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Oil, gas possibilities will bring inevitable changes

Posted: Tuesday, April 16, 2002

Recent activities on the lower Kenai Peninsula demonstrate the oil industry's faith that commercial quantities of oil and gas can be found.

But development will mean social and economic change about which there has been little public discussion and little preparation, argues the head of a leading peninsula industry watchdog group.

"We are literally seeing the second major boom in oil and gas development in Cook Inlet," said Bob Shavelson, director of Cook Inlet Keeper, a Homer-based nonprofit environmental organization devoted to water-quality and habitat protection in the Cook Inlet region.

That boom includes industry efforts to promote a gas pipeline project linking the lower peninsula with facilities in Nikiski, and the drilling activity under way from Anchor Point to Stariski Creek. What's found will one day feed the raw-material hungry processing facilities of the central peninsula, Shavelson said.

It will mean the industrialization of the lower peninsula economy, he said, shifting it from a fishing, tourism and service economy into one in which heavy industry becomes a significant player. Drill rigs, pipelines, production facilities and roads will change the face of the area. Wildlife, habitat, surface water and air quality will be affected. The style and pace of the economy will be altered as well, he added.

"The closer you tie your community economics to the volatility of world oil markets, the more you will see (the economy) peak and wane more frequently," he said.

Cook Inlet Keeper isn't opposed to oil development, but the agency is concerned by the lack of public discussion about the inevitable changes. There's been little feedback from the community to corporate or government decision-makers.

"We are cast into a situation where corporations with Outside boards of directors will make decisions solely on the basis of whether they benefit the shareholders and the compensation packages of executives rather than looking out for the long-term public interest of the community," Shavelson said.

In his estimation, such decisions have not been fair to Alaskans in the past and aren't likely to be in the future, at least not under prevailing priorities, he said.

Take the proposed gas pipeline between Nikiski and the lower peninsula. The public has been sold a bill of goods, he said. The project is much more about shipping lower inlet gas reserves to the central peninsula than about supplying consumers in Anchor Point and Homer.

In fact, he said he has never seen a document in which the industry makes "a concrete commitment" to bring gas supplies to those communities.

"Even the name of the pipeline, the Kenai to Kachemak pipeline, suggests that gas is going to be moving from north to south and that's completely false," he said.

The gas will go north to feed the needs of the industry there. And where does most of that product end up?

"According to state of Alaska records, close to 66 percent of the natural gas produced in Cook Inlet is exported," he said.

Will Nebesky, a commercial analyst with the Division of Oil and Gas, said Friday that roughly 220 billion cubic feet of gas is drawn from the inlet each year. Some 78 billion cubic feet is shipped as gas to Japan. The Agrium fertilizer plant consumes another 50 billion cubic feet. That means roughly 58 percent of the gas taken from the inlet is "exported" in that it is no longer available as gas to Alaskans.

Shavelson said he thinks local use should be a priority and that this clean and cheap fuel shouldn't be exported "simply because that's the best economic decision for the corporations." The big question is how to compel a change in priorities. There are risks and realities to be considered.

If oil companies can't expect to reap maximum profits, they may not explore at all. Then there's the fact locals don't make decisions regarding oil and gas reserves. They belong to all Alaskans and therefore are administered by the state.

Thus, it is lawmakers -- people often too closely aligned with those who stand to profit, Shavelson argues -- who make critical decisions regarding leasing, permitting and timing. Their decisions often are shortsighted, made in pursuit of immediate benefits at the expense of long-term goals, sometimes for no better reason than the outcome of the next election, he said.

"So we need vision, we need leadership. We need local people to stand up and say these are our resources, we care about our community, and we want to see the most return and value for our investment and for the costs we are going to bear in proceeding with development," Shavelson said.

He opposes draft legislation that would give oil and gas companies a one-year waiver on state royalty payments on so-called orphan pools of product geologically separated from main reservoirs. The idea, promoters say, is to give companies an economic incentive to go after product not now considered profitable, thus extending the life of the inlet industry and providing jobs and money in the local economy.

Shavelson thinks much of that is hooey.

"It is amazing to me that here we are staring down the barrel of a fiscal gap that no one on either side of the aisle can get their arms around, and we have proposals to give yet more money to the most powerful corporations on the planet."

Shavelson acknowledged that the state, over the years, has gotten hundreds of millions in royalties and property taxes from the oil industry's presence, but that has been far more than balanced by "the billions and billions of dollars in profits" taken out of the inlet, and by the long-term environmental costs, he said.

He doesn't think much of the suggestion that if the orphan pools are not tapped now, they may never be tapped because the infrastructure of the inlet oil industry will be dismantled once the main fields are drained.

"I think that's an industry scare tactic," he said. "Clearly the infrastructure in Cook Inlet is not going to be removed anytime soon, certainly not for the next couple of decades. They will make a decision if the market forces determine whether they invest or not. It's as simple as that."

If changes to the lifestyle of the lower peninsula are inevitable, given the industry activity, what can be done to prepare?

Among other things, the companies should be made to cover certain costs that the public actually now bears, Shavelson said. Forest Oil's "bottom-line" decision to dump drilling muds and cuttings into the inlet rather than inject them underground is just one example of costs ultimately paid by the public in environmental damage. It is, in fact, a kind of subsidy, Shavelson argued. Keeper sued Forest Oil over the issue last year. The court matter is pending.

The public also should demand greater commitment by the oil and gas corporations to support local communities. And that means more than donating a few thousands of dollars so they can "put up a banner at a local event and get some free advertising," he said. Things like recreational facilities, parks, trails -- infrastructure that will outlive the industry's presence in the inlet.

"I think there is a moral duty on the part of oil and gas corporations ... to have a good-neighbor strategy that they back up with dollars," Shavelson said.

Lawmakers often push for more oil production on the theory that the industry supplies well-paying jobs as well as tax revenue. But while exploration is capital and labor intensive, actual production is not. It is nowhere near as labor intensive as, say, Alaska's fishing industry.

The danger in lawmakers making leasing decisions based on the desire for short-term benefit -- immediate investment and jobs as well as voter favor at the polls -- is that they ignore long-term issues, Shavelson said.

"In a hundred years, when these reserves are gone, where do we see Cook Inlet? Do we hope the fisheries are healthy enough to sustain the recreational, subsistence and commercial uses we have now? Do we hope that we have been intelligent enough stewards of this area that we can still attract seasonal visitors to come and spend their money here?" he said.

"Those are important questions and sometimes we put the blinders on and look too short-term in our economic planning and don't see the forest for the trees."



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