This is a rare story about Alaska that does not involve Sarah Palin or any member of the Palin family. It does involve state budget shortfalls, corporate welfare, dirty energy, banksters, and rabid elephants.
Alaska relies on oil revenues to fund state government. Oil revenues have been falling as north slope production dwindles, creating budget headaches. So what do you think Republican governor Sean Parnell wants to do to solve the crisis?
Parnell wants to expand oil-patch tax credits and cut tax rates in the hopes of spurring exploration and sending more oil down the trans-Alaska pipeline. He said he'll draw billions from state savings to make up any budget shortfalls.
Add dry holes in rock to the list of things tax cuts can supposedly cure.
Deficit hawk scat in Alaska
The state budget for this year was built on expectations of $4.7 billion in oil revenues. Those expectations were not based on reality and the brain trust of Alaska knew it. They have been watching and talking about this slow-motion train wreck for years. Make that decades. Oil production peaked at 2 million barrels a day in 1988 and has fallen to 600,000 barrels in recent years.
If an individual gets their salary cut by 70% and dips into savings or goes into debt, conservatives are the first to wag their fingers and call them irresponsible. They should get a new job, marry into a trust fund, lose their home, or sell a kidney. It is funny how these same fiscal hawks always seem to turn to larger corporate entitlements as the solution to any government budget crisis. In the case of Alaska, Parnell is betting the farm on tax cuts. His welfare program will cost the state $2 billion in oil revenues a year.
Here is how Parnell justifies his welfare program for oil companies at a time of budget deficits.
If the tax cuts were approved, the governor said the state would have a budget gap for several years that it could close by tapping savings and cutting spending.
"That's what the savings are there for, to be that bridge," Parnell said.
But over 30 years, the governor said, the assumption is that oil companies would reinvest much of the money saved from lower taxes. He said tens of thousands of jobs would be created.
Republicans cannot be accused of being one-trick pachyderms. They have at least two tricks when faced with a tight budget – increase corporate entitlements and cut spending programs that benefit people in need.
Alaska discovers Peak Oil
There is something that Parnell and media coverage of Alaska’s budget problems conveniently neglect to mention. Projections for Alaskan oil production have long assumed that there is a very large amount of conventional, undiscovered oil in the National Petroleum Reserve (the area adjacent to current north slope fields in production). The most recent U.S. Geological Survey report casts doubt on that assumption.
The U.S. Geological Survey estimates 896 million barrels of conventional, undiscovered oil and 53 trillion cubic feet of conventional, undiscovered non-associated gas within NPRA and adjacent state waters. The estimated volume of undiscovered oil is significantly lower than in 2002, when the USGS estimated there was 10.6 billion barrels of oil. The new result, roughly 10% of the 2002 estimate, is due primarily to recent exploration drilling indicating gas occurrence rather than oil in much of NPRA.
Recent exploratory wells and seismic surveys indicate that the hydrocarbons in the National Petroleum Reserve are not oil, but limited mostly to natural gas. Gas is less valuable because it generates less royalty revenue because of a lower unit price than oil. There is also no pipeline to carry it.
The disappointing assessment of the National Petroleum Reserve cannot have been a complete surprise to state officials. They have been pressuring oil companies with leases in the Reserve to develop wells, but to no avail. Oil companies have many, many shortcomings, but they do know how to evaluate potential for a well. Dry holes are too expensive to risk. Someone in Alaska had to question why the leases were not being worked if conventional oil reserves were as large as previously advertised.
Send in the Banksters
Here is where the plot thickens. An organization calling itself the Make Alaska Competitive Coalition has begun running television ads and raising money. They are pushing something that is not under Alaska’s direct control, namely increasing oil production.
Television ads from the Make Alaska Competitive Coalition have started airing this week. The ads feature images of a little girl mixed with footage of the pipeline and oil fields.
"By the time 6-year-old Ava gets to high school, the trans-Alaska pipeline could be shut down," the ad warns. "If we don't stop the decline, we'll all pay the price: a state income tax, no PFD, fewer state services."
The solution, the coalition says, is new oil production.
The group has no apparent affiliation with oil companies, but does have a few banksters on the board and among the contributors. Oil revenues are not just important for state coffers. The Alaska Permanent Fund, which distributes dividends to the Alaskan residents, is based on a percentage of oil revenues and is managed as a semi-private corporation. And look who is helping them manage their investments:
Investment officers from Goldman Sachs came to Juneau Thursday to brief the Alaska Permanent Fund Corp. as part of one of fund’s innovative new investment strategies.
Surely Alaska must be keeping them on a short leash…
The Permanent Fund’s Board of Trustees decided last year to pick a handful of top investment managers and give them each half a billion dollars and wide latitude with which to invest it, said Jeffrey Scott, chief investment officer for the Alaska Permanent Fund Corp.
Goldman and the other managers are able to invest largely as they like, with a goal getting five percent annual returns after inflation. But, they have to keep Scott and the trustees informed of what they’re doing, along with why they’re doing it.
At the moment, Goldman and other banksters have only been given a small fraction of the Fund's assets to gamble, perhaps as a trial to reassure nervous state officials. Goldman portfolio managers Mark Evans and Rob Patch seem to be licking their lips at the potential.
Evans, too, seemed intrigued by what the permanent fund was doing with its external CIO program.
“Your thinking is very forward leaning among your peers,” said Rob Patch, with Goldman Sachs.
A few more pieces to the puzzle
Riddle me this. Why would state officials double down on bets on oil months after the USGS released a devastating report on the major state and federal reserves currently in play? Why the sudden appearance of a group of former state officials and financial executives pushing oil production as the only solution to the state's future? Where is that production going to come from if the National Petroleum Reserve is a bust?
One answer can be found in a just released "study" from economists from Northern Economics and the University of Alaska Anchorage’s Institute of Social and Economic Research. The study, commissioned by Shell Oil, touts the benefits of offshore development in federal waters in the Arctic Ocean. Opening up the Chukchi and Beaufort Seas to unfettered leasing will be the greatest thing for Alaska and America since the days of William Seward according to these economists paid by Shell (a major lease holder in the Beaufort Seas). The report is making quite a splash in the right wing blogosphere (Google it. I am not going to link to wingnuts, moonbats, and Kochtopus appendages.)
But wait. Didn't Shell just announce that it was scrapping plans for development for at least a few years? Yes, it did. Alaska Native and conservation groups successfully delayed the start of drilling because of lax emission standards for nitrogen dioxide from drilling vessels. Resolving the dispute will be easy. The real scapegoat according to Shell and Republican lawmakers is the Obama administration's review of Outer Continental Shelf drilling permits in the Arctic Ocean.
Shell had been putting pressure on the Interior Department to allow drilling in Arctic waters at a time when federal regulators were reviewing all energy exploration after the BP well blowout in the Gulf of Mexico. Federal officials have questioned how oil companies operating in the Arctic would handle a similar drilling accident. Slaiby said a "significant portion" of more than $3 billion Shell had invested in the project had been dedicated to a spill response program.
Alaska's congressional delegation expressed disappointment in the delay, saying the work would have created 800 jobs and thousands more over the years.
Sen. Lisa Murkowski (R-Alaska) said in a statement that the Obama administration's regulatory decision would "result in all of us paying more for gasoline — not to mention the loss of jobs and revenue that responsible development bring."
Speaking of Lisa Murkowski, she has been promising to "throw some elbows" around Washington to increase oil production in Alaska. What does Murkowski want?
Sen. Lisa Murkowski (R-Alaska) on Thursday called boosting Alaskan oil production her top priority and claimed that Middle Eastern turmoil and rising prices put drilling in the Arctic National Wildlife Refuge (ANWR) “back on the table.”
Oil production is central to Alaska's economy. Murkowski used a speech to Alaska’s legislature to warn that the massive Trans-Alaska Pipeline System (TAPS) will shut down if production declines continue and the industry cannot access new fields in her state.
Murkowski is the top Republican on the Energy and Natural Resources Committee and the panel of the Appropriations Committee that controls Interior Department spending. She vowed to use her perches to press for oil company access to the National Petroleum Reserve-Alaska and for industry access to federal waters off Alaska’s northern coast, where Shell Oil is fighting for Interior Department permission to begin drilling.
Middle Eastern turmoil, my ass. Without an increase in oil production in federal waters and on federal lands, Alaska will be broke or worse. They might have to assess a state income tax and cut Permanent Fund Dividend payments, things guaranteed to send Tea Party Republicans into apoplexy. And given the global commodity status of oil pricing, even if the production exceeds everyone's wildest expectations, the impact at the pump for Americans will be negligible. Job creation is another distortion since new production merely saves the jobs of oil workers currently on rigs in the north slope.
“I believe the House of Representatives will lead the way by passing legislation to open ANWR this spring. Then it will be the Senate’s turn to act, and I will do everything in my power to convince my colleagues that this is the right decision for both Alaska and America,” she said.
This is not about what is good for America. This is about what is good for Alaska and Big Oil. It is about thoroughly dishonest statements from elected officials claiming some connection to events in North Africa. At least it makes sense why people in Alaska learned to how spell Murkowski instead of voting for Joe Miller.
Ok. I fibbed a little. And this is also about Sarah Palin. She created a policy that made tax breaks to Big Oil contingent on investments in the state. Sean Parnell wants even larger tax breaks for Big Oil with no strings attached.
Of course, Big Oil does not need tax breaks. They need access to conventional oil reserves that can be exploited quickly. They need access to drill in environmentally sensitive federal lands and waters. And they need state lawmakers to run interference for them.