State is playing bingo, but the game is high-stakes poker
By TOM BRENNAN
The fact that it’s an election year could put a lot of people out of work. But never fear, Gov. Sean Parnell says we may be lost but we’re making good time.
Because this is an even-numbered year, it’s looking like a long shot that a bill will be passed during the current legislative session to cut the ACES tax law back to something that would encourage new investment in Alaskan oil development. So any measure to make Alaska more attractive to new money will be pushed back at least a year, if not longer.
State bureaucrats keep the governor from backing any reasonable measure by pointing out that the North Slope producers are still spending money here and oil patch employment is holding at a fairly high level.
But the work being done is maintenance projects — most of it to reduce corrosion, replace pipe, prevent spills and bolster production as the existing fields decline. Little to nothing is being spent on new exploration.
Though Gov. Sean Parnell and his people point to industry’s current spending as a good thing, the high level of maintenance expenditures is just more proof than anyone should need that the big North Slope fields are nearing the end of their productive life. In declining fields each barrel is more costly to produce than the one before.
With volumes going down and costs going up, the fields become less profitable all the time. High oil prices can mask the problem for a time, but Alaska loses competitive position no matter what the cost of crude does. If your taxes are higher than your competitors’ you lose.
A bill introduced by Rep. Craig Johnson, an Anchorage Republican, would tie ACES relief to local hire. That’s a good start and a good idea, but leads to the inevitable snide calculations on how much each job costs the state. The calculations are reasonable, but the important thing is that ACES reduction (or elimination) would do much to revive Alaska’s prospects as an oil province.
Without some such relief, the state can count on becoming a formerly active oil province, a thing of the past to those with money to invest. The direction of Alaska’s economy is inevitably down and down — and Gov. Nero and his Roman legislators will be fiddling while it burns. The slide won’t necessarily be steep at first, but its direction is frightening and will make the difference on whether our children and grandchildren will be able to live and work here.
It will be years before the trans-Alaska oil pipeline shuts down. Even when the line starts losing money, as it inevitably will, throughput could continue at a fairly low level if the producers can make a few bucks on the upstream or downstream sides. (Meaning they might lose money on pipeline operations but getting the oil from the Slope to market could offset those losses for a while.) They have an expensive infrastructure here and aren’t about to walk away from it.
However, money-losing pipeline operations and fading oil fields will mean ever declining production and, ultimately, much lower state revenues. At some point the Alaskan economy could be sucking wind (and I don’t mean the green kind that runs windmills).
Parnell says everything is just hokey-dokey and state oil revenues remain high. He claims the big thing holding back industry investment these days is the damage done to producer balance sheets by problems in the world economy. Industry people refute that and say their investments make more money if sent to other oil patches — the Gulf of Mexico being just one of them.
There is still hope for a gas pipeline moving ahead in a few years and that could help a lot, especially during the construction phase. But we need to be worried big-time about the ebbing interest in exploratory drilling on lands under state jurisdiction. That is where the Legislature could make a big difference.
Sensible oil patch managers would increase the attractiveness of Alaskan oil exploration investments by allowing investors to keep more of the money earned from their operations here.
But Alaskan legislators — some of whom seem determined to vote Alaska back to the Stone Age — think it is Alaska’s birthright to take and keep the lion’s share of whatever the explorers earn.
That might be fine if it didn’t mean the bucks would go elsewhere, though I object to it on general principles. Government should take a share, but that share should be low enough to encourage more exploration, more drilling, more production and more job creation.
Alaska is a competitor in the international oil market, but it’s in a high-stakes poker game and playing bingo.
Tom Brennan is author of The Snowflake Rebellion, Murder at 40 Below, Cold Crime and Moose Dropping & Other Crimes Against Nature. His Website is: http://arcticternbooks.com/
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