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Fairbanks economy stable, challenges ahead

Posted: July 8, 2011 - 8:47am

FAIRBANKS — Life and the economy overall are steady in the Interior city. And that’s a good thing in these uncertain times.

Jobs are stable, though retail is down a bit because of the overseas deployment of Fort Wainwright soldiers. North Slope work is also down for Fairbanks area-contractors and unions. Still, the twin pillars of the region’s economy, the military and the University of Alaska, are stable.

The problem is energy. It is getting so expensive that it’s increasingly tough for people to live in Fairbanks, local people say, despite the good employment situation.

“It is costing some people $1,000 to $1,500 a month to heat their homes in winter, and that’s just unaffordable,” said Jeff Cook, a longtime Fairbanks resident. Electricity rates are going up too, because power is generated mostly with fuel oil.

Still, Fairbanks has a lot to be thankful for.

“We’ve been fortunate over the last two years because much of the effects of the national recession missed us,” said Jerry Cleworth, mayor of the city of Fairbanks. “Half of our working people here are employed by government, which seems almost immune from recession. That gave us a buffer.”

Employment data paints a picture of a steady economy. In April there were 38,700 wage and salary worker in the Fairbanks North Star Borough, according to information from the state Department of Labor and Workforce Development. That’s actually up a bit from 38,200 employed during April 2010 and April 2009.

Deployment overseas of the U.S. Army’s 1st Stryker Brigade Combat Team, 25th Infantry, from Fort Wainwright, is having a negative impact on retail sales in Fairbanks this year, but this is being offset by increases in tourism over last year and growth in health care and government jobs, according to the latest issue of the borough’s Community Research Quarterly.

Still, there are some serious issues facing Fairbanks over the next five to 10 years, Mayor Cleworth said.

Fuel price is the main worry, but a second concern is Fairbanks’ non-attainment of air quality levels during winter, which will lead to sanctions and possible restrictions on federal permits for new projects by the U.S. Environmental Protection Agency unless a way is found to deal with it.

The Fairbanks North Star Borough is working on a plan for that and the broader energy dilemma as well, and the answer is natural gas, according to Fairbanks Borough Mayor Luke Hopkins.

Trucking of liquefied natural gas from the North Slope, which is now being studied by two local utilities, is the near-term solution, Hopkins said. Golden Valley Electric Association and Fairbanks Natural Gas Co. are working on the LNG trucking proposal. The gas company trucks LNG from Southcentral Alaska and regasifies it in Fairbanks for customers.

Another possibility are the natural gas discoveries in the Nenana Basin, an area west of the city where Doyon Ltd. is exploring, Cleworth said.

Hopkins and Cleworth said the energy dilemma is now affecting business expansion in Fairbanks. Fairbanks still depends mainly on fuel oil for space heating. Aside from the cost, that is not something that fits the business model of retailers looking to build in the Interior city, Hopkins said.

Those companies are concerned over the expense and potential liabilities of building underground fuel tanks for large new buildings, which may become stranded investment if natural gas becomes available sometime soon. Many standardized building designs that large retail firms use assume natural gas will be available, as is the case in the Lower 48.

Target, for example, has submitted building plans to the borough but has put the project on hold, Hopkins said.

Military might

Cleworth said the two military bases near the city, Fort Wainwright and Eielson Air Force Base, appear relatively secure for now. Fort Wainwright is a primary support base for rapid-deployment of Army forces and nearby land available for advanced training is a big plus for the installation.

The city mayor complimented the federal Environmental Protection Agency and U.S. Army Corps of Engineers for approving permits for a new $180 million bridge across the Tanana River that will create year-round access to Army training area on the south side of the river.

The ample space available for air combat training helps anchor Eielson, where large international air training exercises have become annual events. Eielson also supports aerial refueling of Air Force planes over the Arctic and northern regions of North America.

However, the bases can’t be taken for granted.

“If we continue with serious deficits at the federal level, the Department of Defense will take some budget hits,” and Fort Wainwright and Eielson may share some of that pain, Cleworth said.

An important signal, however, is that the Defense Department continues to invest in infrastructure. Fort Wainwright recently upgraded its coal-fired power plants, and the Air Force is now making a substantial investment in upgrading capabilities and power generation at the Clear missile early warning radar station south of Fairbanks.

One thing to watch for is whether the Air Force moves ahead with plans to upgrade the Eielson AFB power plant, Cleworth said.

Tours galore

As for this year, the community’s mayors are happy to see the upswing in tourism numbers. Visitor levels are still not back to where they were three years ago, but are a lot better than last year.

Some downtown merchants and restaurant owners are unhappy with a decision by major tour companies to not bus visitors downtown at mid-day — they are instead taking tourists to the Riverboat Discovery for lunch — but the tour companies say they try to take the sting out of this by allowing time for local shopping later in the day.

Fairbanks also has a spirited downtown merchants’ association that is working to liven up the downtown core of the city with special events. A downtown Solstice festival packed in the people, locals and visitors, Cleworth said, and the next event coming is Fairbanks’ annual Golden Days summer festival.

Winter festivals, mainly in the spring when harsh temperatures soften, add life to a normally slow time of year.

Fairbanks did well with winter tourism last spring, almost all of it driven by special events. The North Star Borough’s hotel/motel bed tax collections, an indicator of tourism, were up 14 percent for January through March of this year. Revenues totaled $6.2 million for the quarter, up from $5.53 million for the same months of 2010.

Mining for jobs

The brightest new prospect for Fairbanks, however, is in mining. International Tower Hills, a mining company, is engaged in advanced exploration of a major gold prospect near Livengood, north of Fairbanks. It appears to be substantial, but the question is whether the gold can be extracted profitably.

The mining company hopes to have that answer later in the year. If it is developed, it would be a surface operation similar to Fort Knox, northwest of Fairbanks.

Fort Knox is a major employer and taxpayer in the borough, and a similar mine in Livengood would only add to regional employment.

Energy woes

These are positive developments, but Borough Mayor Hopkins returns to the energy dilemma as the central problem for Fairbanks. It relates not only to the cost of living and the cost of operating mines, like Fort Knox and proposed at Livengood, but also the air pollution issue.

If trucking LNG could work financially as a short-term solution, an aggressive program to bring natural gas to 13,000 Fairbanks-area homes could result in a 50 percent reduction in winter air pollution levels, enough the bring the community into federal compliance, Hopkins said. Doing this would take two summers and about $46 million, the mayor estimated.

The “anchor” tenants of the LNG trucking project would be at North Pole, east of Fairbanks, where Golden Valley Electric Association’s oil-fired power plant is located along with two refineries, the Flint Hills and PetroStar plants, that now burn oil to heat crude oil to make products. Lowering the energy costs of the refineries would help them remain viable and in operation, Hopkins said.

Given this, the North Pole community would likely see a build-out of a local gas distribution system with the LNG storage tanks and regasification equipment nearby. There would also be a gradual expansion of the existing distribution system in Fairbanks itself that is now operated by Fairbanks Natural Gas, Hopkins said.

Eventually natural gas will come to Fairbanks from the North Slope but even an accelerated project to build a pipeline has gas delivered in eight or nine years. LNG trucking would be a short-term “bridge” to when North Slope gas would be available.

Meanwhile, Doyon Ltd. believes there could be undiscovered natural gas closer to Fairbanks than the North Slope. The Fairbanks-based Alaska Native regional corporation has high hopes for the Nenana Basin about 60 miles west of Fairbanks, even though an exploration well drilled recently had inconclusive results.

Doyon owns lands in the area but is also part of a consortium holding a state exploration license covering the basin, which also includes state and University of Alaska lands.

Jim Mery, Doyon’s vice president for resources, said the corporation hopes to do seismic work in the northern part of the Nenana Basin this winter. The area is considered to be the most prospective part of the basin but is also remote, posing logistics challenges.

Doyon is also engaged in an evaluation of its own and village corporation lands near the Yukon River north of Fairbanks, an area also close to the Trans-Alaska Pipeline System and on the route of proposed natural gas pipelines from the North Slope. Geologists have long felt the large Interior Alaska sedimentary basins are prone to gas, but have also recently concluded that there is oil potential in some areas too, Mery said.

Seismic work has been done in the area, and Doyon is working to interest an oil and gas company in further investigation.

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