|
The challenges of AK oil & gas revenues Future revenue stream depends on where the hydrocarbons are located, who owns the land and the proportion of oil relative to gas Alan Bailey Petroleum News
At more than 90 percent of total revenues, the relative contribution of oil and gas taxes and royalties to the state’s coffers is now as high as it has ever been since oil started flowing down the trans-Alaska oil pipeline in 1977, Scott Goldsmith from the University of Alaska Anchorage Institute of Social and Economic Research, told the Law Seminar International Energy in Alaska conference on Dec. 7. And after an almost continuous decline in revenues in the 1980s and 1990s, as North Slope production dropped, revenues have rebounded since around 2000, thanks to increasing oil prices and changes in the oil production tax structure, he said.
“After 2000 the State of Alaska got a reprieve — if you will, a second chance to get is fiscal house in order,” he said.
Dependence on oil But with oil and gas revenues in effect putting money into the pockets of Alaskans by eliminating the need for state personal taxes, by minimizing taxes on businesses and by enabling spin-offs from state investments in economic development, how will future changes in the state oil and gas business impact Alaska’s residents? With the federal government facing its own fiscal challenges and other Alaska resource industries not having the economic clout of oil and gas, petroleum is set to be the key to future Alaska prosperity, Goldsmith said.
“The petroleum industry will continue to be the most important leg of the economy moving forward,” he said.
The Alaska Department of Revenue has said that there may be 38 billion barrels of technically recoverable oil and 186 trillion cubic feet of technically recoverable natural gas remaining onshore and offshore northern Alaska, compared with the approximately 16 billion barrels of North Slope oil already produced, Goldsmith said. But the future state revenue take will depend, not just on how much of the remaining resources can viably be developed, but also on where future oil and gas comes from.
Three areas For the purposes of assessing possible revenue, Goldsmith divided northern Alaska into three areas: the central North Slope; the federal lands of the National Petroleum Reserve-Alaska and the Arctic National Wildlife Refuge; and the outer continental shelf of the Beaufort and Chukchi seas.
The state revenue take is highest — say $800 million per year for a 100,000-barrel-per-day field — for production from the central North Slope, where operations are relatively profitable thanks to an existing infrastructure, and where the state obtains income from production taxes, royalties and its share of the property taxes on the oil infrastructure. On federal onshore land the federal government, and not the state, collects royalties, thus probably reducing the state revenues for a 100,000-barrel-per-day field to around $500 million to $600 million per year (the state shares 50 percent of the federal royalties, although in NPR-A the state has to share its portion of the royalties with local governments).
On the outer continental shelf, more than six miles offshore, the state would receive no taxes or royalties of any kind, although onshore activity associated with offshore oil and gas fields would trigger some state taxes. And oil and gas developments on federal land would have the spinoff effect of improving the economics of the oil industry on state land, thus indirectly increasing state revenues.
On the other hand, oil and gas production in remote regions would be relatively expensive, thus reducing profits and eroding revenues. And the time value of revenues generated from oil and gas production in the distant future is less than the value of revenue generated today, Goldsmith said.
Gas less valuable Another important issue is the amount of natural gas produced relative to oil, if a North Slope gas line comes to fruition. Oil is much more valuable that gas, in part because of its higher energy content and in part because it is much cheaper to ship to market, Goldsmith said.
On an energy-content basis, oil at $80 per barrel is equivalent to gas at $13 per thousand cubic feet, he said. Even assuming that the current glut of gas in the Lower 48 is artificially depressing gas prices, perhaps making an equilibrium value of gas $8 per thousand cubic feet rather than the current price of around $4, gas is still worth a lot less than oil.
And that doesn’t take into account the high transportation costs that would further reduce the wellhead value of gas on the Slope. In today’s dollars, the trans-Alaska oil pipeline cost about $24 billion dollars to build, compared with a similar or perhaps higher estimated cost for a North Slope gas line, Goldsmith said. At peak throughput the oil pipeline was carrying oil equivalent to 11.6 trillion British thermal units of energy each day, he said. A gas line with a capacity of 4.5 billion cubic feet per day would, when full, be carrying about 4.5 trillion Btu of energy per day, about a third of the energy transmission of the full oil line.
The end result is that only perhaps 10 to 30 percent of the market value of the gas would be realized at the wellhead, compared with 80 to 90 percent of the value of the oil, Goldsmith said.
It’s definitely worth trying to bring the gas to market — people just shouldn’t expect the same high revenue stream from gas that they have come to expect from oil.
“There’s a lot more potential profitability, a lot more potential tax base, available from the oil than from the gas,” Goldsmith said.
|
