To many Americans of my generation (Boomer), Alaska and energy are as closely linked as apple pie and ice cream. Growing up, everyone heard about the huge North Slope discoveries, the Alaskan Pipeline project and the State’s revenue sharing with its citizens (the annual check which no one in the Lower 48 could look forward to).
The gold rush built “turn of the century Alaska” and the oil and gas boom built “modern Alaska.” Just look at the numbers: tourism contributes 3 percent of the Alaskan GDP and State/Federal activity accounts for 19 percent, while oil and gas provides 25 percent. Alaskan GDP Employment follows this trend: 31 percent of all jobs are oil and gas related.
Alaska’s economy IS an energy economy and in my opinion, the state sits at a crossroads. On the one hand, it can be argued that for the first time in many years the state is again on its way to having adequate gas for residential needs. This is so important that the state’s elected officials have worked tirelessly for the past 15 years to attract more drilling and development in the state to assure a continued supply. This strategy, established in 2007 and consisting of low taxes, special incentives and ACES rebates, has begun to produce results. New producers — Buccaneer among them — have come to the Cook Inlet and begun the development and production of reserves, which had been largely stalled since the late 1980s.
According to some, Alaska may have enough gas to provide residential heating to the most populated parts of the state. Less densely populated areas are being told the supply will be there when it is required.
Let’s assume for a minute that these representations are correct and that a single supplier can meet the energy needs of the state. I’m a bit skeptical about this for a number of sound technical and market driven reasons. But for a moment let’s assume this is the new energy reality in Alaska.
One approach would be to say, “Wonderful, problem solved. We should, discontinue incentives and tax, tax, tax producers;” IF the single source supply is there. By making that call, you essentially invite the competition to the single supply source to go elsewhere; and you cede the market overnight to the single supplier with all the supply. You also wake up in a world where the state’s citizens have only one provider to meet their energy needs.
Some might say this would work just fine. It has NOT worked in any other market that I’m aware of, so I doubt it will here. History dictates that it won’t be long before supplies fall short, and prices trend higher while people are getting cool in the winter either because of costs they can’t afford or lack of supply. This could be a good result for the single supplier, but not so much for the citizens and the state.
Is this the world the citizens of Alaska, elected officials, regulators and various state agencies have worked to create over the past 15 years? Not from what I’ve been told.
The people I’ve talked to have a vision of multiple producers feeding energy into a system that first and foremost provides for the local market — but goes far beyond this base line to a much larger vision representing another “Gold Rush” for the state and continuing prosperity.
Alaska should be a model for the energy industry. It wants to lead, not follow. It created incentives to attract MULTIPLE smaller independents to replace the majors who have effectively moved on from Alaska. The state recognizes that drilling and producing in Alaska for the smaller, less funded independents requires not only tax incentives and low tax rates but also a long-term commitment to the industry. Buccaneer and others like us have responded and are working to develop Alaska’s rich energy reserves.
These multiple producers could help produce enough gas and oil to open the fertilizer plant. That would create between 70-100 jobs, and not just any jobs — good paying, non-seasonal jobs that help employees pay mortgages, raise families and support local tax bases. Even better, the plant itself would be a revenue source for local taxing authorities.
Multiple producers could also help produce enough gas and oil that the LNG facility in Kenai could be reopened. The local energy requirements of Fairbanks and the growth in energy requirements generally could be met with LNG produced for Alaskan use. The Marine Highway could be converted to LNG, which would allow it to meet new EPA emissions requirements. Smaller communities could convert from high priced diesel fuel to clean burning natural gas, and the Donlin Mine project could be moved forward.
All of this would lead to a growing and vibrant economy based on sustainable, clean energy produced locally.
So, we’re at a fork in the road with Alaska’s energy dilemma. On one path, a few benefit and all pay a price. On the other, everyone wins, even the current single supplier. The choice is obvious: take the path of multiple producers. How do you realize this opportunity?
To start, at least 30 percent of the utility supply should be held open for other market participants to bid on. A 30 percent reserve isn’t enough to hurt the single supplier, but it gives the utilities a back-up supply in the event the single supplier is wrong and he doesn’t have the supply he thinks he has. It has the additional benefit of maintaining competitive pricing.
This type of market will satisfy the financial backers of the independents, and it will create an opportunity to funnel their production into the other projects mentioned above.
I don’t know how you would vote, but for me creating hundreds of new, high paying jobs, expanding the local tax base and stimulating economic development across the state is a far better solution than the alternative.
Curtis Burton is CEO of Buccaneer Energy Ltd.