The Morning Headlamp — Developments from Cook Inlet

Gas Price Gouging in Alaska? AK Headlamp Reader Disagrees. Gasoline prices have plummeted across the U.S. but the monthly average has recently begun to drift upward in Alaska, prompting allegations from a lawmaker that the state’s only gasoline refiner is manipulating prices — first down, in response to political pressure, then up when the pressure abated. Such complaints are nothing new in a state that regularly has some of the nation’s highest prices at the pump despite its abundant oil production and the lowest gasoline taxes in the country. “They can charge whatever they want,” Democratic Sen. Bill Wielechowski said. Wielechowski initially asked for an investigation in a letter to the governor and attorney general on Sept. 9. He said gasoline prices should not be so high in Alaska in part because the North Slope crude price has plummeted; oil production has risen in Cook Inlet, providing less need to import crude; and a tax credit for refiners approved by the Legislature in 2014 is now available to help Tesoro Alaska with expenses. “An antitrust investigation of one firm is literally the sound of one hand clapping,” said one of AK Headlamps studious readers.

News from Cook Inlet. Though there is active development on oil fields in the northern Cook Inlet and one producer in the Cosmopolitan field near Anchor Point, there may be resources that are going unexplored in other parts of the inlet, particularly along the west side. A study conducted by geologists from the Alaska Division of Geological & Geophysical Surveys evaluated petroleum in the Jurassic layer, a stratum below the Cenozoic layer, where most Cook Inlet oil and gas is extracted. The study looked at oil seeps in Chinitna Bay on the west side of Cook Inlet and found that the oil is in older rocks than other areas of the inlet. Chinitna Bay, located at the south end of Lake Clark National Park, shows oil-stained fault zones along the Iniskin Peninsula on the southern shore of the bay. The oil is literally so visible and available that surveyors can collect oil samples from the surface, said David LePain, a petroleum geologist with the Division of Geological & Geophysical Surveys. “This is one of those locations where you have sands where if you hit them with a hammer, you smell hydrocarbons,” LePain said. This is great news for Alliance members! Headlamp is happy to hear that new fossil fuel resources are being discovered throughout the Cook Inlet basin. In fact, not only is the Cook Inlet basin being thoroughly explored but we are seeing great results! Since 2008, oil production has doubled in Cook Inlet The revival of Cook Inlet oil and gas exploration and production is directly attributable to the State’s smart tax policy changes made under the Cook Inlet Recovery Act of 2010. In the face of growing economic concerns, it is important to remember that exploratory ventures are always a good decision. Headlamp cautions policy makers from pulling the rug out from under the State’s oil & gas tax credit program given the benefits these policies have had to both the private sector (in terms of jobs) and the State (in terms of royalty payments).

Let’s not let AKLNG follow suit. Oil companies delayed making decisions on 68 major projects world-wide last year, accounting for some 27 billion barrels of oil and equivalent natural-gas volumes and bringing total 2015 deferred spending to $380 billion industry-wide, energy consultancy Wood Mackenzie said in a report Thursday. New oil and gas projects need an average oil price of $62 per barrel to break even over their lifetimes. But Brent and the separate U.S. benchmark price in recent days have been close to half that, giving little incentive to invest in new production. “With oil prices dipping to new lows at the start of 2016 and capital allocation tightening, the list will continue to grow,” says the report, which tallied moves by companies to delay “final investment decisions,” industry jargon for approving a project’s development. Thanks to SB 21, which has helped bring competitiveness back to our state’s oil & gas industry, Alaska has seen investment by companies like ConocoPhillips remain strong in the face of low oil prices. However, Alaska cannot afford to let AKLNG be the next project to fall victim to the industry equivalent of cold feet. Despite less than ideal market conditions, progress must continue on the megaproject—we just need smart policies and alignment. Headlamp continues to urge policy makers to stay the course on AKLNG, and do everything in their power to reduce the cost of completing this project. 

The other day, Alaska Dispatch News published a news story suggesting that Gov. Bill Walker’s planned dividend reduction, one big element in restructuring state finances, would top $15,000 for a family of four in the next three years. Instead of $26,200 that might be generated under the current formula, a family of four would collect $10,876 under the Walker plan. A few things about those numbers: They are based on economic projections that may not pan out. The figures will rise or fall based on political compromises. And most important of all — the real question facing Alaskans is whether they think the state budget has been reduced enough, to justify the capping of their dividends. Headlamp contends that the state budget remains far too large, and in coming weeks will unveil ways for policy makers to reduce the budget and deficit. Headlamp thinks it is neither the time to being talk of capping dividends given the immense resources we have in our savings accounts, combined with the billions of dollars sitting in the Permanent Fund earnings reserve account.  Alaska is facing an economic transition that could be wrenching, but thankfully the state has financial resources to weather the storm. Last year cutting the budget was far less painful than it will be in 2016, because most spending reductions came from the capital budget. This session, legislators and the governor must get serious about reducing Alaska’s operating budget, which has grown over 100 percent in the last decade. There are smart plans in existence, like Dr. Scott Goldsmith’s sustainable budget model, that do not place new taxes on Alaskan families. If Alaskans want to continue the mantra of being an independent and rugged people, state government must be downsized. Alaskans don’t need a bloated government to hold their hand during bumpy economic times. No government program will ever replace the value and dignity that a job brings to a person. We are a self reliant people, and simply need the State to keep good policies in place that allow the private sector to thrive, and attract new industries to Alaska. 

Challenging times ahead. With legislators and their staff packing their bags and heading to Juneau this weekend, Rep. Paul Seaton, R-Homer, and Sen. Gary Stevens, R-Kodiak, expect a challenging second regular session of the 29th Alaska Legislature. The session opens next Tuesday at the Alaska Capitol in Juneau. While Seaton and Stevens have filed bills on things like Medicaid reform and electronic cigarettes, both said the biggest issue is the budget. With the price of oil dropping through the floor, Alaska faces an almost $4 billion deficit between revenues and a budget similar to last year. “It’s going to be one of the toughest years I’ve faced in 16 years to figure out this budget,” Stevens said. Unfortunately, Headlamp would have to agree. With Alaska facing a formative 2016, this legislative session will be a tall order for our elected officials. However, no matter the difficulty, Alaska lawmakers must make the tough decisions we need them to.

Thousands of signatures of Alaskans seeking to link Permanent Fund dividend applications to voter registrations were turned in to the state Division of Elections Thursday, but it will be months before Alaskans will know when, or even if, that will result in a ballot measure. The PFD Voter Registration campaign wants to change state law to make voter registration automatic for eligible voters signing up for their dividends. The signatures turned in Thursday were 25 percent more than the number needed, the group said. Meaning that even if some prove to not be from registered voters there will likely be a sufficient margin to qualify for the ballot. Division of Elections Director Josie Bahnke said Thursday that her office had confirmed that an adequate number of signatures on petition booklets had been submitted for her office for the signature review process to begin. Headlamp has no position on this initiative, but believes it’s important for all Alaskans, especially the younger generation to get engaged in the political process.


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First Reads

Cook Inlet might have more oil
Peninsula Clarion, Elizabeth Earl, January 14, 2016

Oil Rout Forces Companies to Delay Decisions on $380 Billion in Projects
Wall Street Journal, Justin Scheck, January 14, 2016

Tough legislative session ahead
Homer News, Michael Armstrong, January 14, 2016

To preserve any kind of dividend, Alaska needs taxes, cuts, compromise
Alaska Dispatch News, Dermot Cole, January 14, 2016

Lawmaker seeks investigation into Alaska’s high gasoline prices
Alaska Dispatch News, Alex DeMarban, January 13, 2016