Tomorrow night Governor Walker delivers his State of the State address before the Alaska Legislature. The Governor will likely detail and echo fiscal plans the administration has previewed in recent months. With a deficit approaching $3.5 billion and forecasts of continued low oil prices, Alaska faces a number of challenging decisions to fix its fiscal plight. Already, it’s clear that leaders in the Legislature share the public and Headlamp’s concerns for the State’s economy and future. Deciding how to plug the hole will dominate news coverage in the state over coming months.
Looking back over the past year, and the few months since we launched Headlamp, we have a number of important questions for Alaska’s leaders in 2016. With a day to go before the State of the State, here are some key questions we’re hoping to get answered by Governor Walker, his team, and the rest of Alaska’s leaders:
- How will state leaders ensure we have a sound business climate for the support industry?
- Is the state’s checkbook going to be published in 2016?
- Will the State enact new taxes on job-creating industries in Alaska?
- Is it fair to raise taxes on Alaskans by $400 million while only cutting state government by $100 million, as proposed by Walker?
- Will Alaska address its structural budget challenges by seeking further spending reductions this year, or will the State seek to plug the hole by tapping the Permanent Fund and increasing taxes on businesses and individuals?
- Are state leaders committed to reaching the sustainable budget level, of $4 billion in UGF spending, as developed by Dr. Scott Goldsmith of ISER?
- How will the state keep small-to-medium sized independent oil and gas companies exploring and producing in Alaska during this period of low oil prices?
- What plans do state leaders have to increase Alaska’s dismal level of economic freedom?
- Will the State of Alaska commit to existing negotiations on the gas project or will it change it up like last year?
- Will there be yet another shake-up of the Alaska Gasline Development Corporation this year?
- Will Alaska threaten a gas reserves tax on the industry again in 2016?
- Will offtake points for in-state gas supply be selected this year?
- Are we committed to utilizing the full extent of our resources to advance AKLNG or is ASAP still a potential option?
A lot remains to be seen in 2016, but the year certainly hasn’t started strong for many Alaskans. Oil has plummeted and many are forecasting that the low price environment is here to stay for some time. The challenges of 2016 will be great for many Alaska businesses and for our state. Strong leadership and smart fiscal decisions are needed to keep Alaska on sound footing. Headlamp hopes that everyone in Juneau will keep this in mind.
The State of the State is Worrisome. Governor Bill Walker plans to deliver his State of the State speech tomorrow night. Facing a $3.5 billion deficit and with plans to tap the Permanent Fund for state revenues, Alaska’s state leaders have some difficult decisions to make in coming months. The Governor has previously outlined his budgetary plans, but key details remain unclear. Headlamp will be watching closely as the session begins. Later today we will release a list of questions for state leaders to consider in 2016. Stay tuned.
In a media preview of his State of the State speech and legislative session, the Governor said he wants to convey in the speech not only the challenges facing Alaska but also the available solutions. He wants to talk about his vision for Alaska, “the longer-term view, not just how we survive this coming year, (but) what Alaska can look like going forward with a sustainable future.” Governor Bill Walker said he plans to work more collaboratively with the Alaska Legislature this year, and his administration will take a direct role in rallying the three-fourths majority needed to pass his fiscal plan in the state House. He said in an interview Tuesday, “We’re not going to sit back and say, ‘You guys figure it out.’ We will certainly participate in that process.” Headlamp is encouraged to hear Gov. Walker say he wants to engage in a more collaborative process throughout the session.
But Wait…Is He Going It Alone? Gov. Bill Walker says he’s comfortable with statements made by Exxon Mobil Corp. that gas would be made available for a speculative gas pipeline project should the state move forward without the company’s involvement. We’re reading the tea leaves, and have a number of questions about what exactly Gov. Walker means. Is the Governor planning to move forward with a back-up, competing, state-run gas line project? Would that also be an export project? Can Alaska afford to fund a gas line project by itself, amid a fiscal crisis? And where would Alaska find the expertise to fill the gap left by a company, or companies, no longer being involved? We suspect Alaska will learn more in the coming days.
According to the International Energy Agency, global oil markets could soon “drown in oversupply,” sending prices even lower as demand growth slows and Iran revives exports with the end of sanctions. The IEA trimmed 2016 estimates for global oil demand as China’s economic expansion weakens and raised forecasts for supplies outside the Organization of Petroleum Exporting Countries. While non-OPEC supply is set to drop 600,000 barrels a day in 2016, Iran’s comeback could fill that gap by the middle of the year. As a result, world markets may be left with a surplus of 1.5 million barrels a day in the next sixth months. The Obama administration’s decision to lift sanctions on Iran, therefore allowing them to further flood the world oil market, was questionable at best. U.S. oil producers, in the Lower 48 and Alaska, are reeling due to low oil prices. Since late 2014, 70,000 American oil and gas workers have lost their jobs as a consequence of the oil price war being driven by the Saudis, Russia, and now Iran. Headlamp wishes President Obama had taken into consideration the struggles faced by unemployed U.S. workers before lifting the sanctions on Iran.
Equal and opposite reaction. With crude prices continuing to plummet and oil production declining in Alaska’s Prudhoe Bay region, state leaders are being forced to consider implementing new taxes, raising existing fees, cutting state programs and tapping into the state’s budget reserves that swelled when oil revenues were plentiful. Rep. Mark Neuman, co-chairman of the House Finance Committee, said that lawmakers will consider all parts of Walker’s fiscal package as they move forward. But he added that new taxes face an uphill battle. “I think an income tax is going to be difficult, and I think a sales tax is going to be difficult,” he said. “Most people would agree that government is probably too large right now,” noted state Sen. Pete Kelly, co-chairman of the Alaska Senate Finance Committee. “At this time, I’m looking for broad-based reductions to government.” Governor Walker is proposing to use Permanent Fund earnings to fund the state budget and base the dividend on annual oil industry revenues. Headlamp would like to stress that policies impacting state oil money will have a huge impact on the oil producers in Alaska—some of the state’s largest private investors and employers. Headlamp knows that some lawmakers want to blame oil companies for Alaska’s $3.5 billion deficit, and are already calling to impose job killing taxes on the industry. With $30 oil, no one is hurting more than the hundreds of oil and gas industry workers who have lost their jobs. Raising taxes on the industry won’t help our fellow Alaskans get their jobs back. Headlamp knows there is a fiscal crisis facing Alaska, but reminds the public and lawmakers that policies must reflect long-term strategies—dissuading investment won’t best serve AK.
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IEA Sees Risk of World Drowning in Oil
Bloomberg, Grant Smith, January 19, 2016
Walker comfortable with Exxon statements on gas availability
KFQD, January 19, 2016
As legislative session begins, Walker says he won’t sit back and watch
Alaska Dispatch News, Nathaniel Herz, January 19, 2016
Legislature confronts painful new oil-induced reality
EE News, Margaret Kriz Hobson, January 20, 2016
One of the largest drivers of the state budget is the Department of Health and Social Services; with Medicaid being the single largest program within DHSS. Over the past twelve years State spending on Medicaid services has increased 250%. As of FY 2016, Alaska now spends $640 million per year on our Medicaid program alone. An additional $966 million in federal funds was also spent on Alaska’s Medicaid program in FY 2016. These figures don’t include the looming increase in costs to the State as a result of Gov. Walker’s executive action to expand Medicaid under the Affordable Care Act.
According to a report done by Commonwealth North, on average, the federal government has picked up 58 percent of Alaska’s Medicaid costs, while the State covers the remaining 42 percent. The federal government mandates a set level of services that states must provide to Medicaid recipients. States have the ability to expand their Medicaid programs, allowing them to include more “optional services.” These optional services subsequently increase the cost of Alaska’s Medicaid program. If the Legislature signs off on Governor Walker’s proposal to implement an income tax, Alaskans checkbooks will directly feel the burden of these optional services.
According to that Commonwealth North report, the cost of Alaska’s optional Medicaid services totaled $481 million in FY 2013. Based on the 58% to 42% cost coverage split, the State’s share for optional services totaled $202.02 million in FY 2013. Headlamp surmises the cost for these optional services has increased since then. Headlamp believes there are other, more cost efficient, ways to provide these services to Alaskans who truly need them. Headlamp was encouraged to see members of the Senate Majority calling for serious Medicaid reform during their press conference this morning. Below is the list of the 27 optional services provided by the State of Alaska (this list was compiled in a report titled Serious Misgivings: Medicaid Expansion and House Bill 148 by Representative Liz Vazquez).
- Case management services for traumatic or acquired brain injury
- Case management and nutrition services for pregnant women
- Personal care services in a recipient’s home
- Emergency hospital services
- Long-term case non-institutional services
- Medical supplies and equipment
- Advanced nurse practitioner services
- Clinic services
- Rehabilitative services for children substance abusers, and emotionally disturbed or chronically mentally ill adults
- Targeted case management services
- Inpatient psychiatric facility services for individuals 65 years of age or older and individuals under 21 years of age
- Psychologist’s services
- Clinical social worker services
- Midwife services
- Prescribed drugs
- Physical therapy
- Occupational therapy
- Chiropractic services
- Hospice care
- Treatment of speech, hearing, and language disorders
- Adult dental services
- Prosthetic devices and eyeglasses
- Optometrist services
- Intermediate care facility services, including intermediate care facility services for persons with intellectual and developmental disabilities
- Skilled nursing facility services for individuals under 21 years of age
- Reasonable transportation to and from the point of medical care
Should the State help close the budget deficit and save $200 million, by seeking to eliminate these 27 optional Medicaid services? Would you rather pay an income tax, or see these services eliminated, or significantly scaled back? Headlamp promises to continue presenting these type of hard, but necessary, choices to Alaskans and policy makers in weeks to come.
A Moose Hunter and His Hovercraft. First ANILCA Case Reaches U.S. Supreme Court. John Sturgeon made the news this fall after he challenged officers’ assertion that the federal ban on hovercraft — the service says they are noisy and allow park visitors to go into areas where they don’t necessarily need to be — applied in the Alaskan preserve. Their challenge lies in the unique and complicated statutes that govern the federal government’s relationship with Alaska. As part of a 1971 settlement with Alaska’s Native peoples, the government guaranteed land to regional Native corporations and hundreds of Native village corporations. It also set aside more than 105 million acres as a protected federal reserve and in 1980 established rules for its use in the Alaska National Interest Lands Conservation Act (ANILCA). The courts disagreed. For one thing, the law includes “waters” in its definition of public lands, the appeals court said, so it doesn’t really matter which government owns the riverbed. At any rate, the court said, the correct reading of ANILCA is that land not owned by the federal government is exempt only from park regulations that apply “solely” to Alaska parks. Headlamp is thrilled to see the U.S. Supreme Court taking up Jon Sturgeon’s case against the U.S. Park Service. This case represents another example of egregious federal overreach and abuse of the law by federal officials against ordinary Alaskans. The implications of Mr. Sturgeon’s case go far beyond restoring Jon’s right to use a small hovercraft on one of Alaska’s many navigable waterways. The outcome of this case will have serious implications regarding Alaskans ability to use and access state, private, and public lands within federal areas, engage in traditional hunting and fishing practices, and develop our natural resources responsibly. The appeals-court ruling against Sturgeon has already been cited in proposed new oil and gas regulations released in October. Headlamp agrees with Sen. Sullivan that “The [9th Circuit] decision gave the government more than it even asked for.” Like Sen. Sullivan, Headlamp hopes that through this case “[Sturgeon] is going to vindicate the rights of all Alaskans,” and fully secure the promises made by the federal government to our state in ANILCA.
Many of Sturgeon’s supporters, including Headlamp, argue that the appeals-court decision gave the National Park Service more than it asked for, ruling that the federal government has authority over not just waters, but also state and private land enclaves within national park boundaries in Alaska. As usual the 9th Circuit Court made a poor decision that harms Alaskans and erodes our sovereignty. Headlamp encourages readers to check out this great blog post by the Pacific Legal Foundation, which further explains the case in simple detail.
A fundamental change. Gov. Bill Walker says the state must change how it does business: he argues it’s time for Alaska to tap its enormous savings accounts. The governor’s plan would fundamentally reshape the state’s relationship with oil. In an interview with Alaska Public Radio News, Walker’s plan would, “dump most of the state’s oil and gas revenue into the Permanent Fund. (It would also pull about $3 billion from the Constitutional Budget Reserve, the state’s rainy day fund.) Oil prices could go up, they could go down, but the Fund would serve as a cushion — and act as an endowment, generating a steady stream of income for the state.” The governor’s plan would also raise about half a billion dollars from the oil industry. At this time Headlamp has no position on Gov. Walker’s comprehensive plan to fundamentally restructure the use of state oil and gas revenue. However, Headlamp is concerned with negative economic impacts that would result, should the legislature approve the governor’s proposals to raise taxes on individual Alaskans and productive industries. Taking $400 million from the private sector through taxes, while only cutting state government by $100 million (over two years) seems unfair and not balanced. All Alaskans want to solve the budget deficit so that we have a healthy economy for decades to come. Headlamp believes though that most Alaskans simply want their leaders to reform, reduce, and find greater efficiencies in state government before taxes are raised, or new taxes are imposed.
All eyes on the budget. As Gov. Bill Walker and the Alaska legislation arrives in in Juneau preparing for today’s start to the legislative session, the big challenge will be finding common ground over how to fix the state’s large and growing budget deficit. According to an Alaska Public Radio News interview, Gov. Walker believes “Being a nonpartisan governor is going to be an advantage to me because it’s not like [I’m] picking sides based on my party affiliation…trying to draw people over to my side of the line so to speak. I don’t have any lines…and I don’t have a party. So I think in some respects it will be easier, for me, in this session to deal with some of these issues. Because really they’re not partisan issues.” Headlamp recognizes that all Alaskans; Democrat, Republican, Independent or Non-Partisan want our state to overcome these difficult economic times. No one wants to see a repeat of the 1980s happen. That said, it is imperative for Alaskans to understand that the vast majority of state spending is on departments and agencies within the executive branch. Decisions to change how we fund state government may not be partisan per se, but they will be contentious. Further, additional cuts or implementing new ways to streamline state government will also be hotly contested. Headlamp knows that tremendous turf wars are likely to occur throughout the 90-day session. Headlamp hopes to see a greater level of cooperation between all members of the legislature, Governor Walker, and the public. It’s going to take an all hands on deck approach to solve these difficult issues pressing our state.
Oil Price Collapse Sees More Investment Strains for Industry; Will Alaska Make the Cut? Bloomberg highlighted the concerning trend that 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 recent report. The developments account for about 27 billion barrels of oil equivalent and about 2.9 million barrels a day of production is being deferred to early next decade, according to the Jan. 12 report. Deepwater projects will be hit the hardest and account for more than half of new project deferrals, it said. Even before oil prices began falling from $100-per-barrel-plus heights in 2014, big oil companies like Royal Dutch Shell PLC were facing pressure to cut development costs that had soared when petroleum prices were high. Once it became clear last year that prices wouldn’t recover quickly, the companies began canceling planned developments like Shell’s Carmon Creek project in Canada’s oil sands. In October Shell said it would take a $2 billion write down to abandon the planned 80,000-barrel-per-day project. Headlamp again would like to stress that Alaska should be lucky that AKLNG is still on track and hasn’t snowballed like the $380 billion in deferred investments on other global industry projects. Alaska must work to keep costs down in order to make AKLNG competitive on a global scale in supply LNG, and for attracting the massive capital needed to move the megaproject forward. Headlamp has already addressed this industry trend and we’re hope more coverage helps lawmakers put into perspective the gravity of the megaproject. Finally, with oil sliding to below $28 yesterday, the ongoing cuts and scaling back by the industry that have dominated headlines so far in 2016 don’t appear to be slowing down any time soon. For a robust Alaska future, Headlamp hopes to see AKLNG continue progressing throughout 2016 without any politically caused delays.
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Oil Slump Seen Delaying $380 Billion Worth of Developments
Bloomberg, Stephen Stapczynski, January 14, 2016
Gov’s plan aims to reshape state’s relationship with oil
Alaska Public Radio News, Rachel Waldholz, January 18, 2016
Gov hopes nonpartisan politics will help cross party lines
Alaska Public Radio News, Lori Townsend, January 18, 2016
A moose-hunter and his hovercraft tell the Supreme Court Alaska is different
Washington Post, Robert Barnes, January 18, 2016
Fifteen Alaska lawmakers — 25 percent of the Legislature — responded to Juneau Empire questions about the upcoming legislative session. Headlamp would like to highlight specific answers below. On the state budget, Sen. Cathy Giessel stressed that, “First step — stop looking for magic bullets. We can’t tax people and business or cut services enough to bridge the gap. We have to remind ourselves how it happened that we became a state — we pointed out to Congress that we were rich with resources that would be carefully managed to support ourselves.” Moreover, Sen. Giessel’s main priority for the session is AKLNG. Rep. Shelley Hughes echoed this opinion stating she wants to make, “sure opportunities for Alaskans continue, whether that’s ensuring the state has the expertise it needs for its share of the AKLNG project or looking ahead to infrastructure needs and new economic sectors, whether that’s working to restore the appropriate balance between the federal government and state government so Alaska can realize more of her potential, or whether that’s addressing issues for Alaskan families to promote safe and prosperous communities.” Finally, Sen. Donny Olson also indicated that after spending a special session focusing just on AKLNG he absolutely wants to continue advancing the project. Headlamp is glad to hear that so many lawmakers are publically committed to the AKLNG project this session. Alongside the budget, the megaproject represents one of the biggest obstacles facing the state.
According to coverage in the Alaska Dispatch News, if oil prices remain about where they are now for the next year and a half, tobacco consumers would cough up about five times as many dollars as the production tax. Alcohol drinkers and those who buy motor fuel would be paying more than the oil tax would generate. If prices rise by $5 or so and average $35 for this fiscal year and next, the state is looking at $12 million next fiscal year in oil production taxes. It’s just a coincidence, but the tax team is guessing that marijuana taxes will total $12 million in the fiscal year that starts in July. No one knows what marijuana enthusiasts will contribute to state services, but then again, no one knows what will happen with oil. The calculation that shows oil production taxes could drop to $12 million in fiscal year 2017 with $35 oil is more than a guess. The state oil tax law, which was not designed or modeled with $40 oil in mind, includes a 4 percent gross tax that is supposed to be the minimum floor, payable at any price. But there is a hole in the floor that appears to be getting bigger. Gov. Bill Walker has proposed raising the gross tax to 5 percent and there is talk of fixing the hole in the floor. Look for some legislators to push for a bigger increase in the minimum tax, based on the theory that the state has failed to protect its interests at the low end. Headlamp has strongly opposed increasing taxes on Alaska households ahead of such an uncertain fiscal future. Keeping industry investment and spending up should be what Alaska lawmakers focus on when they return to Juneau tomorrow.
New kids on the block. The new group of young activists, calling themselves Our Alaska, says putting off action to fix the budget is unacceptable. It’s trying to rally people to a more organized response that could push legislators into action to do three things at once: cut spending, boost revenue, and rely on the state’s savings. “We know that action is not going to happen from within the halls of power,” said Erin Harrington, 38, one of Our Alaska’s co-founders. “We can either sit around and let the existing, comfortable leadership — who’s basically all riding on their retirement checks — figure out the future. Or we can be actively involved in it.” “We’re going to be here in 50 years,” said Penny Gage, 29, another co-founder of the group. “A lot of the decision makers in the Legislature and otherwise are not.”
Headlamp is encouraged to see Alaska’s next generation stepping up and getting involved. Since that first barrel of oil flowed through the Trans Alaska Pipeline System in 1977, Alaska has enjoyed tremendous growth and prosperity. Headlamp believes that the next 30 years of Alaska’s history can be even more prosperous if a long term sustainable fiscal plan is put together. To secure a happy, prosperous, and thriving future for Alaska’s next generation it is imperative that lawmakers act wisely and boldly this year.
We need real leadership, and we need it now. Highlighted in a recent Fairbanks Daily News Miner editorial, as Legislators report to Juneau for the start of the 2016 session this week, it’s not hard to guess what will be the dominant issue in the capitol building this year. Like last year, the state budget crisis will leave precious little room in the short 90-day session for consideration of other items. Like last year, the state will start in a roughly $4 billion budget hole, as a further slump in oil prices — and thus state revenues — has wiped out the $800 million in cuts Gov. Bill Walker and the Legislature made last year. Since 2005 Alaska’s general fund spending has increased from roughly $3 billion to nearly $6 billion in FY 2016. According to the Kaiser Family Foundation, in 2013 Alaska spent more money per citizen than any other state in the nation. Headlamp recognizes that given the magnitude of Alaska’s deficit, lawmakers cannot cut our way out of this problem. However, Headlamp also recognizes that taxing our way out of this hole is not a feasible solution. The first step in pulling Alaska out of this fiscal mess is to right size government. A holistic plan to fix Alaska’s fiscal crisis must include downsizing government, while managing our financial resources, which includes the Permanent Fund earnings reserve, wisely. Crafting policies that help diversify Alaska’s economy, in ways that create new jobs and grow the whole economic pie, should also be a focus of lawmakers. Alaska can weather this storm if Alaskans get engaged, and policy makers are willing to make some hard choices.
As we move forward into this difficult legislative session, it is important the public and readers of Headlamp closely monitor what the media reports as fact. We must remain vigilant and ensure that the press is accurately reporting the issues, and not misrepresenting or misquoting what policy makers are saying. If you know something isn’t being accurately reported Headlamp wants to know.
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With prolonged low oil price, Alaska production tax could raise as little as marijuana tax
Alaska Dispatch News, Dermot Cole, January 16, 2016
A mandate to take action: Legislators must take permanent fund action this year to protect Alaska
Fairbanks Daily News Miner, January 17, 2016
Alaska’s gaping budget deficit is expected to be the focus of the legislative session beginning this week
Associated Press, Becky Bohrer, January 17, 2016
Survey: Lawmakers predict what session will bring
Juneau Empire, January 17, 2016
Another Meet Alaska is in the books and Headlamp was pleased to be a part of it! With nearly 100 tradeshow booths and 16 speakers, Meet Alaska represents fantastic, industry-wide cooperation in a trying economic climate.
In case you missed Headlamp’s live coverage on Twitter, here are some highlights from last week’s great speakers.
Denise Patrick of Energy Markets Access spoke at length about how to promote business during tumultuous economic conditions. Headlamp agrees with one of Denise’s main points, that tough times should not force industry inaction. Now is the time to realign with business partners on new strategies and create new solutions, not wait until the storm has passed. Patrick challenged the Alliance to “be willing to invent a new tomorrow – a new oil and gas industry.”
Steve Butt, senior project manager of AKLNG, spoke to all aspects of the ongoing megaproject. Butt stressed the need for continued alignment across all partners and smart spending to keep costs in check. According to Butt, AKLNG would create up to 9,000 direct jobs!
Finally, in the face of mounting economic hardships, Sen. Dan Sullivan spoke optimistically about Alaska’s future. On Alaska’s economy, the Senator stressed that Alaskans “hold the aces in a global poker game.” Headlamp couldn’t agree more.
Again, we want to thank everyone who made for such a great day in Anchorage. If you stopped by our booth, thank you and we hope to see you next year!
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.
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
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.
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
More concerning news. British oil giant BP released a statement yesterday that it will eliminate 4,000 of the approximately 24,000 positions in its exploration and production units this year. “We have to make sure we have a competitive and sustainable business,” David Nicholas, a company spokesman, said by telephone. “External market conditions are getting tougher.” A statement released by the company’s Alaska offices said the workforce reductions will include Alaska. Employees who attended company meetings held Tuesday morning said they were told BP Alaska would trim its workforce by 13 percent. That kind of cut to a workforce of 2,100 employees in Alaska would amount to about 270 employees. Headlamp is saddened to hear of more job cuts coming to Alaska on top of an already concerning economic forecast. The negative effect of BP cutting its Alaska workforce is further highlighted by findings in a 2014 report conducted by the McDowell Group, that examined the economic impact of Alaska’s oil and gas industry. The report found that for each “primary company” job, which these BP jobs are, 20 additional jobs are created due to the direct and induced spinoff effects. The compounding effects of BP shedding 270 jobs will ripple across Alaska’s economy, and will likely add more former oil and gas industry workers to the unemployment lists that have doubled since late 2014.
No kidding! Governor Bill Walker issued the following statement Tuesday in response to BP’s recently announced plans to cut about 270 Alaska jobs: “Today’s announcement that BP will be cutting 4,000 jobs worldwide is concerning. However, this further emphasizes the need to pursue additional resource development opportunities in Alaska, including the 1002 section of ANWR and the Alaska LNG project. I am committed to continue working with producers like BP to address low oil prices and declining production, and ensure these companies maintain a strong presence in Alaska. I appreciate the contributions BP has made throughout our state, and am confident they will continue to be leaders in Alaska’s oil and gas industry in the future.”
For the past four months, Headlamp has been saying that developing Alaska’s tremendous oil, gas, and mineral resources for the maximum benefit of our people should be at the forefront of our state’s economic plan! We’re pleased to see the Governor agreeing with us. As lawmakers return to Juneau in less than a week, Headlamp would strongly suggest they keep Gov. Walker’s statement in mind and design policies that do not further hamper Alaska’s primary industry. Given the sustained slump in oil prices, and forecasts for $20-25 per barrel oil, the simple fact is that increasing taxes on the oil and gas industry in Alaska has the potential to accelerate job losses.
BP’s cuts are what companies do when revenues decline. In order to survive, the private sector finds efficiencies, streamlines operations, and makes painful yet necessary cuts. State government in Alaska must do precisely the same as part of its budget solution. Alaska’s operating budget has increased from $3.02 billion in FY 2006, to $5.18 billion in FY 2016. Were Alaskans content with the level of services provided by state government in 2006? As an individual Alaskan, what has our state government done for you by spending an additional $2 billion per year? These are the type of questions Headlamp believes Alaskans must be asking if we are to survive this fiscal crisis. Unfortunately, there are too many Alaskans unwilling to face the reality that our government has become bloated. There are legislators, and many citizens, who think we can fix our fiscal crisis by taxing our number one industry into oblivion. Such preposterous ideas will not work, and would further harm Alaska’s economy. Headlamp encourages policy makers to follow the lead of the private sector. Find efficiencies, streamline operations, and make the cuts, which yes will be painful, but are necessary to ensure Alaska’s next generation is not burdened by crippling taxes.
First Non-Alaskan US LNG Exports Begins This Week. Platts reported that a tanker that will carry the first shipment of American liquefied natural (LNG) gas arrived in Louisiana Tuesday, symbolizing America’s status as a major new supplier to Asia and Europe. The future for exporting natural gas remains bright according to the International Energy Agency (IEA). The IEA forecasts that global demand for natural gas is expected to be 50 percent higher by 2035 than it is now. LNG exports are likely to significantly reduce energy costs in Asia and Europe. The Obama administration opposed natural gas exports on environmental grounds before reversing position in late 2014 after the Russian occupation of Crimea. This is encouraging global news for Alaska’s AKLNG megaproject. As Headlamp has repeatedly stressed, LNG has incredible global potential as growing Asian markets necessitate a reliable energy source. Alaska can’t miss out on an opportunity to get in on the ground floor. Advancing AKLNG needs to be a top priority for policy makers during the upcoming legislative session.
BP to reduce Alaska workforce by about 270 jobs
KTUU, Steve MacDonald, January 12, 2016
BP to cut 13 percent of Alaska workforce as oil prices keep dropping
Alaska Dispatch News, Alex DeMarban, January 12, 2016
Cheniere’s Sabine Pass Prepares for Imminent LNG Export
Platts, January 11, 2015
Profit pressure will complicate Alaska Permanent Fund’s future
Alaska Dispatch News, Dermot Cole, January 12, 2016
The price of oil is still falling. And falling. How low can it go?
Associated Press, David Koenig, January 12, 2016
“Not particularly optimistic.” Construction firms in Alaska have mixed expectations about how the year ahead will treat their industry. However, their outlook is somewhat grim when it comes to how much work they expect to be available in 2016. The trade group Associated General Contractors of America and software company Sage conducted a survey across the United States. The Alaska study surveyed 25 contractors – primarily in the commercial sector – who listed Alaska as the state where their firms perform the largest amount of their work. Forty-four percent of the contractors predict they will be competing for less project money in 2016 than last year. The other 56 percent think the amount of project money will be stagnant. An economic trends report released Thursday from the Alaska Department of Labor & Workforce Development forecast that in 2016, the state’s construction industry will lose 900 jobs. That’s due to low oil prices and a tapering off of both privately and publicly funded construction projects amid economic uncertainty and a tightening of the state’s capital budget. “That’s not a particularly optimistic outlook,” said Brian Turmail, senior executive director of public affairs for AGC of America. “Contractors in Alaska seem a lot more pessimistic about 2016 than anywhere else in the country.” Headlamp would like to highlight the interconnection between Alaska’s oil and gas industry and the rest of Alaska’s economy. Astutely noted in this ADN piece, when Alaska’s primary industry succeeds, Alaska’s construction firms succeed. When the former flounders, all other industries follow suit. Headlamp calls on policy makers at the state and local level to heed this forecast for 2016, and work to implement pro-industry, pro-job growth, and pro-economic freedom policies that Alaska’s economy desperately needs.
Alaska lawmakers “all over the map” on PFD changes. According to an analysis be the Alaska Dispatch News, the governor’s proposed reduction to the Alaska Permanent Fund dividend check – a move designed to help the state balance its budget – will exceed more than $15,000 for a household of four in the next three years. Compounding the loss to Alaskans is the fact that the next two dividend checks had been projected to grow to record amounts, if you don’t count inflation. Walker said in a statement he’s looking out for the long-term interest of Alaskans, not just a “few high years” of dividend payments. Stay on the current path, and dividends are gone by 2020, he said. If the plan is approved by lawmakers, future dividend checks would come from oil royalties, instead of investment earnings from the $50 billion Permanent Fund. Instead, the fund’s earnings under the plan would help pay for government. House Speaker Mike Chenault, R-Nikiski, said he wants to see cuts before the earnings are used. His colleagues are all over the map. “Some are adamantly opposed, some would use it, and some are kind of in between,” he said. “But you may get support for using Permanent Fund earnings if we feel the size of the budget has been reduced enough.” Sen. President Kevin Meyer said he likes the governor’s proposal to overhaul the Permanent Fund. The idea may have support in the Senate, but cuts need to come first. “We’ve gone from $100 oil to $35 oil, and so we need to make that change before we start taking money from Alaskans,” he said. Headlamp again urges legislators and the governor to first find reductions and efficiencies within state government before turning to Alaskans checkbooks. State government over the past decade has grown unabatedly. In this era of low oil prices government at all levels must learn to deal with less, because the private sector is doing the same.
In his regular column in the Alaska dispatch News, Charles Wolfforth writes that Alaska has “created something precious” in the PFD, and it is a “basic part of our economy” that promotes equality. Large reductions to the Permanent Fund dividend checks alone will not fix Alaska’s fiscal crisis. In fact, depriving Alaskan households of over $15,000 over the next few years will only exacerbate job losses in the oil and gas industry that provide family supporting incomes. To survive this downturn state government must be right sized, Alaska’s tremendous financial resources must be used wisely and sustainably, and policies that keep the state competitive and open for business should be championed.
$15? Sen. Johnny Ellis is proposing that the state increase its minimum wage to $15 an hour. Under a 2014 ballot initiative voters approved raising the minimum wage to $8.75 an hour last year, and to $9.75 an hour as of January 1, 2016. The increase proposed in Sen. Ellis’s bill, if approved, would take effect Jan. 1, 2017. That would make Alaska’s minimum wage among the highest in the United States. On its surface a minimum wage increase sounds wonderful; who doesn’t want to get paid more?! However, research shows that substantially raising the minimum wage, as Sen. Ellis has proposed, negatively impacts low skilled workers, first time job seekers, minorities, and less educated people. Minimum wage jobs are traditionally the first step up on America’s economic ladder. These jobs teach people valuable skills like the importance of showing up to work on time, following directions, good behavior, respect, honesty, and gives them the dignity of honest work. However, when the minimum wage is raised considerably that first rung disappears, as do the job opportunities for those already struggling to get by. A government edict that artificially inflates wages will never bring about the high standard of living that greater levels of economic freedom can.
Alliance member continues to move Alaskan economy forward. A unique semitrailer designed to get cheaper, cleaner energy to Fairbanks has shown it can haul more liquefied natural gas than anything else on the road. In demonstrations last month, the rig hauled 12,300 gallons of super-cooled LNG between the Titan gas-liquefaction facility at Point Mackenzie and Fairbanks, a 30 percent increase from the current average load of 9,500 gallons, officials said. The review is part of the Interior Energy Project, an effort by the state to lower energy prices and improve air quality in Fairbanks, a city of 32,000 mostly dependent on oil and wood for heating. As part of the project, the Alaska Industrial Development and Export Authority, which has acquired the liquefaction plant at Point MacKenzie and Fairbanks Natural Gas, has been reviewing offers from private companies interested in hauling LNG to the region. The semitrailer’s manufacturers — Heil Trailer in Tennessee and Western Cascade Truck, Tank and Equipment in Washington — have offered to sell the trailer to the state, said Pat Malara, president of Western Cascade.
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As Alaska leaders eye Permanent Fund earnings, cost will be felt in dividend checks
Alaska Dispatch News, Alex DeMarban, January 11, 2016
New LNG semitrailer proves it can carry bigger loads
Alaska Dispatch News, Alex DeMarban, January 11, 2016
Alaska construction firms more pessimistic than those elsewhere
Alaska Dispatch News, Annie Zak, January 11, 2016
Alaska’s dividends help make us equal and protect our common wealth
Alaska Dispatch News, Charles Wohlforth, January 11, 2016
Anchorage Democratic senator proposes $15 minimum wage
Associated Press, January 11, 2016
Alaska Energy News
TransCanada to file 2 legal challenges to Keystone rejection
Alaska Journal of Commerce, Juan A. Lozano, January 7, 2016