The Morning Headlamp — Developments from Cook Inlet

January 15, 2016 | Posted in : News

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

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

January 14, 2016 | Posted in : News

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

 

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The Morning Headlamp — Gov. Walker needs AKLNG now more than ever

January 13, 2016 | Posted in : News

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.

 

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First Reads

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

 

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The Morning Headlamp — Nervous contractors and PFD changes

January 12, 2016 | Posted in : News

“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 budgetwill 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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First Reads

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

 

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The Morning Headlamp — New players in the oil industry

January 11, 2016 | Posted in : News

New wildcats. Alaska Native regional corporations are wildcatting for oil and gas in the state’s frontier basins, eyeing little-explored prospects after dusting off old studies by major oil companies. They aren’t seeking the huge petroleum discoveries like those on the North Slope. Instead, they say smaller finds will serve their goals of creating jobs for local residents, while providing affordable energy in villages beset with crippling gasoline and heating oil costs. Native corporations eyeing frontier basins include Ahtna, who’s planning to drill a gas well this spring near its headquarters in Glennallen. Further north, NANA wants to conduct seismic surveys not far from its Northwest Alaska headquarters in Kotzebue. The exploratory work is eligible for the state tax credits that some lawmakers want to eliminate to help counter a massive budget deficit caused by sliding oil prices and historically low oil production. A Senate working group that held hearings on the tax credits last fall cited Native corporations’ unique role in Alaska as one reason frontier exploration should continue to receive a benefit if the $500 million program is scaled back. Created by the 1971 Alaska Native Claims Settlement Act, the corporations and nine other regional Native corporations are supposed to use their large land holdings to promote “economic health” in their regions, said the summary report from the Senate working group. They also return profits to their Alaska Native shareholders. Headlamp fully supports the new exploratory work being conducted by the Alaska Native corporations. Resource development, no matter the scale, is an ever-important aspect of Alaska’s economy. Such development projects should be pursued across all corners of the state to create new jobs, especially in regions with high unemployment rates.

Sen. Kevin Meyer, R-Anchorage, has signaled to his majority caucus that it’s time to consider finding new revenue to balance the state budget by putting a statewide sales tax on the table. This move follows Gov. Bill Walker’s proposal that included a state income tax. When Walker declared his candidacy for governor in April 2013, he told reporters, “Alaska has gone from an owner state to an owned state, and we have no one to blame but ourselves.” One thing he was referring to was SB21, the new oil tax law that the Legislature had just passed. He believed it compromised the state’s resource development interests. Alaska absolutely needs a bipartisan solution to the fiscal crisis it is facing. That said, Headlamp, and most Alaskans know, that taxing our way out of the hole we’re in is not a solution. Headlamp reminds policy makers that every dollar taken out the private sector, which is being hit the hardest in this era of low oil prices, through taxes, to support government, is a dollar that could have been better invested or spent. Increasing taxes will continue to hamper Alaskan businesses and families already plagued by declining oil prices. There are plenty of ways to balance a budget without more taxes. Headlamp hopes that when the legislature reconvenes next week solutions, that inflict the least harm on the private sector and Alaskan families, will be found.

The Alaska Dispatch News published a profile of Attorney General Craig Richards. Richards has taken on high-profile lead roles on Walker’s plan to fix Alaska’s huge budget deficit, and on state efforts to develop a $55 billion natural gas pipeline from the North Slope — two items at the top of the governor’s wish list. Walker recently placed Richards on the board of trustees of the Alaska Permanent Fund Corp., and also appeared in a Fairbanks courtroom last month for the announcement of a settlement that freed the men known as the Fairbanks Four from prison. Richards also has his day job of being in charge of the Alaska’s 550-person Department of Law. Randy Hoffbeck, now Alaska’s Revenue Commissioner, described Richards as “supremely smart and “confident” based on legal cases in which he was involved prior to Walker’s election. Nonetheless, some lawmakers question whether Richards has taken on too much. “He’s been delegated a tremendous amount of responsibility in areas that you wouldn’t typically expect,” said Sen. Bill Wielechowski, an Anchorage Democrat and also an attorney. He added: “It’s a little worrisome from a workload perspective, because the attorney general is the top attorney in the state — now you’re putting on top of that the gas line, and now you’re putting on top of that the Permanent Fund, basically the crux of the state’s fiscal plan.” Anchorage Republican Rep. Charisse Millett, the House Majority leader, said some of the animosity toward Richards stems from what she described as “maybe a little bit of an attitude that he’s above, that the administration is above the Legislature — and we’re on a need-to-know basis…That’s not the way government was designed.” Headlamp hopes to see more cooperation and dialogue between the Walker administration and the Legislature in 2016.

 

First Reads

Hometown U: Getting schooled-up on 49th-state economics
Alaska Dispatch News, Kathleen McCoy, January 10, 2016

In hunt for oil, Alaska Native corporations become state’s new wildcatters
Alaska Dispatch News, Alex DeMarban, January 10, 2016

Alaska’s attorney general: A ‘Fairbanks redneck’ with the governor’s trust
Alaska Dispatch News, Rich Moniak, January 10, 2016

My Turn: We need to be bipartisan owners of Alaska
Juneau Empire, Nathaniel Herz, January 10, 2016

Local commodities provide more than taxes
Fairbanks Daily News Miner, Jomo Stewart, January 9, 2016

 

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The Morning Headlamp — A proposed facelift for the Port of Anchorage

January 8, 2016 | Posted in : News

Job loss on Alaska’s horizon. According to a recently released forecast by the Alaska Department of Labor and Workforce Development. The report forecasts a loss of 2,500 jobs in Alaska in 2016. That would amount to a loss of 0.7 percent, after gaining 1,700 jobs in 2015. Tied to low oil prices, the oil and gas industries, the construction industry and state government will likely be hit hardest. Since 1987, the state has gained jobs in 27 out of 28 years. But with the straining economy, “dips in employment will be more common in the next 28 years than they were in the last,” according to the report. Headlamp would like to strongly caution that in this environment, enacting taxes on job creating industries like oil and construction will only exacerbate the job loss forecasted by the department of Labor and Workforce Development.

The New York Times covered reports that oil prices plunged again Wednesday by more than 5 percent as investors paid more attention to signs that global stockpiles are growing than to increasing instability in the Middle East and North Africa. The glut in oil, and natural gas, has sent the oil industry into its worst tailspin since the 1990s. Forty U.S. and Canadian oil companies filed for bankruptcy protection in the last year or so, and several new industry reports have predicted unrelenting pain in 2016. Headlamp hopes that in such a precarious economic climate, Alaskan lawmakers do not pursue policies that will further hurt Alaska’s chief industry.

ImPORTant for Alaska. Anchorage Mayor Ethan Berkowitz said Thursday he has one main request of the state Legislature this session – adding $290 million for the city’s unfinished Port of Anchorage modernization project to a statewide bond package. In a presentation to a bipartisan group of legislators from the Anchorage area, Berkowitz said that in the state’s fiscal climate, he’s making the port the city’s sole priority in the upcoming legislative session in Juneau. The port was also a top priority of former Mayor Dan Sullivan’s administration. Efforts to revamp the aging hub have been underway since 2003, but the expansion has been troubled, with two lawsuits over the design, construction and management of the project. The proposed legislative requests will need approval from the Assembly, and the administration’s program is set to be introduced at Tuesday’s meeting. Headlamp applauds Mayor Berkowitz’s plan for a port modernization project. If Alaska wants to compete domestically and internationally, we need the infrastructure to do so.

Ready to move forward together. The assembly approved a settlement Thursday between the Fairbanks borough and its biggest taxpayer, the owners of the trans-Alaska oil pipeline. The agreement puts the pipeline’s tax value at $8 billion through 2020, and all pending litigation gets dismissed. “I don’t believe that this represents the true value, but I do think that this is the best step at this time,” said Kathryn Dodge, deputy presiding officer of the Fairbanks North Star Borough Assembly.

“Not that attractive.” According to Reuters coverage, Oil traders in Asia are running the numbers on importing Alaskan crude, after the end of a four-decade ban on U.S. exports also eliminated a costly tanker requirement for shipping North Slope oil overseas. Last month Congress rolled back the export ban, and with it the tanker restriction. This theoretically allows buyers to cut $2 to $3 a barrel off their shipping costs to Asia by booking sales on cheaper foreign-flagged tankers, traders say. For now, traders say the numbers still don’t quite add up, and no fixtures have been booked in recent weeks. U.S. domestic crude prices have been rising relative to global benchmark Brent, while Middle East marker Dubai has weakened. And much of Alaska’s production is effectively tied up with long-term charters on U.S. vessels that cannot be easily redeployed. “The opportunity is more open than before, but the economics are not that attractive just now,” a trader with an Asian refiner said. As Headlamp has repeatedly said, Alaskan policymakers need to remember the potential capacity Alaska exports can have on the global stage. As the report indicates, Asian markets are almost ready to commit to potentially major energy deals with Alaska, hopefully future policy does not dissuade this interest.

Meet Alaska has arrived! For live updates on what industry experts and policymakers have to say about Alaska’s 2016, stick with Headlamp!

 

Help us spread the word. AK Headlamp is growing quickly, but we need your help to spread the word.  Tell your friends, colleagues, family and more to sign up today for the latest in AK energy, politics and industry.  Subscribe now here: http://bit.ly/1OdpLVY

 

First Reads

Port of Anchorage main focus of Berkowitz’s legislative program
Alaska Dispatch News, Devin Kelly, January 7, 2016

Fairbanks Borough Assembly OKs trans-Alaska oil pipeline settlement
Fairbanks Daily News Miner, Amanda Bohman, January 6, 2016

Low oil prices will likely translate to Alaska’s first annual job loss since 2009
Alaska Dispatch News, Annie Zax, January 6, 2016

Traders eye Alaskan oil exports to Asia as shipping ban ended
 Reuters, Jacob Gronholt-Pedersen and Liz Hampton, January 6, 2016

Oil prices decline more than 5 percent as stockpiles increase
 New York Times, Clifford Krauss, January 6, 2016

 

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The Morning Headlamp — Continually Declining Oil Prices Necessitate Government Downsizing

January 7, 2016 | Posted in : News

Alaska’s deficit continues to grow. In a recent interview, State Senator Mike Dunleavy (R-Wasilla) sat down to discuss the looming legislative session, and ways he plans to address the state’s multi-billion-dollar deficit. The regular legislative session lasts only 90 days; which is a relatively short period of time to deal with many complex issues on top of how to handle the widening budget deficit. Illustrating the seriousness of the situation, Sen. Dunleavy was quoted as saying, “We thought it was bad last year. We lost $600 million when [oil] went from $64 a barrel to $38, so the hole keeps getting bigger. It doesn’t get smaller.”

From Sen. Dunleavy’s perspective, the two most effective ways of overcoming Alaska’s budget woes are to implement substantial reductions in the size of state government and use funds from the Earnings Reserve account of the Permanent Fund. Dunleavy believes that using the Earnings Reserve Account of the Permanent Fund could keep government running at a reduced level without impacting Permanent Fund Dividend checks. Such a strategy is similar to Dr. Scott Goldsmith’s sustainable budget model, which calls for unrestricted general fund spending (UGF) of $4.5 billion, or lower. For state government to become more efficient, and accountable to the public it must be right sized. Sen. Dunleavy thinks “we’re going to be looking at $500 million to $1 billion” in additional cuts this legislative session. The two biggest drivers of Alaska’s budget are K-12 education, and the Department of Health and Human Services.  Sen. Dunleavy chairs the Education Committee, and noted that “reductions…may be touching education; they may be touching health and social services; they may be touching things like the ferry. They may be touching a whole host of things that have to be looked at.”

Headlamp believes that all state government departments and programs must be examined and analyzed. A goal of legislators should be to enact policies that enable a robust private sector, help create jobs, and ensure economic prosperity for Alaska’s next generation. Headlamp commends Sen. Dunleavy for recognizing these factors, and focus on reducing the budget. In coming weeks Headlamp will present choices and ways in which state government could be right sized. We encourage legislators and Gov. Walker to lead, and take bold actions in 2016. We can’t afford not to.

AKLNG will take questions now. Alaska LNG project teams are working to answer questions and fulfill requests for more detailed information from over a dozen federal and state agencies that submitted several hundred pages of comments for the teams to consider in their next round of draft “resource reports.” The reports will be used to prepare the project’s environmental impact statement. In addition to environmental studies, Alaska LNG project teams continue to look for opportunities to reduce costs in design and construction planning. Particularly in view of low global oil and gas prices, cost reduction is an important part of the work, Fritz Kruse, interim president of the Alaska Gasoline Development Corp., reported to his board Dec. 18. The corporation represents the state’s interests as a 25 percent owner of Alaska LNG. Headlamp is glad that there continue to be open channels of communication between AKLNG partners and regulatory agencies as well as a substantial budget reserved for environmental oversight. AKLNG will see long-term success if good business practices are continued.

Meet Alaska is only 24 hours away! For live updates on what industry experts and policymakers have to say about Alaska’s 2016, stick with Headlamp!

Help us spread the word. AK Headlamp is growing quickly, but we need your help to spread the word.  Tell your friends, colleagues, family and more to sign up today for the latest in AK energy, politics and industry.  Subscribe now here: http://bit.ly/1OdpLVY

 

First Reads

Alaska LNG working to answer agencies’ questions
Alaska Business Monthly, Larry Persil, January 6, 2016

Oil Prices Decline More Than 5 Percent as Stockpiles Increase
Alaska Dispatch News, January 6, 2016

Oil Prices: What’s Behind the Drop? Simple Economics
New York Times, Clifford Krauss, January 6, 2016

Sen. Dunleavy talks state budget before 2016 session
KTNA, Phillip Manning, January 6, 2016

ConocoPhillips donation to UAF slated for engineering building
Fairbanks Daily News Miner, Casey Grove, January 6, 2016

Mining woes deepen with worst start in a decade as metals slide
Fairbanks Daily News Miner, Luzi Ann Javier and Danielle Bochove, January 6, 2016

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Shooting the Messenger

January 7, 2016 | Posted in : News

In the coming days and weeks, AK HEADLAMP will be providing specific examples of where the state of Alaska could achieve savings in its budget, either through cuts or through efficiencies. Our hope would be that the administration, legislators and the general public would consider these suggestions.

This is what we said we would do. This is what many who are following the budget debate and writing about it in the mainstream media have been asking for.

We expect people to take pot-shots at us. We know we will be villainized and accused of atrocities.  We have no pretensions that people writing for the mainstream media really want suggestions about where to reduce the budget. Though they write about filling the gap with new revenues and budget reductions – AK HEADLAMP expects that their solution only involves new revenue with no budget reductions and they are waiting in the wings for someone, anyone, to start making suggestions on reducing the size of Alaska state government, ready to attack at the first word.

The decisions that need to be made in Juneau this session will not be easy. We know this. But instead of adding our voices to the chorus of those calling for reductions without offering suggestions AK HEADLAMP is willing to offer recommendations of places where efficiencies may be found. And take the inevitable attacks and criticism that comes with them.

If you have suggestions that you would like HEADLAMP to consider, please email them to Renee Limoge at: RLimoge@alaskaalliance.com or Hans Rodvik at: HRodvik@alaskaalliance.com

 

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Experts and Lawmakers lined up to speak at Meet Alaska 2016

January 6, 2016 | Posted in : News

As the Alaska Support Industry Alliance prepares for the 33rd annual Meet Alaska Conference and Tradeshow, let’s take a look at just some of the experts slated to speak throughout the day.

Kicking off of the morning’s presentations is Al Hirshberg, Executive Vice President of Technology and Projects for ConocoPhillips. Freshman Alaska Senator Dan Sullivan (R) will hit the stage next, to give an exciting update on his first year in office. Rounding out the morning presentations is Denise Patrick, Managing Director of Energy Markets Access and Senior Strategist of Pierpont Communication.

Over lunch, Senator Cathy Giessel, tax-attorney Jonathan Iversen, Alaska Oil and Gas Association president Kara Moriarty, Matansuka Electric Association general manager Tony Izzo, Alaska Natural Gas Transportation Projects director Larry Persily, Alaska Journal of Commerce managing editor Andrew Jensen, Great Bear Petroleum executive Pat Galvin will discuss Alaska’s successful oil and gas tax credit program.

A mid-afternoon discussion on Alaska’s budget gap and use of the Permanent Fund earnings reserve will be hosted by Chris Poag, Alaska Permanent Fund general counsel. Finally, the day will conclude with Steve Butt, Senior Project Manager for AKLNG, who will a give a status update regarding the ongoing megaproject and walk attendees through the 2016 work plan.

Curious about who else is on Meet Alaska’s schedule? Click here for the full agenda and make sure to stick with @AKHeadlamp for live Twitter coverage throughout all of the day’s events!

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The Morning Headlamp — Alaska: Downgraded.

January 6, 2016 | Posted in : News

Not making the grade. Many outlets, including the Wall Street Journal, reported on credit ratings agency Standard and Poor’s decision to lower Alaska’s general obligation credit to AA+ from its top ranking of AAA, citing the long-term worldwide crash in oil prices. “If lawmakers do not enact significant fiscal reforms to reduce the state’s fiscal imbalance during its 2016 legislative session, Alaska’s downward rating transition will likely persist,” analysts wrote. In August, S&P warned it could drop Alaska’s rating — potentially by more than one notch — if lawmakers didn’t act to close the state’s $3.5 billion budget deficit during their 2016 legislative session, which begins later this month. The Walker administration has said that general obligation bonds could be one way for the state to pay for its estimated $13 billion share of construction costs for a proposed natural gas pipeline from the North Slope — a proposition that could grow more expensive as Alaska’s credit rating drops further. In a prepared statement, Sen. Anna MacKinnon, R-Eagle River, the co-chair of the Senate Finance Committee, said she was “disappointed” by the downgrade. But she promised that when the legislative session begins Jan. 19, “t​he Senate Finance Committee will tackle these difficult issues and work toward balancing the budget.”

As Alaska struggles to rebuild its financial house, this is quite a setback. More specifically, a downgraded credit rating will negatively impact borrowing cost on the AKLNG megaproject. Headlamp hopes that this will be a significant wake-up call to Alaskan policymakers as the legislative session quickly approaches. Right sizing government by crafting a budget that restores confidence in creditors should be a central focus for legislators during the upcoming session.

An important step. Oil prices continue to wreak havoc for Alaska lawmakers, CNN and Alaska Dispatch News report. Citing Alaska’s ongoing budget crisis, Governor Bill Walker’s administration put in place a hiring freeze and travel restrictions for state workers. “These restrictions on hiring and travel alone won’t fix the deficit, but it’s an important step,” Walker said. Only travel and hiring that is considered essential to life, health and safety will be allowed, he said. The move by Walker’s administration comes more than a year after House and Senate leaders asked the governor to consider a hiring freeze and travel restrictions. Headlamp applauds Governor Walker’s decision to enact a hiring freeze and travel restriction. In order to close Alaska’s $3.5 billion deficit, many hard decisions must be made to get the State back on track. On this issue of travel and hiring by the State, Headlamp is glad Governor Walker made the right decision. In coming weeks, through the “Would You Rather” series, Headlamp will continue to illustrate policy choices not discussed by the mainstream media that the legislature must seriously address.

After 10 years of litigation, the Fairbanks North Star Borough and the owners of the trans-Alaska oil pipeline are on the verge of settling a long-running dispute over the pipeline’s property tax value, agreeing on $8 billion for the next five years. “Under the circumstances, I think it’s a fair number for everybody,” borough Mayor Karl Kassel said. Local governments and the oil companies have had wildly different views of the tax value of the pipeline with the pipeline owners—BP, ConocoPhillips, ExxonMobil and Unocal Pipeline Company—pressing for a value as low as $2.61 billion and the Fairbanks North Star Borough, the North Slope Borough and the city of Valdez asking for a value as high as $15.47 billion. Headlamp is glad hear that the private sector and local governments are working together to achieve a reasonable compromise on the issue.

Just under our feet. The US government has published the first digital map showing the geology of Alaska. The new geologic map, published by the US Geological Survey (USGS), illustrates the generalized rock formation right under Alaskans feet. It also reveals the wealth of mineral deposits and abundance of energy resources under the soil, and shows evidence of the region’s tectonic activity. ‘This work is an important synthesis that will both increase public access to critical information and enhance the fundamental understanding of Alaska’s history, natural resources and environment,’ said Mark Myers, Commissioner of Alaska’s Department of Natural Resources. Headlamp encourages state and federal level decision makers to support policies that unlock Alaska’s tremendous oil, gas, and mineral resources for the benefit of Alaska’s next generation.

Help us spread the word. AK Headlamp is growing quickly, but we need your help to spread the word.  Tell your friends, colleagues, family and more to sign up today for the latest in AK energy, politics and industry.  Subscribe now here: http://bit.ly/1OdpLVY

 

First Reads

Another Victim of Tumbling Oil: S&P Cuts Alaska’s AAA Rating
Wall Street Journal, Aaron Kuriloff, January 5, 2016

Oil price plunge forces Alaska to freeze hiring
CNN, Chris Isidore, January 6, 2016

Alaska’s hidden wealth revealed: First digital geological map of America’s northernmost state exposes buried minerals and energy
Daily Mail, Ryan O’Hare, January 6, 2016

Fairbanks borough to consider settlement over oil pipeline taxes
Fairbanks Daily News Miner, Amanda Bohman, January 6, 2016

Alaska governor institutes hiring freeze and travel restrictions for most state departments
Alaska Dispatch News, Nathaniel Herz, January 6, 2016

Gov. Walker removes head of Alaska regulatory agency
Washington Times, January 6, 2016

 

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