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December 2009

Vol. 14, No. 50 Week of December 13, 2009

Speakers highlight oil’s importance

Goldsmith, Langland, Samuels urge more attention for oil industry if Alaska is to have vibrant economy, avoid state budget crisis as production declines in next few years

Wesley Loy

For Petroleum News

An economist, a banker and a politician sounded a familiar alarm Dec. 8 at a special luncheon of the Resource Development Council for Alaska: The state’s vital oil production is running out, the industry needs some serious attention and Juneau is spending too much.

It all adds up to a bad end for Alaska unless action is taken soon, the trio said.

“Without oil and gas, we just don’t have the ability to have a vibrant economy,” said Marc Langland, chairman and chief executive of Anchorage-based Northrim Bank.

The other speakers were Scott Goldsmith, an economist with the University of Alaska Anchorage Institute of Social and Economic Research, and former state Rep. Ralph Samuels, an Anchorage Republican who after the luncheon announced he’ll run for governor next year against the Republican incumbent, Sean Parnell.

Nothing the three said was particularly new.

But everything they said bears repeating over and over because oil and gas is so crucial to Alaska’s economic health, RDC Executive Director Jason Brune told Petroleum News.

He denied the luncheon was held to support a Dec. 4 call from a group of legislators for a review of the state’s oil tax regime as a possible deterrent to exploration and industry investment.

‘Small, thin, seasonal, poor’

Goldsmith is well-known for his “fiscal gap” concept, the idea that oil production someday will decline to such an extent that the state government will face enormous budget deficits. He was writing and speaking about the fiscal gap in 1989, and he still is 20 years later.

Speaking to an audience of 300 people at the Dena’ina Civic and Convention Center in downtown Anchorage, Goldsmith laid out what Alaska might look like without oil, and described how vital petroleum is today.

Imagine, he said, that a terrorist set off an atomic bomb underneath Prudhoe Bay, rendering all the state’s oil radioactive and unsalable.

“About one-third of Alaska jobs would be gone,” Goldsmith said.

Oil is a rock of stability for the state, unlike tourism and fishing, which are highly seasonal and anyway not nearly as lucrative as oil, he said.

Without oil, Alaska might look very much as it did at the time of statehood in 1959, Goldsmith said, “small, thin, seasonal, poor, dominated by the federal government.”

Recent high oil prices and record employment in the oil patch have masked the fact that production today is only about a third of its peak of more than 2 million barrels a day in the late 1980s, he said.

The state has made a number of failed attempts to diversify its economy, but the most important move it could make is directing more attention to petroleum resources, Goldsmith said.

Bad policy?

Langland said Alaska’s got a leadership problem among its elected officials.

Alaska, with its high costs, huge risks and distance from markets, already is an expensive place for industry to invest and state decisions haven’t helped, he said.

When oil prices spiked, Alaska two years ago “got pretty greedy” and hiked taxes with passage of a policy known as Alaska’s Clear and Equitable Share or ACES, Langland said.

ACES as well as AGIA, the Alaska Gasline Inducement Act of 2007, need changes to entice companies to invest here as opposed to elsewhere in the world, he said.

Right now Alaska is having trouble attracting dollars to explore, to develop difficult deposits such as the North Slope’s heavy oil, and to build a natural gas pipeline, he said.

Much has changed since ACES and AGIA were passed, Langland said.

“In today’s global economy, we can’t afford to stick with bad policy,” he said.

Budget crunch coming

Samuels, now working as an executive for cruise ship operator Holland America Line, is known as the only legislator to vote against AGIA, which Sarah Palin pushed at the height of her political power as governor.

“Quite frankly, the state government doesn’t have a problem next year or the year after or the year after,” Samuels told the RDC luncheon crowd.

But in five years, assuming oil production declines by 5 percent a year, the state won’t be able to balance its budget unless oil pays $94 per barrel, he said. And that would be a barebones budget, he added.

Samuels said oil benefits the state in three ways: through private investment and jobs, royalties and production taxes.

Lately, the state has emphasized the third one, taxes, perhaps to the detriment of the other two, he said.

After the luncheon, in announcing his run for governor, Samuels vowed to look at the tax structure for ways to stem the production decline and spur more exploration.






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