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April 2011

Vol. 16, No. 15 Week of April 10, 2011

Many projects, but little optimism

AEDC, Petroleum News and North of 60 Mining collaborate on major forecast of oil and gas, mining projects on tap for Alaska

Eric Lidji

For Petroleum News

For years, Bill Popp’s annual forecast of Alaska resource extraction expressed optimism about the future, but in recent years his report have showed that optimism eroding.

In 2004, when Popp first forecast the future of resource extraction in Alaska for the Kenai Peninsula Borough, his report included both a natural gas pipeline and oil from the Arctic National Wildlife Refuge. By 2009, his report for the Anchorage Economic Development Corp. expressed concerns about the impact taxation, litigation, permitting and the global economy would have on Alaska.

“Well, that lack of optimism continues in today’s forecast because things have not really significantly changed,” he said on March 31, at the release of his 2011 report. “In fact, if anything, they’ve gotten worse.”

Using data collected by Petroleum News and North of 60 Mining, the new report details nearly a dozen new oil and gas projects — fields not currently in production — that could add up to 4,800 jobs and $3 billion to $5 billion in investments each year through 2022.

“That’s what would happen if all of these projects were to happen,” Popp, the president and CEO of AEDC said. “Please, don’t count on all of these projects to happen.”

View over next decade

The forecast looks at all the projects on tap over the next decade, both those already in the early stages of development and those that could come to pass under the right circumstances. It includes detailed historical information, proposed development plans, up-to-date investment and employment estimates, and reserve figures for each project.

For oil and gas, the forecast is driven by two big projects: Great Bear Petroleum’s proposal to develop North Slope source rocks and a Repsol/Armstrong Oil and Gas/GMT Exploration joint venture on state lands south of Prudhoe Bay. But it also includes projects by independents like Brooks Range Petroleum Corp. and UltraStar Exploration, majors like BP and ExxonMobil, and Cook Inlet operators like Escopeta Oil.

Although state revenues continue to hit record levels and job numbers are rising, the gross state product of Alaska has been in a “tailspin” since 1990, Popp said, a contradiction caused by the combination of rising oil prices and declining oil production “that’s masked an underlying decay in the very foundations of our state’s economy.”

The trans-Alaska oil pipeline is operating at less than 30 percent capacity, but attempts to add production — like Shell Oil in the outer continental shelf and ConocoPhillips in the National Petroleum Reserve-Alaska — have been delayed by litigation and permitting.

Meanwhile, market forces are stymieing long-standing hopes of transitioning the Alaska economy to natural gas. The flood of shale gas reserves across the Lower 48 have jeopardized the economics of a North Slope gas pipeline and the changing Pacific Rim marketplace lead to the mothballing of the Kenai liquefied natural gas export facility.

Economy at critical point

“Alaska’s economy is at a critical point in time in which the circumstances we are faced with today and how we respond to them in the coming year will either set our state on a path towards greater prosperity or, if we choose poorly, on a rapid path of economic decline, the likes of which have not been seen in Alaska since the mid-1980s,” the report concludes, offering six immediate goals that it believe can keep the state economy sound.

Those goals include:

• Promoting production from state lands;

• Making the fiscal regime more competitive globally by revising the progressivity feature of the current production tax and by creating incentives for to increase production at existing fields and reward high-risk exploration and new technologies;

• Improving permitting timelines so that companies can see a return on their investment in three to five years, rather than the current range of seven to 10 years;

• Enacting timelines to keep lawsuits from extending indefinitely;

• Coordinating resource development and infrastructure planning to guarantee that large regional projects like power plants and pipelines improve project economics; and

• Engaging Alaskans in a clear dialogue about the future of resource development.

Despite big gains by other industries, old and new, “we’re a resource extraction based economy, folks,” Popp said. “We will be for generations to come.”






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