The Morning Headlamp — AKLNG costs and UA looks to the future

AKLNG needs to spend smart. The Alaska Journal of Commerce reemphasized AKLNG Senior Project Manager Steve Butt’s Meet Alaska 2016 speech, noting that “cost is everything.” More than half of the project’s mid-range estimated cost would be tied up in a $25 billion LNG plant and marine terminals near Nikiski. On the North Slope, a gas treatment plant and the 800-mile pipeline infrastructure would each need $15 billion. To date, the project partners have spent roughly $470 million, with $370 million of that coming since the pre front-end engineering and design stage, known as pre-FEED, began in June 2014, Butt said. He noted the considerable spending ramp-up should the project continue to move forward into the front-end engineering and design (FEED) and ultimately construction stage. Butt further noted the importance of driving costs down in a challenging market. “In concept, the project spent $30 million a year; that was our cost. In pre-FEED, we’re spending $30 million a month. In FEED, we will spend $30 million a week and in execution we will spend $30 million a day,” Butt said. “The biggest challenge for us is going to be on craft labor,” Butt said. The project is estimating it will need upwards of 8,500 construction workers during the peak work period of 2021 and 2022. The complexity and scale of the Alaska LNG Project are virtually unmatched worldwide, thus creating a very unique environment. Therefore, “marrying” Alaska-specific engineering and construction expertise with global LNG project experience will be critically important, Butt pointed out. The project has contracted with over 100 geotechnical firms over the past year (many of which are members of the Alaska Support Industry Alliance) and it should have a formal contracting strategy in place by the latter half of 2016 as work continues to ramp up, Butt added.

Cost is everything! Keeping prices down through partner alignment and smarter, industry-focused policies will be essential as the AKLNG megaproject moves forward. Solidifying long term, and most importantly competitive, fiscal agreements concerning project tax regimes will also be critical for its success. This session, Headlamp hopes lawmakers are successful in crafting a long-term fiscal, and tax, package for AKLNG that is amicable to both our industry partners and the State.  

Members of Alaska State Legislature including Rep. Dan Saddler, Sen. Anna McKinnon and Rep. Lora Reinbold fielded a number of questions facing the pending fiscal crisis yesterday. There was little territorialism expressed regarding Gov. Bill Walker’s proposal use Permanent Fund earnings in a way that could limit the Permanent Fund Dividend to $1,000 or less. Most constituents of the Eagle River delegation proposed ways state government could increase its revenue. Ideas included selling off state-owned properties that were of economic value rather than only lands located in wilderness areas, increasing fees for fishing and hunting, and crafting a state income tax that would tax both residents and non-residents. Reinbold again asserted that she is opposed to a state income tax until state government is “the right size.” MacKinnon and Saddler indicated they are open to the discussion of instituting a state income tax if necessary. Saddler reiterated his previous position that he wants the financial changes the state faces to impact all Alaskans equally. “I want to have an honest dialogue about all of the issues that are in front us,” MacKinnon said.

Headlamp commends Rep. Reinbold for her support of substantially shrinking state government, before considering reinstating an income tax. It is Headlamp’s hope that all members of the legislature focus on downsizing state government. If major Alaskan industries are downsizing, seeking cuts, and focusing on core functions so must state government. It’s the responsible thing to do.

During tough economic times like these, when people are losing their jobs and families are struggling to get by, we need to be careful not to institute a punitive income tax. Taking more resources out of the private sector during an economic downturn is a short sighted plan that would inhibit job creation. Furthermore, even if Gov. Walker’s entire tax hike package was approved by the legislature, it would bring in no more than $500 million. Our budget deficit would still be $3 billion. We must continue to find efficiencies in government.

Considerable problems and serious negative effects would result from imposing an income tax on Alaskans. As the non-partisan Tax Foundation noted in a 2012 survey on the effects taxes have on economic growth, “Taxes on income and wages reduce the incentive to work. Progressive income taxes, where higher income is taxed at higher rates, reduce the returns to education, since high incomes are associated with high levels of education, and so reduce the incentive to build human capital. Progressive taxation also reduces investment, risk taking, and entrepreneurial activity since a disproportionately large share of these activities is done by high income earners”. If policy makers want to lift people out of poverty, see greater job growth, and new businesses start in Alaska they must focus on a creating a stable business climate and fostering the private sector. The last thing they should consider is reinstating an income tax.

Back to school. University of Alaska president Jim Johnsen penned a piece in the Juneau Empire mirroring the “State of the University” he delivered earlier this week to the faculty and student body. Johnsen address made sure to take into account Alaska’s economic climate and UA’s role in coming years, “The university — like our state — faces very serious organizational and budget challenges that we must confront head on; our vision and the tough choices we make for moving the university forward must be clear and focus on meeting the state’s short- and long-term needs…Many more changes will follow soon as we strengthen those programs that: address our state’s future needs; grow a trained workforce; develop our economy and provide a viable future for our well-educated and involved graduates.” Headlamp is thrilled to hear UA is taking the economic climate seriously and practically preparing graduates to participate in AK’s economy! As one of Alaska’s largest budget drivers, Headlamp hopes the UA system continues to find efficiencies and cost reductions while focusing on delivering high quality, low cost college educations to our state’s future leaders.


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First Reads

Focus on reducing costs, risks for Alaska LNG Project
Alaska Journal of Commerce, Elwood Brehmer, January 13, 2016

My Turn: The challenges ahead will make the University of Alaska stronger
Juneau Empire, Jim Johnson, January 14, 2016

Obama’s energy remark baffles Alaska senators
Alaska Public Radio News, Liz Ruskin, January 13, 2016

Four-way face-off will say who wins and loses in tax and dividend fight
Alaska Dispatch News, Charles Wohlford, January 13, 2016

Local legislators take input from community on budget cuts, taxes
Chugiak-Eagle River Star, Amy Armstrong, January 13, 2016