Minister Jake Ootes, who is responsible for day cares, said he wants to give more money to subsidize low-income people who need to use the service.)                 *****See our commentary*****

“… our twin economic anchors in Alaska of oil and government appear unsustainable in the long-term." Bill Stamps, 12-13-01

Stamps (Photo, 12-13-01) complimented Governor Tony Knowles' policy that, ”Alaska is open for business”, saying it has produced new lease sale programs partly accounting for “… interest from new, large producers and several independents” like Anadarko, and an aggressive capital and spending program announced recently by Phillips Alaska Petroleum Company.  He also mentioned exciting new activity in the Cook Inlet area.  “Unocal has gone from trying to sell their property twice in recent years,” he said, “to doubling their exploration activities for oil and gas and they are experiencing very good success.  Phillips is drilling around Anchor Point, Marathon recently brought Wolf Lake on line in the Kenai National Wildlife Refuge, Forest Oil is spending millions of dollars and has put the first new platform in Cook Inlet in over a decade, Agrium bought the chemical plant in Nikiski, and BP built a pilot GTL plant in Nikiski.  Unocal and Marathon announced the formation of the Kenai Katchemak Pipeline LLC along with Enstar and Homer Electric to provide natural gas services to the southern end of the Kenai Peninsula and new supplies for South-central Alaska.”

Then, he cautioned that, “… our twin economic anchors in Alaska of oil and government appear unsustainable in the long-term.  And in the near-term, fallout from September 11th – and the national recession – has cast a cloud over our entire economy.”

Referring to a subject we have covered here in some detail, he said, “Our state budget is now over $900 MM in the red.  We are facing another budget short fall of almost a billion dollars – similar to where we were a couple of years ago before oil prices shot up and bailed us out again.  (Governor Steve Cowper applied this fiscal reality to gas line planning in our 12-12-01 report.)

This short fall means we will have to draw down our Constitutional Budget Reserve to less than $2 billion by the end of the fiscal year and with a projected draw of $1.3 billion in 2003, Alaska will empty our budget reserve account in less than three years.  In other words Alaska will no longer have the bailout stash that has been used for years.” 

Stamps was properly concerned about what elected officials with backs pressed against a wall will do.  “What would new taxes such as a modified economic limit factor (ELF) program do to future development of fields such as Liberty, NPR-A, Meltwater, Palm, West Sak, Schrader Bluff, Borealis and others?” he asked.  “Probably cancel some and restrict the development of others.  A modification to ELF would devastate the Cook Inlet oil industry.” 

Then he suggested that, “…a moratorium on taxes is in order while the legislature focuses on the big picture and can decide on a clear path to a solid fiscal plan.”  He and other support industry leaders are planning to communicate this concern to the Legislature, set to reconvene in Juneau this coming January.  Please see Stamps' full presentation here.

"The numbers are staggering."  Senator Dave Donley, 12-13-01.  

Donley (Photo, 12-13-01) spoke partly to update the Alliance membership on budget challenges, partly to answer some of the concerns raised at an October Alliance meeting by North Slope Borough Mayor George N. Ahmaogak, Sr.  He first pointed out that as serious as the situation is now, the Legislature has reduced per capita general fund spending to $3,800, or $921 less than in FY 1979.  He displayed a chart of the Constitutional Budget Reserve Fund demonstrating that without Legislative restraint, the savings would have evaporated by last year.  At current spending rates and with current oil price projections, the fund will be exhausted before 2003.  At that time, the state could have a $1+ billion annual deficit with no savings in place.  He said the current Senate majority long-range financial plan is to: "Maintain budget discipline; Continue to utilize outcome based budgeting to increase government efficiency; Fix the Constitution by passing SJR 23 and SJR 24; and, Adopt fiscal gap reducing legislation."  The first would correct constitutionally limited spending loopholes which realistically provide no spending limitations at all.  The second would, according to Donley, "Restore the original intent of the 1990 Constitutional Budget Reserve Amendment," by withholding the ability of a small group to hold the majority hostage at budget approval time in return for pork barrel pay-offs.  He then briefed members on the intent of SB 186, the legislation opposed by Ahmaogak.  He said it would limit per capita municipal bonding to $15,000 (65 times higher than the statewide average); limit the local share of oil and gas property tax to 10 mills for any municipality exceeding this limit.  The limit would be phased in over a 10 year period; allow a municipality to refinance existing debt in excess of this limit; and allow a municipality to generate new debt in excess of this limit at an annual rate of $1,000 per capita.  This change would generate about $100 million in new revenue to the state.  From the Borough's perspective, of course, it would have an opposite effect.  (We will provide actual text here, when it becomes available.)  

Comment: "Such is the nature of political struggle as governments become highly dependent on resource revenue or government grants, when resource prices fall and/or when rates of production and/or national revenues diminish.  In such situations, political leaders should beware of becoming too tax-dependent on a few resource industries or other governments.  Industries should, in turn, be cautious about--and must discount-- investment into an economy that could become too dependent on them.  With the stroke of a tax pen, project economics can change overnight, and even retroactively, after investment dollars have been locked and frozen into a permafrost trench."  -dh  

12-12-01:  HOUSTON--Below we report on a speech delivered last week (12-6-01) here to the Interactive Energy Conference by Alaska's former governor, Steve CowperAs governor, Cowper managed Alaska's recovery following the economic recession of the mid-80s, from 1986 to 1990, presiding as well over the State's Exxon Valdez oil spill response. He led the first post-Cold War delegation to the Russian Far East in 1988, and played a major part in opening that region to US trade activity. He was Lead Governor for Energy for the National Governors Association and Chairman of the Interstate Oil & Gas Compact Commission (IOGCC, which completed its annual meeting in Santa Fe this week under leadership of Alaska's current governor, Tony Knowles).  After his governorship, Cowper served as President of the Northern Forum, an international organization of 24 northern regional governments from 10 nations. Since 1992 he has been managing partner of Steve Cowper & Associates, located first in Anchorage, Alaska, and as of this year in Austin, specializing in corporate political strategy. Recently he also joined the law firm of Hance Scarborough Wright, headed by former Congressman and Texas Railroad Commissioner Kent Hance, with offices in Austin, Dallas, Washington DC, and (as of February 2002) Anchorage.  As readers will note, Cowper brings many of his political skills to the table in taking on one of the most difficult of assignments: analyzing the political direction and likely outcome of northern gas pipeline projects.  -dh

After reviewing North Slope oil & gas history, Cowper focused on Alaska's fiscal regime.  "For twenty years," he said, "almost all the State of Alaska's revenues have come from the oil patch. There is currently a sequestered surplus which will last another two or three years, but when that's gone, unless there is another fat hog to kill, the State will have to start shutting down the public sector, even in the unlikely event of a reimposition of the State's income tax."  He said that basic government services like schools and public safety are jeopardized, "...unless another fat revenue stream comes along."  (Reference: 'economics' reports, here.)

After briefing participants on Alaska "boom and bust" cycles of the 70s and 80', he turned to gas pipeline options, describing the four major concepts: the northern route, the southern route, an LNG export project, and movement of gas energy in the form of GTL through the Trans-Alaska Pipeline System (i.e. at last count, there were no less than four Alaska groups studying or promoting LNG options and one political advocate group). 

"Now there are a lot of engineers in this room," he said, "and a lot of IT specialists.  All of you are accustomed to dealing with math and with logic, which is pretty much the same thing as math. You also probably believe in a free market system. If somebody should ask you to pick the best of these four options - with "none of the above" as an additional possibility - you would turn yourselves right away to making a cost-benefit analysis of each option, and judging from the rumored content of state and industry reports nobody else is allowed to read, here is probably what you would find."

He then critiqued the alternatives:

  • "The LNG option is too expensive....
  • The pipeline down the Alaska Highway - known as the "Foothills route" from a 1977 Act of  Congress approving the route for Alaska gas transportation in those days of heavily regulated natural gas markets - is quite a bit longer than the "over-the-top" route,  and it bypasses substantial Canadian gas reserves....

  • The "over-the top" route is shorter and less expensive; moreover, it picks up the Canadian reserves, reducing transportation costs from both sources....

  • The gas-to-liquids option would extend the life of the existing oil pipeline.  ...  The market for GTL, which would be used for cleaner diesel fuel and other uses, is not settled as of this date.  Marketing of the cleaner but more expensive diesel fuel may require governmental clean-air mandates.

  • The 'none-of-the above' option preserves the other options for another day. In the meantime all that gas down in the reservoir may be creating a problem for oil production at this stage of development...."

Cowper said that though most observers a year ago expected the free market to determine the outcome, "Today, you know it ain't so."  He then described the political players.  "The state of Alaska", he said, "wants ... high-wage construction jobs.  The pipeline construction worker is to Alaska what the cowboy is to Texas.  Even though a less expensive line would deliver more revenue over the years because of a lower tariff, that doesn't hold a candle to the lure of another pipeline boom.  Anybody who expresses a different view is advised not to enter a bar in Fairbanks after 8:00 PM."

"The Canadian government", he said, "is the one that will decide where the pipeline right-of-way will go in its own country."  Then he posed what he characterized as a logic question: "... if you were in charge of Canada, would you approve of a line that bypassed all the Canadian gas and brought huge quantities of Alaska gas through your country into the US, displacing existing Canadian exports, or would you be more likely to back a line that picked up your stranded gas, created wealth in your country, and sent your resources as well as Alaska's to the US?"

He then described the importance of the North Slope Borough, its related Native regional corporation and Canadian First Nations.

He suggested that the final routing decisions should be made at the top levels of each federal government.  "The place to start is at the top. The US and Canadian governments have to decide that this project is going to get done, and then they have to preempt other jurisdictions and make the rules.  The first rule will have to be that the most cost-effective route is the one chosen.

In conclusion, Cowper itemized a final political and business solution, "based on what I read, the 'over-the-top' route is the clear winner from a cost standpoint. Canada likes it because it picks up their reserves. A deal has to be cut as to what proportion of US and Canadian gas goes into the US market on what time schedule. Probably some Canadian government financial guarantees will be in order. The Canadian First Nations land claims will have to be settled.  Labor deals will have to be cut, including the participation of Alaskan workers on the Canadian portion of the line. They wouldn't displace Canadians;  there's not enough of a Canadian workforce to handle a project of this size."

He said that if the respective national governments did not take control of the process, the more likely outcome would be eventual development of an Alaska North Slope GTL project.

(We have provided for your further review and convenience the full text of Governor Cowper's speechHere is information for editors who wish to reprint this or other original work herein.)

12-10-01:  ANCHORAGE--Yesterday, Alaska State labor economist, Neal Fried (Photo) told Anchorage Chamber of Commerce members that the state has now secured a 14 year trend of economic and employment growth.  "2001 has been a good year qualitatively and quantitatively," he said with the state adding 4,700 jobs during the year and with payroll up 6%.  Fried offered a flood of numbers of probable interest to state budget makers and companies considering Alaska investments.  During the 1995-2000 period, Alaska's rate of growth (1.6%) was lower than the rest of the country (24%).  More encouraging is Alaska's #3 position, out of 50 states, for household income, pegged at $52,876.  Explaining this phenomenon, Fried says, is probably that Alaska has a greater percentage of its citizens in the workforce.  Of more interest to gas pipeline policy makers and potential pipeline investors is the unemployment rate.  Politicians seem intent on trading certain gas pipeline revenue benefits for jobs, but Fried says, "We are enjoying some of the lowest unemployment rates since statehood, 5.9% in 2001.  If anyone out there," he said, arms outstretched to the audience, "has considered leaving your present employer and taking another job, this would be the time."  Fried said Alaska is #1 in per capita Federal expenditures, at $9,456.  In answer to questions about Alaska's fiscal crisis, Fried said that while economists in other departments provide budget forecasts he is aware that savings accounts supporting the operating budget are projected to be depleted in the next few years.  (Download his presentation. See related story on State Revenue Projections, below.)  -dh    

12-07-01: The Department of Revenue released its Fall 2001 Revenue Forecast at 9 a.m. today.  (See report below.)  Revenue Deputy Commissioner Larry Persily (Photo-right, 11-29-01) announced the forecast at a press conference in the third floor conference room at the Capitol.  Tax Division Director Dan Dickinson (Photo-left, 11-13-01) and Chief Petroleum Economist Chuck Logsdon (Photo-lower right, 9-27-01) participated in the press conference from the Department of Revenue conference room in Anchorage.  Please learn the value of searching this site by pasting each of the above three names here.  (Long-time Northern Gas Pipelines readers and those considering alternative northern investment decisions, know Alaska to be a deficit-spending state (i.e. financed with depleting savings accounts) over 80% dependent on oil, with prices down and production revenue declining.  Alaska faces serious fiscal challenges with which any gas pipeline project could help.  Caution: even were a gas pipeline operating by 2003-4, an impossibility, a $1 billion + deficit in that timeframe could be 200-300% higher than projected state gas pipeline revenue {i.e. taxes and royalties}, thus requiring other extreme cost cutting/revenue generating measures beginning this year.  The Alaska 2003 budget cycle begins as the Legislature convenes early in 2002.  Legislators know that while a gas pipeline will eventually help with their budget challenge, it is only one of many components.  See the full report here.   -dh.)

REPORT: ALASKA STATE REVENUE PROJECTIONS, 2001 LOWER OIL PRICES WIDEN FISCAL GAP

Return to average prices produces a billion-dollar deficit in Fiscal Year 2003. The Department of Revenue projects North Slope oil prices will hover close to their historical average of around $18 a barrel after two years of higher-than-average prices. The price shift will add to the state's fiscal gap, with expected draws on the state savings account of $906 million in Fiscal 2002 and $1.13 billion in Fiscal 2003, said Revenue Commissioner Wilson Condon (File Photo). "Despite higher production, the budget gap will grow regardless of what oil prices do," Condon said today as the department released its Fall 2001 Revenue Sources Book. "Our reliance on newer, more costly oil to replace the declining flow from our aging fields means less revenue for the state. Low oil prices only exacerbate the situation."

Based on the department's oil price and production forecasts, and assuming a spending level needed to maintain existing services, the Constitutional Budget Reserve Fund will hit empty in July 2004 - almost a full year sooner than forecast by the department last spring. The Budget Reserve Fund is at $2.8 billion this week, with an additional $100 million draw scheduled for next week.  "Until Alaskans can agree on a fiscal plan, which must include new revenues, we will continue to drain the Budget Reserve Fund," Condon said. "Higher, or lower, oil prices could move the end date into 2005 or 2003, but, realistically, we know we're getting dangerously close to the end of the line."

The department forecasts Alaska North Slope oil prices to average $20.55 for Fiscal Year 2002, which ends June 30. That's a drop of almost $2 a barrel from the Spring 2001 revenue forecast and almost $4 from the Fall 2000 forecast. "Although prices have been around the $17 range the past week, the year-to-date average is $22, and we believe the higher prices of the first six months we help keep the year-end average respectable," Condon said.  Prices are expected to continue their downward trend, however, averaging $18.81 a barrel in Fiscal 2003 and then picking up a bit to $19.72 a barrel in Fiscal 2004 if the world economy recovers.

Although the price forecast is down from previous estimates, North Slope production is expected to increase after falling to an average of 991,000 barrels a day in Fiscal 2001 - the first time the flow has dropped below 1 million barrels a day since full production started 24 years ago. The department forecasts Fiscal 2002 production to average 1.012 million barrels a day, building to 1.070 million barrels in Fiscal 2003 and 1.111 million barrels a day in Fiscal 2004. North Slope production is forecast to remain above 1.1 million barrels a day through Fiscal 2008.  "Alpine and Northstar are primarily responsible for the production growth," Condon said. "The producers are to be commended for bringing the new fields online. We certainly hope for more new production to help reverse the overall decline in older fields on the slope."

State officials pointed out in the news conference that while overall oil production is expected to continue a moderate increase, overall revenue continues to decline since the primary revenue generator is the declining Prudhoe Bay field.  Prudhoe Bay produces more government revenue per barrel than the newer, more costly fields.

11-27-01: Northern Gas Pipelines-“Alaska Energy Economists Discuss Cook Inlet Gas Supply and Relationship to North Slope Gas Decision.”  Yesterday the Anchorage chapter of the International Association for Energy Economists gathered to hear a joint presentation by three State Division of Oil and Gas officials representing the Department of Natural Resources.

Bill VanDyke, Petroleum Manager first spoke on overall Cook Inlet activity (Reference: AEDC study; and, earlier presentation). 

(Our Canadian and Lower 48 readers should know that discovery of the Swanson River Field on the Kenai Peninsula (bordered by Cook Inlet) in 1957, led the Territory to successfully advocate statehood with Congress and the Eisenhower Administration.  At that time, there were no gas industry,  transmission lines or distribution systems.   At statehood, in 1959, companies were organizing a successful LNG Japanese export project using the abundance of gas.  At one time, Southcentral Alaska, including the largest city of Anchorage, had a 50-year supply of gas with prices below a quarter an MCF in the early days.  Times have changed.  The biggest city became a modern metropolitan center of business, transportation, education and industry and in 2001 gas reserves are in jeopardy.)

VanDyke (Photo, 11-27-01) described a large number of existing reserves and said that on shore and off shore there is much new exploration activity planned for this year and next year, including coal bed methane exploration advanced by a new Alaska player, Evergreen Resources.  “There are no big surprises this year,” he said.  “Production meets demand.”  With the exception of Swanson River recovery efforts, he said, “the big gas fields continue to supply about 90% of production.  He said typical annual use and current production is 217Bcf.  With about 2.1Tcf of reserves, a 10 year supply remains.  Though lower 48 reserves usually average in the 7 year range, the 10 year horizon for Southcentral Alaska is of particular concern, not just because citizens can experience several weeks of sub-zero weather.  Decisions need to be made soon on Kenai Peninsula industrial use of gas and he provided a chart of “Gas Hypothetically Available for Local Utility Use”.  Phillips Petroleum Company’s LNG operation uses a little more than a third of production, while Agrium’s fertilizer plant processes a little less than a third.  The balance is used by utilities for power and heat generation, by other industrial and field applications.  The state is faced with a dilemma of perhaps having to terminate one or both of the major industrial operations to safeguard utility use if exploration is not successful.  But VanDyke said, “I believe there will be reserve additions in the next few years”.

Tim Ryherd, Geologist, summarized a rather active “Cook Inlet Exploration Summary” (Photo, 11-27-01).  He then elaborated on the “sufficient new and planned exploration” on public and private lands.  In an interesting chart on the “Timeline of Cook Inlet Exploration”, he demonstrated that a relatively low level of drilling in the past has led to little discovery.  “Exploration for gas has been very limited,” he said.  “Even when explorationists found gas, they were looking for oil”.  Of 267 total oil and gas exploration wells drilled in Cook Inlet through 2000, he said, only 24 were gas exploration wells.  “Much of the Cook Inlet basin area,” he said, “is underexplored, especially with such new technology as 3-D seismic exploration.”

Will Nebesky, an economist and commercial analyst, was also speaking before the last meeting over which he was presiding as president.  He briefed the audience on gas consumption by category (industrial, utility, power generation, and field operations) and the royalty value to the state and how it is calculated.  Royalty value is determined by the higher-of clauses in the lease and by settlement agreements that attempt to capture fair market value.  Historic commercial arrangements for many Cook Inlet gas dispositions index gas prices to oil markets.  There appears to be a new effort to build in a Henry Hub spot market component in determining value.  He displayed forward-looking charts showing a dramatic supply drop, including scenarios involving the addition of 1Tcf of new supply, no new supply, and curtailments of industrial use.  He concluded by demonstrating the relatively small magnitude of Cook Inlet gas supply compared with Alaska North Slope gas.

  • Alaska North Slope (ANS) gas production (with reinjection and no significant sales) is 8Bcf/d.
  • An Arctic gas project could envision initially selling 4Bcf/d.
  • The State’s ANS royalty share would be about the same as total current Cook Inlet production, .4-.6Bcf/d.
  • A potential demand in Fairbanks for ANS gas could be projected at about .04Bcf/d.

(Obtain this updated PowerPoint presentation here.)

10-26-01: When questioned about gas pipeline costs and economics this week, economist David Reaume (Photo) told Northern Gas Pipelines, "The decision to spend $15 to $20 billion on a gas pipeline from Prudhoe Bay depends first on ...."  (See our IAEE story and associated presentation on project economics, here. -dh)

10-25-01: IAEE Meeting photos below.  See original news report here

University of Alaska-Anchorage Economics Professor, Scott Goldsmith, with the Institute of Social and Economic Research.

Dr. Brad Tuck, after the meeting.

 

 

David MacDowell of BP (Left), External Affairs Manager of the Alaska Gas Producers Pipeline Team, assisted Bill McMahon (Right) with the presentation.  Bill is Commercial Manager for the Team.

9-28-01: ANCHORAGE, by Northern Gas Pipelines-Addressing the International Association for Energy Economists yesterday, state Department of Revenue Tax Division Economist, Dr. Charles Logsdon  (Photo) reviewed OPEC volume quotas, pricing policies and results of this week’s OPEC meeting on Alaska revenues.

See original news report here.

8-25/26-01 (Weekend):   ANCHORAGE DAILY NEWS--Columnist/economist David Reaume says, "There really is such a thing as a window of opportunity. If the state of Alaska chooses to hold out for an Alaska pipeline alternative, Alaskans may be left with nothing. The Department of Natural Resources is letting a contract to a private consulting firm to study the alternatives once again. If the answers come out the way they have in the past, Alaska's leaders will have no responsible option other than supporting the Mackenzie Delta route. That is why these leaders need to keep their powder dry."      

4-19-01: Pacific Rim Leadership Development President, Ken Thompson (also, former Arco Alaska, Inc. President),willken.png presented "Requirements For a Natural Gas Industry in Alaska", and principles for a gas trading industry in Alaska....  (Photo: Thompson with IAEE President, William Nebesky, 4/1) 

marychuck.png

(Photo-right: Alliance leaders, Chuck Becker and Mary Shields attend IAEE Presentation, 4/19) 

See original news report here.

 

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