By NOLAN WILLIS
I have lived in Alaska most of my life and have observed over many years that most of our problems are readily solvable, but we cannot seem to get out of our own way. A classic example of this is the impending Cook Inlet gas supply constraint.
According to a United States Geological Survey report on undiscovered oil and gas resources dated July 12, 2011, Cook Inlet contains an estimated 19 trillion cubic feet of undiscovered (untapped) natural gas — enough to last about 270 years at the present rate of consumption (70 billion cubic feet per year).
When only proven reserves are considered, a 2022 Department of Natural Resources Cook Inlet Gas Forecast indicates that there is an estimated 820 billion cubic feet within relatively easy reach—enough for about a decade. We just need to drill holes in the right places to get it. Some producers, like Furie Alaska, are sitting on top of enough gas to supply our needs for the next several years but lack the capital funding to get to it.
Why can’t we tap more gas? For one thing, our royalty policies have not been consistent over the past decades. In one particularly egregious case, the State initially gave tax credits to incentivize Cook Inlet development and subsequently revoked them once developments were well underway because the State needed (or wanted) more revenue.
This bait-and-switch in conjunction with some land, lease, and resource boundary disputes created a bankruptcy (Buccaneer) and serious financial strains on producers, stymied drilling efforts, and signaled to all prospective producers that Alaska is not good for business. Additionally, misguided environmental goals and ESG (environmental, social, governance) influences have restricted bank lending to oil and gas developments out of concern for the environment.
Moreover, the State of Alaska has its own plans to build a multi-billion-dollar pipeline from the North Slope to Southcentral Alaska, and that project, if executed, would make most Cook Inlet investments nearly worthless in the long-term.
All the aforementioned issues and many others have contributed to a climate of business uncertainty and excessive risk where nobody wants to provide the necessary capital to get more drilling operations underway. For producers, the safest course of action is to do nothing until things get really bad because that means they can charge more for producing less gas at minimal risk to their own interests.
If we are going to have secure access to Cook Inlet gas resources, our State needs to fully and consistently support gas development and not jerk our industries around to the tune of whatever is convenient or popular. The need for reliable support is even greater when the supplies are constrained and investment capital is constrained by ESG policies. Without consistent support, the local supply will fail and that is not good for Alaskans. The producers will move elsewhere, and consumers will be stuck with the situation that we created with nobody to blame but everyone else.
I know that many today are opposed to oil and gas development out of principle or because of concern for climate change. However, if reducing emissions is the primary goal for some, neglecting Cook Inlet so that its production dries up is going to do more harm than good. In the foreseeable future, every urban Alaskan’s carbon footprint will increase along with their heating and electric bills as foreign gas is about to be tanked in from Mexico or Canada to make up the supply deficit.
Importing LNG from elsewhere is more energy and carbon consumptive, and more costly, than locally produced gas. Alaska is embarking on this path because we are not acting strategically. Not only will we consumers be paying more for our energy supply to line the pockets of people out-of-state instead of supporting local employment, but we will also be emitting more carbon dioxide and methane to the atmosphere in the process.
In other words, there are no environmental benefits to be gained by the upcoming supply constraint and associated economic hardship, despite how some people feel about oil and gas development. This is like going on a strict diet that leaves you hangry and grouchy combined with an intense, exhausting exercise program that only results in increased weight gain—a miserable and pointless proposition.
Here is a suggested path forward—an idea for consideration. We ought to bypass the ESG-bound banking cartel and designate about $5B from the Permanent Fund or from some other State monetary resource toward a Cook Inlet Resource Development Fund. We then solicit development proposals from private companies to compete on the basis of how to extract gas out of Cook Inlet. Then, we provide the money as capital to get the gas development operations underway. Instead of demanding loan payback in fixed terms with interest, treat this as an investment where the citizens of Alaska are permanent stakeholders. Have each MCF of produced natural gas from Cook Inlet contribute a dollar value (for instance, $3/MCF adjusted for inflation yearly) back toward the development fund and nix all the other royalties that gas producers would normally be required to pay when extracting gas out of Cook Inlet.
The existing statutory royalties and taxes are worthless to Alaskans if the gas cannot be extracted at all, and we need to be forward-thinking enough to understand this, as well as the fact that energy insecurity and high costs threaten the economic well-being and prospects of all Alaskans—even those living outside the Railbelt. If a successful gas development effort cost $2B from the proposed fund, the payback period would be on the order of a decade, and there would be a fund full of money after that to do future development when those gas wells start running low or when significant investments need to be made to prevent bad things from happening. Under the present circumstances, revenue will dry up with production, and there will be nothing left afterward except pain and suffering.
Obviously, I am presenting a simplified and potentially controversial idea here, and there are many details to work out. The point is that there are solutions to our problems if we simply take some ownership. None of us want our suffering economy to shrivel up and die, but that is the most likely outcome, given our present trajectory that results from being passive and making shortsighted decisions.
Long-term, we need to give serious consideration to nuclear power to diminish our emissions and provide long-term energy security. Europe and the rest of the developed world relies extensively on nuclear energy, so I am a big proponent of this. However, reality demands that we solve the problem in front of us first because that is the solvable problem that is within our grasp.
As a wise person once told me, when unsure of what to do, just take the next single right step. This is what I tell my kids when they are overwhelmed with decision-making. We need to take the next right incremental step, and for us Alaskans this means securing our gas supply to keep our existing heat and power infrastructure operational while we develop a long-term plan for a cleaner energy supply.
We can accomplish this alternative energy supply next, but we will not get the chance if we are struggling to fuel our businesses, our homes, and families while a bunch of people and businesses leave this great State.
Nolan Willis is a lifelong Alaskan, a Bristol Bay Commercial Fisherman, a licensed Professional Electrical Engineer, and the current Chair of the Institute of Electrical and Electronics Engineers Alaska Section. His work experience spans the worlds of utilities, energy, communications, and naval nuclear propulsion.
No! The government needs to be removed from the market, not interfere. What makes you think that more leftist bureaucrats injecting PFD money will bring success rather than boondoggle? Government is not the answer, government bureaucrats are the problem.
To fix South Central (manufactured) energy crisis requires: stable regulatory governance; stable revenue structure to reimburse the cost of regulatory enforcement only, not more bureaucracy or giveaway programs, and getting the government otherwise out of the way. PERIOD! Let the market decide.
Sufficient energy fills the Earth for mankind to survive and thrive. We merely need to allow the producer class of people to exploit it.
Remember: Nothing is either created or destroyed, only changed. Burned natural gas (methane) today is the trees of tomorrow, which will decompose into the methane of next week. It is a magnificent cycle.
This would absolutely be true IF all Alaskans owned the mineral wealth under our property. Unfortunately we don’t. For Alaska to become a state, we had to give up he mineral wealth under our individual properties and allow the state to manage it for maximum sustainability and for ALL Alaskans. So, like it or not, the government IS involved, unless you can find the political will to change our constitution. I’ll give you that we MUST get the government to treat the resource developers fairly and not see them as a piggy bank to support government spending. So in that respect the government needs to get out of the regualtory and royalty way. HB223 was an attempt to do that but it was torpedoed by by Mears and Weilchowski (and others). We need smarter voters. Mears needs to go. Weilichowski needs to go. Kawasaki needs to go. Thank God Bishop is gone. Hoffman needs to go. Shrage needs to go. Any of the anti-devlopment big government boneheads need to be voted out. If we cannot do that, it will get pretty cold in Anchorage in a decade or so.
Perhaps that is the will of the people of Anchorage to get cold. Looks like it from the last election. Let them heat solar.
North Slope gas will NEVER make Cook Inlet gas worthless. The cost of the gas coming down the never to be built, very expensive, economically unviable pie dream would be twice as expensive as the Cook Inlet gas is. That gasline is nothing more than a vehicle to put State money into a few particular pockets. If a gasline was a viable project, the oil companies would have built it. The state needs to stop screwing with private enterprise.
Totally agree. WE CAN DO IT!
I am sure there will be pushback about using our precious PFD to fund direct investments in our LOCAL resource development (although I think Juneau thinks it is THEIR precious duty to allocate as much to themselves, than us anyway!). Yet we have to grasp the concept that we are headed to getting 100% of NO royalties when no one drills anymore because they cannot trust Alaska to keep their promises. They already don’t trust the Feds to keep their promises. Let’s not squander our trust, too.
Well-written and forward-looking, Nolan. Let’s hope people can look forward, too, because when we are cash-strapped personally paying just the heating bill, we cannot look beyond our next paycheck. And then it is too late. We become serfs. We’re not there yet.
Brilliantly presented. I would only comment that “I know that many today are opposed to oil and gas development out of principle or because of concern for climate change. ” is actually a small and very vocal minority in Alaska buttressed by global efforts to bankrupt our people and state, however, because of the SOA education system those numbers continue to grow. It’s a pity.
Exactly, we have several “environmental” groups that receive massive funding from out of state and country to fund their sabotage efforts. Many are based here in Juneau where currently we have a huge landfill that belches out methane and other bad odors. Who knows what old chemicals are leaching into the nearby channel. No money or social justice in that though.
Alaska is run by left of center idiots and right of center cuckholds.
First of all, I fail to see how a term used to describe a man with an adulterous wife pertains to Alaska’s leaders in any way. And secondly, if you’re going to insist on using the pejorative, at least spell it correctly. It’s CUCKOLD.
“……..I fail to see how a term used to describe a man with an adulterous wife pertains to Alaska’s leaders in any way………”
Well, because we (residents) are getting screwed by the political class (the cucks), they enjoy watching, and we apparently enjoy performing for the profit class (those paying the cucks for the pleasure). Perhaps, again, you fail to understand because you’re “a liberally-oriented person”?
As a liberally-oriented person, I agree with the idea of using some of the Permanent Fund to develop local energy sources, including Cook Inlet natural gas. After all, why have a rainy day fund if you’re not going to use it when it’s raining (or in this case, starting to freeze…)?
However, what I do find curious is that MRAK, being a generally Conservative/Libertarian website, immediately looks to the State to solve Alaska’s energy problems instead of depending on the private markets. I guess hating on Big Government is cool until it’s you that needs the things that it can provide. Astounding hypocrisy.
“………what I do find curious is that MRAK, being a generally Conservative/Libertarian website, immediately looks to the State to solve Alaska’s energy problems instead of depending on the private markets………”
This is because the state and feds have control over what will or will not happen, in both engineering and finance (as well as every other aspect), and the reason why you don’t understand that is because you’re “a liberally-oriented person”.
If we want a state run corporation to do what state run corporations do why wouldn’t we use Alaska Industrial Development and Export Authority to waste money and not get the job done?
If we want a state run corporation to do what state run corporations do why wouldn’t we use Alaska Energy Authority to waste money and not get the job done?
While using a giant pile of money might sound like a good idea for some people, we’ve already tried that and that is what led us to where we are today. Fortunately much of Southcentral has recently had a beetle infestation so there are quite a few dead trees ready to provide heat for those who have stoves or fire places…certainly this is a cleaner form of energy than natural gas,,whether imported or produced locally. And while firewood won’t keep the lights on it will at least keep a few of us warm throughout the long dark cold winters…at least a couple of them.
“…….while firewood won’t keep the lights on it will at least keep a few of us warm throughout the long dark cold winters………”
Yup. Get your woodpile stocked and keep your saws and splitters ready, because as soon as the rolling blackouts start in the cold of winter, stuff will start to happen. Those who are prepared will best survive the true test of wills and will nots.
Wow, a well written article with even a proposal to fix the current situation. Nice job! Now will comon sense prevail?
Excellent Proposal // Idea. Next step is to … Commit Funds & EXECUTE!
We can’t continue to study this forever, just like the Susitna Dam.
“………We can’t continue to study this forever, just like the Susitna Dam………”
Oh, yes, we can. Just like everything else. And that’s exactly what’s going to happen, too.
perhaps a properly constructed document with clear and concise contractual language, two ten year time lines with rates of return to capital would be a starting point. some PFD money as a stakeholder and consolidation point for private capital would help.
PFD capital is needed so private industry knows the state is honest and committed. then get the heck out of the way. government can insist on more concise contract reward language for the private contractors, no more running away after poorly capitalized bidders try to game the system.
bidders and the state should be held harmless from failure, the goal here is stable supply, clear cost structures for the parties involved. there are indications that stable supplies are located within easy to reach pockets and fields.
utmost care must to taken to balance industry needs vs private sector needs. properly done this should be a reasonable solution to an ongoing problem. I never see nuclear being in the equation since we are not integrated into either Canada or the United States grid. we’ll always be America’s cheapest air craft carrier for the defense department.
billy Mitchell knew the strategic importance of Alaska to the rest of the United States a it’s time we treat it as such, vital national strategic importance. Sullivan should wake up for his Ohio nap and advocate for our state and national defense.
Blue Crest made it through the Cook Inlet revitalization fiasco of 2012. they are successfully extracting oil from their site near Anchor Point. although their experience wasn’t totally smooth they made it.
oil and gas can be extracted and sold into the market place in southeast Alaska. for all the talk of economies, nothing will be going forward unless the basics of a dependable market supply is attained.
put this issue on a pseudo war time footing with a reasonable expectation for the environmental concerns. let the private industry try to solve the issues and problems without intrusion from government. have reasonable demands for execution of goals, objections, timelines and let business create or fail. their capital, their failure.
Lets assume the $5 billion taken from the Permanent Fund would earn 6%, tax free, if left in the Permanent Fund. That would earn Alaskans about $300 million, per year.
Assume 142,000 homes served by Enstar- take that $300 million in earnings and that works out to $2112.00 per home, per year.
How is this good for Alaska?
“……..the State of Alaska has its own plans to build a multi-billion-dollar pipeline from the North Slope to Southcentral Alaska………”
Hello? If this happened, it would solve the problem not only for Cook Inlet, but Fairbanks as well. Moreover, the entire Yukon drainage could benefit with a small liquifying plant that could use the river to transport gas to villages, replacing the wildly expensive diesel systems. And it would last a century or more.
The article was well written. I support this idea and would like to see our funds invested in efficient natural gas production than companies. The proposal does not call for government management, only government investments such loans, loan guarantees, grants, and/or shares.