Crash: Oil reaches negative territory, lowest in history - Must Read Alaska
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Tuesday, August 3, 2021
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Crash: Oil reaches negative territory, lowest in history

WHAT WILL THE ‘OUR FAIR SHARE’ OIL TAXERS DO NOW?

At one point during futures trading today, U.S. crude prices dropped more than 100 percent — into negative numbers.

The drop for West Texas Intermediate crude for contracts with May delivery ended at a minus $37.63. This means the traders had to pay someone to take the oil from them.

Tuesday is the last day for traders to buy May contracts. Prices are predicted to bounce back modestly by Wednesday. The June futures’ contracts are a bit above above $20, so the dire drop today isn’t expected to stick around.

But prices won’t rebound to profitability for many companies, oil analysts say. Not for some time, at least.

Alaska North Slope crude prices are announced on a four-day delay, so they look artificially higher than they actually are. Analysts expect them to drop in a day or two, and then bounce back into the $20s.

Still, for the major oil companies, profits aren’t taken until expenses are covered, and the cost of producing and shipping a barrel of oil in Alaska is about $40. They are not making money in Alaska and haven’t for some time.

The immediate risk for Alaska is whether enough tankers can be found to even take delivery of oil at the Valdez terminal. ConocoPhillips and BP have their own tanker fleet, but Hilcorp does not, and in any case, there’s no place to take the oil on the West Coast.

If tankers can’t be booked and storage tanks are full — and this is worst case scenario — it could mean the Trans Alaska Pipeline System could shut down. That could mean the shuttering of wells in Prudhoe Bay, Kuparuk, Endicott, and older legacy fields.

Those legacy fields are the same ones the “Our Fair Share” oil tax initiative is aiming to extract $1 billion in taxes from. And Robin Brena, a law partner of former Gov. Bill Walker, has paid to have that ballot initiative go to a statewide ballot some time this year.

Brena can’t just put the toothpaste back in the tube on his oil tax ballot initiative. He’s got his 39,174 petition signatures, and he’s submitted them for certification. The certification is done. Now, it’s in the hands of the State Division of Elections to schedule for a ballot.

Brena will likely say its even more important for Alaska to have a minimum tax, because the State needs money. His initiative would double the minimum tax paid by the legacy field producers, the very ones that are losing money on every barrel they pump from the North Slope.

What will Brena and his fellow oil taxers do in this Year of the Oil Glut?

The Our Fair Share organization has been strangely quiet, and so have the Democrats like Sen. Bill Wielechowski, who have supported the extreme tax proposal.

The current best option for Brena is to hope that the courts rule his initiative illegal, since the signatures on the petition were gathered illegally and since the Resource Development Council has filed a lawsuit.

If it goes to the ballot this year, it’s going to lose, because most Alaskans understand how bad it would be to tax companies that are losing money in Alaska.

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Suzanne Downing had careers in business and journalism before serving as the Director of Faith and Community-based Initiatives for Florida Gov. Jeb Bush and returning to Alaska to serve as speechwriter for Gov. Sean Parnell. Born on the Oregon coast, she moved to Alaska in 1969.

Latest comments

  • At what price point ($/bbl) does Alaska need to consider paying the Oil Co’s to remain in business in Alaska? Even if the price of crude were to ‘quadruple’ to +$40/bbl the Oil Co’s would just barely break even, all of which, doesn’t foster sustainability and growth. With enormous discoveries elsewhere around the World, where construction and operational costs are much less, and environmental stipulations are less arduous, maybe Alaska and Alaskans should focus on recognizing the O&G Industry as a treasured economic “essential” engine and help maximize it’s utility by creating an advantageous economic environment for it to flourish and be sustainable in good times and bad?
    Alaska, and Alaskans, need to wake up to the realities of present day and prepare their mindset for a sustainable solution!

    • Your break even reference needs polish. Of the current larger producers each has a wildly different lift cost; one is less than $20, another more than $30, and the third is (significantly) more than $40.

      They’re all over the board and a winning number is more a factor of business philosophy than footprint.

  • If this Ballot Initiative goes before the people and for some ungodly reason it passes Alaska will say good bye to Oil Production on the North Slope and the State will be bankrupt in a couple of Years. As of right now the only thing keeping Oil Companies in Alaska is the chance that the State will some how realize that without them it ceases to function. At what point will the Id10Ts in Juneau realize the frivolous spending habits will come crashing down.

  • AK is fubar. With the house majority the way it is, and oil basically free, like I said earlier, the house will inherit ashes.

  • Time for the tax and spenders to pack up and head down to the lower 48 where they are more welcome, California and New York can’t get enough of you folks. Here in Alaska we need to slash our budget and retain as much capital as possible. We are in the middle of an economic crash caused by a global pandemic and the government shutdown of the private sector and now they are paying people to take oil off their hands. Strange times.
    .
    This is a massive reset of our way of life, like it or not.

  • Imagine an Alaska where a can of Coke cost more then a barrel of oil.

  • Rob and Steve,
    Many ‘actuaries’ (bean counters) advise “smoothing”, over at least a five year average. That way, an unforeseen hazard ( Wuhan v, for instance) and economic crises don’t impact as hard. The “smoothing” system averages everything over the “smoothing” period, whether it be two or ten years. The unforeseen events still have the impact, but spread over that entire “smoothing” period, at least on paper. It makes accounting, setting budgets and managing money easier, they say. I believe a large part of our current Wuhan v crisis is psychological. The smoothing system doesn’t work as well when most 24/7 “news” organizations are nothing but propaganda and gloom and doom to support it. Psychologically, we are at almost at war with ourselves, looking for the way out and being mislead at every turn by the “experts”. The “fiddler” will have to be paid for our ‘dance’, no matter the partner. When those partners are leftists, look out. I think Alaska may be reverting to the Alaska before big oil and all the accouterments that came with it. May not be so bad. I’ll bet a lot of leftists will decide Alaska is not really ‘for them’.

    • Many people living in Alaska will have to go south. Many! There will be no jobs for them and it is quite a challenge to live in a high cost of living State with no income. Especially in the winter. When that happens the State will have to find a way to spend the PF. And soon it will have to cut back expenditures, Big Time. That will mean more people heading south. And the snow ball
      keeps getting bigger as it rolls down the hill.

      • AF,
        People in Alaska tend to go south for one reason or another already. Taking away the leftist frills provided by other peoples’ money is sure to have an impact on those that depend on gov’t (other people) for their “lifestyle”. Alaska was never meant for those able but non-working parasites. Alaska is and should be, a state where one must work with all possible effort while the jobs are there, usually summer. Winters are long, cold and employment deficient for most. Some are more fortunate than others, like “public” employees. Alaska has about ten thousand “public” employees, approximately one for every seventy or so citizens. Not sustainable as it has been, even “finding a way” to steal the entire PF. You can imagine what it’s going to be like, starting soon, in an area near you.

    • True, we seem top be at war with ourselves, but that is mostly manufactured by outrage over differing political philosophies.
      I do, however, discourage you from thinking that the Trump Corona Virus (it’s his now that it’s here, and he doesn’t seem to know what to do with it) is going to submit to the idea of “smoothing” unless we are able to smooth out the way the virus deploys.
      That’s the whole idea behind tracking, distancing, and gradually opening things up.
      What this means for Alaska has yet to be decided, but it’s going to be a very different picture from what it was a year ago. The free ride with no taxes and a PFD look to be over. The next question is what will fill the void.

  • The owners of TAPS will at some point have to consider shutting down and removal and restoration / reclamation the pipeline and pad. While this massive project would provide employment for a season it would drastically alter life in Alaska.

    • I suspect a sleeving first.

  • One commenter blames President Trump and a few still believe in the Easter Bunny and that they legislators of either party will slash the budget, reduce State employees and benefits to the poor. I have lived here pre-Oil income. Everything provided by the State was much smaller and so was the population.

    Everything changed with the first ballon payment from the oil companies. The legislature couldn’t spend it faster like a poor person winning the lottery. They have kept up the expansion and spending continuously to today. Attempts to slash Medicaid will never happen because a liberal State Judge will prohibit any cuts. The people that are forced to leave will not be the people receiving the free benefits but those that have always worked, owned businesses and homes that are know unemployed, bankrupt and lost their homes and businesses.

    We have two many schools, school districts, colleges and universities all over Alaska. School districts with a thousand or less students should not exist. Bigger populations don’t need a school or 3 or more in every neighborhood. Not just schools but many state government offices are not needed when you can do online applications, renewals and information/video teleconferencing. Where there is a lack of broadband and computers in would be a onetime expenditure to install the systems and provide the equipment. Less expensive than small schools, State offices and State employees.

    Those are just a few suggestions but it looks like we will have no choice but to think outside the box. Two university physical locations Fairbanks and Anchorage only. You either travel to them or do it online.

    The oil companies came to Alaska explored for the oil, bought the leases, built the fields, pipeline and terminal and have been pumping the State’s oil to refineries which they own and distribution and sales locations they either own or sell to. With exception of one refinery that is closed and one fertilizer plant now closed Alaska has not developed any facilities to refine the oil, provide it to residents, AK businesses or export it. One barrel of oil is much more valuable than the price oil companies pay AK after they ship it out. It is not just raw oil but many products once refined that supply gasoline, aviation fuel, fuel oil, plastics, canned oil, oil thousands of industries and businesses use to operate. To the oil companies that one barrel of oil turns into many profit making avenues. AK failed to insist that the refineries and manufacturing facilities be built in Alaska providing jobs and income to Alaska and it’s residents. You will claim shipping costs would make it impractical or workers were not available but the oil companies insisted the price of gasoline was to be set by the price paid in a location they chose in the lower 48
    Thus Alaskans have always paid the oil companies extra even when we had a refinery in Fairbanks that might still be open if it supplied all off Alaska with our fuel needs.

    I have no sympathy for the oil companies that came here and developed and exported a product they wanted and made a profit from and refused to provide the State any information about how much they made off each barrel extracted from Alaska. When oil dropped to $9 per barrel during the Knowles administration the oil companies did not stop pumping and close the pipeline down but if they choose to do it now so be it. Under the current tax system which they drafted and the legislature passed to cut their taxes and increase their profits. Alaskans pay for them to extract and profit from our oil under the current system of taxes and credits or at least they would if the legislators that passed the credits actually paid them instead of ignoring any law they passed if the wish.

    Time to vote yes and we take a stand for all Alaskans fair share!

    Ohh don’t worry about the Permanent Fund because the legislators will spend the $17 Billion in the Constitutional Budget Reserve, the Corpus of the fund and sweep every dollar they can spend and pass multiple taxes and increases to fees before they will cut any real money from the budget.??✝️??

    • Are you referring to the Holiday refinery that polluted the aquifer in the region and was shut down as a result? You know they wouldn’t “still be open” without divine intervention, right?

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