Alaska Progress Report

2012 Resource Extraction 10-Year Project Projection

It's a project projection, it's a project projection! From the Anchorage Economic Development Council comes the 2012 Resource Extraction 10-Year Project Projection, a review of "...over sixteen oil, gas and mining projects in the state over the next ten years and the economic impacts of these projects."

From the executive summary, compared to last year's report, "...very little has changed other than another year has gone by with only slight progress in moving the described projects forward. In effect, the opportunities and benefits those projects represent for Alaska’s economy moved another year or more away from reality... As was the case in 2011, AEDC’s perspective on the outlook for these projects is not optimistic. Alaska’s competitiveness in the global markets within which we compete, is not favorable in many ways... social compact, taxation, ermitting, litigation, commodity pricing, high costs related to project development and access to needed infrastructure have reached a point of, what is effectively, gridlock for many proposed projects. Compounding these challenges is a clear lack of agreement among Alaskans on a common vision for Alaska’s economic future."

Alaskans not agreeing on a common vision? We're shocked, shocked and appalled (we're neither).

Rural energy costs up to five times higher than Anchorage

From a recently completed Commonwealth North study, Energy for a Sustainable Alaska: The Rural Conundrum: "Recent studies have demonstrated that the poorest households in rural Alaska spent up to 47% of their income on energy in 2008, more than five times their Anchorage neighbor. Given the meteoric rise in the cost of oil since then, estimates of the burden today are significantly higher.

"The Commonwealth North Rural and Alterative Energy Study Group received presentations from regional organizations on energy plans in various stages of developments. Virtually all the plans included some version of renewable energy - generally still in the early concept design stage - and interconnection of communities to that generation source. All the plans appeared to be very high cost, upward of $500 million per region, and none would dramatically lower the cost of energy without massive government subsidies.

"The Renewable Energy Fund, established in 2008, is authorized to underwrite $250-300 million of energy projects, but with projects for small communities coming in at $4-5 million each, it is likely that per-community renewable solutions will cost $2 billion statewide, and will at best keep electricity prices stable into the future. Heat and transportation fuel substitutions will greatly increase this number."

How will Alaska deal with the end of oil?

A cheery new paper from the ever-optimistic Scott Goldsmith at the University of Alaska Institute of Social and Economic Research looks at the end of peak oil in Alaska. Warning: explicit charts and graphs depict harrowing statistics! Not safe for work, especially if you work in the oil industry...

"Two-thirds of the economic growth since statehood, as measured by jobs and income, can be traced to petroleum production, petroleum revenues, and petroleum spinoffs that have given a boost to other industries and households throughout the state.1 Although these effects are most obvious in urban Alaska, they reach into every corner of the state—through generous public spending, low taxes, and the Permanent Fund dividend.

"This prosperity has come from giant, low-cost fields—the largest being Prudhoe Bay—that the state owns on the North Slope. But now, those fields are in serious decline. As Figure 2 shows, we’ve used 80% of this high-revenue oil, with only about 20% of the identified 23 billion barrels of reserves remaining. Still, despite this situation, two things are currently creating a sense of complacency among Alaskans. There’s a lot of petroleum employment right now, because more people are needed to squeeze the last reserves out of these fields. Also, high oil prices are bringing the state big revenues, even as production drops. Together, high employment and high prices have diverted our attention from the reality: when there is no oil left in the barrel, the associated jobs and revenues will also be gone.

"And although it’s impossible to predict how future events will unfold, Alaska’s experience in the late 1980s—when a crash in oil prices ended the first huge oil-revenue boom—provides a glimpse of what could happen. Virtually all Alaskans were affected—by losing jobs, seeing the value of their houses plummet, or watching friends leave the state."

What drives rural fuel prices?

From our very own think tank, the Institute of Social and Economic Research: "Fuel prices in Alaska's small rural places are very high—and a lot of Alaskans wonder what's keeping them so high, even though crude oil prices were generally lower in 2009. So the state Senate Finance Committee asked economists at the Institute of Social and Economic Research to examine what drives fuel prices in rural Alaska. A new study by Ginny Fay, Nick Szymoniak, and others describes the complex system for getting fuel to remote places. They find that—contrary to what many Alaskans believe—there's no single thing that makes prices so high. Instead, many things add up to drive prices:

• It doesn't appear that fuel distributors operating in Western Alaska are charging excessive prices to deliver fuel to communities.
• Fuel distributors in rural coastal areas (from Southeast to the Aleutian Islands) are in a position to set higher prices—because they frequently also own retail stores in communities. But a new analysis by the Alaska Department of Law finds distributors are not using that power to increase prices.
• Several things suddenly converged to push prices up in Western Alaska—including crude oil prices that are still higher than several years ago; price recovery among fuel distributors, after earlier competition pushed prices below sustainable levels; the need for distributors to replace aging equipment and acquire double-hulled tankers; and construction of new tank farms in many communities.

"After accounting for those factors, most of the remaining variation in retail fuel prices in Western Alaska seems to result from differences in price-setting practices at the community level. Those include differences in collections for operating and maintaining local tank farms; levels of local compliance with safety and environmental requirements for storing fuel; debt payment on bulk fuel loans; and price mark-ups to collect revenues for other community purposes."

Unlike the Lower 48, coal in Alaska not important for electricity

From our friends at the National Mining Association: "Coal provided 6.9 percent of Alaska’s electric power generation in 2008. Alaska used 500,000 short tons of coal to generate 648 million kilowatt hours of electricity. Based on cost of electricity, Alaska ranks #44 in the nation in energy affordability, according to EIA. Alaska ranks #21 in the nation in coal production and #46 in the nation in coal use."

Coal provides just 6.9% of electricity generation in Alaska, versus 61.7% from natural gas, 19.0% from hydro and 12.4% from other sources. Nationwide coal provides about half the electricity generated and is one of the cheaper sources of power. Not so much here in Alaska, but it does provide a few jobs:

"Alaska produced 1.5 million short tons of coal in 2008 from an estimated recoverable reserve base of 2.82 billion short tons. Direct and indirect employment generated by U.S. coal mining in Alaska accounts for 530 jobs, for a combined payroll of $20 million."

Alaska local energy guide

I like a massive government-funded report as much as the next person, but Alaska Energy from the Alaska Energy Authority is a doozy. It's so big it needs two subtitles: "A first step towards energy independence," and "A guide for Alaskan communities to utilize local energy resources." The idea is that communities can use the guide to figure out what kind of energy options they may have.

It tries a little too hard to be comprehensive and could benefit from some professional editing, but for an in-house publication it's not bad. Fifty-some pages of introductory material covers the dynamics and history of energy policy in Alaska. Without warning the report transitions from a discussion of permitting into the second section that covers eighteen different energy technologies. All the usual suspects are there, including my personal favorite, small-scale nuclear. I want one of these for my backyard. Once I'm a nuclear power unto myself I'll finally get the respect I deserve from my neighbors. If not - BAM! - new parking lot.

It really all comes down to cost per kilowatt hour. There's a good discussion of energy economics in Alaska and an example of a community profile with different local options. More tools are available on the AEA web site.

Anchorage has most expensive gasoline in nation

From the Juneau Empire: "The Lundberg Survey of fuel prices says the average national price of gasoline increased 2.6 cents in the past two weeks. Oil industry analyst Trilby Lundberg said the average price of regular gasoline Friday was $1.94 a gallon. The price of mid-grade was $2.07 a gallon and the price of premium was $2.19 a gallon. Of cities surveyed, the nation's lowest price was $1.60 in Cheyenne, Wyo. The highest price was $2.39 in Anchorage."

Despite the high prices a recent investigation by the state attorney general found no evidence of price fixing. The state was tracking fuel prices across Alaska last year, and there is a November 2008 report available with statewide numbers. If you're really hard after more analysis and data check out the ISER research.