Tim Bradner

AIDEA, Golden Valley take next step in Healy plant sale

The Alaska Industrial Development and Export Authority’s board approved a draft agreement Feb. 13 to sell the mothballed Healy Clean Coal Project to Golden Valley Electric Association in Fairbanks. Golden Valley and AIDEA staff have worked for several weeks to flesh out the sales agreement, the authority’s executive director, Ted Leonard, told the board. The deal was announced in general terms on Jan. 9. Golden Valley would purchase the plant from AIDEA for $50 million, an amount the authority would finance, and have the plant operating no later than 2014. Homer Electric Association will buy half of the electricity produced by the plant.           Critics of the sale showed up at the Feb. 13 board meeting to voice concerns, including a ratepayers group in the Matanuska-Susitna Borough and the Alaska Center for the Environment. Pat Galvin, the state revenue commissioner and AIDEA’s board chair, said the draft agreement includes more details on what was generally agreed on earlier, and sets the stage for future steps. "This is a sequential deal. We refine the steps as we go forward," Galvin said at the meeting. "What we have accomplished in this step is Golden Valley’s unconditional obligation to make payments regardless of the operations of the plant," whether it is running or not. "We also establish when commercial operations begin - it is in 2014 - and we establish a definition of what constitutes commercial operations," he said. Galvin said there are still a number of issues to be worked out, including the approval by the Regulatory Commission of Alaska of the power sales agreements for Golden Valley and Homer Electric to buy power from the plant. Excluding the RCA approval, which is outside the control of the parties involved, the "drop-dead" deadline for agreement on all parts of the deal by AIDEA, Golden Valley and Homer Electric, is Aug. 1, Galvin said. Leonard said items still being worked on include the actual purchase agreement, the schedule for the transfer of assets from the authority to Golden Valley, the agreement for AIDEA to loan Golden Valley $50 million to buy the plant, and a $45 million line of credit for Golden Valley to pay startup costs, which AIDEA will also back. Golden Valley has established a subsidiary company to own and operate the plant, Tri-Valley Electric Cooperative. At the authority’s board meeting, Tim Leach of the MEA Ratepayers Alliance, a Matanuska-Susitna region utility watchdog group, said members of the group were concerned that costs for the plant restart could be high and could affect rates for electricity among several utilities, including the Matanuska Electric Association service area. "There are a number of questions about this plan that have not been answered, including the risks mentioned by Golden Valley Chairman Nordmark during the January press conference on the agreement," Leach said. "Nordmark mentioned that the risks would be shared between Golden Valley and HEA but he didn’t describe what the risks were. There are also questions about the validity of permits for the plant that were issued in the 1990s." In response, Galvin acknowledged that there were complex issues yet to be worked out. Alli Harvey, representing the Alaska Center for the Environment, asked AIDEA to retain a third-party consultant to assess the startup costs. "There are many ratepayers who consider the Healy plant a bad deal because costs get passed down to ratepayers," Harvey told the authority’s board. The issue of permits held by the plant that were secured by AIDEA in the 1990s is a sensitive one, particularly the air quality permit. If new permits are required, it could substantially delay the restart and raise costs. Kate Lamal, vice president for power supply for Golden Valley, has said the utility believes all permits for the plant are valid. Environmental groups are checking into this, however, according to Chris Hall, of the Sierra Club’s Alaska chapter, who also attended the Jan. 13 meeting. The question of the plant’s permits may turn on the degree to which the plant has to be modified after the restart. The plant was built in 1996 and 1997, and started operations in 1998 for a year to test new-technology coal combustion and air pollution control equipment for the U.S. Department of Energy, which had paid for a good share of construction of the plant. When the equipment tests for the DOE were completed in 1999, the plant went into a 90-day commercial operations test during which plant operator Golden Valley noted problems, mainly in the system that feeds coal to the plant. A dispute developed between Golden Valley and AIDEA that has dragged on for a decade, until the agreement announced Jan. 9. Golden Valley said last month that it intends to stick with the new-technology systems in the plant when the facility is restarted rather than attempting a major retrofit with more conventional equipment. The utility now operates a smaller 25-megawatt coal power plant that is adjacent to the larger 50-megawatt facility.

February 17, 2009 - Week in review

Several bills were active in legislative committees in Juneau last week as the 2009 session slowly gathered momentum. Hearings were held on bills to change the state’s coastal management program, to increase the state’s minimum wage and to impose "price-gouging" penalties on Alaska refineries selling gasoline. These particular proposals are being pushed by Democrats, who have clout in the Legislature by virtue of a coalition organization in the state Senate that puts Democrats in positions to advance their proposals. The coastal management bill changes the program to where coastal communities would control approvals of a state coastal consistency determination, a form of permit, for projects in the "coastal zone" (which is interpreted to include inland areas with watersheds that affect coastal regions) or in the federally-managed Outer Continental Shelf. Federal law requires projects in the OCS to be "consistent" with a state coastal management program, and the key here is who controls that consistency determination. Currently the program is controlled by the state Department of Natural Resources, with the coastal communities playing an advisory role. This is an important bill because if it were enacted, coastal communities would have a form of control over development of natural resources on state lands and federal offshore lands. The gasoline price-gouging legislation is in response to high gasoline prices in Alaska that remained high through the fall and early winter as crude oil prices fell sharply and gasoline prices in the Pacific Northwest, and the rest of the U.S., declined. Economists retained by the Judiciary Committee of the state House last summer documented the "stickiness" of the Alaska gasoline price relative to Seattle-area prices last fall (and in previous times where crude oil prices fell) but also noted periods when Alaska prices were even or not far above Seattle prices and at times even below Seattle. A report by the Judiciary Committee released recently, and written mainly by its chairman, Rep. Jay Ramras, R-Fairbanks, and the committee staff, described the economic and technical issues facing Alaska refineries and notes the possibility that refiners "cross-subsidize" their sales of jet fuel with higher profits taken on gasoline (jet fuel is sold in a more competitive market, where gasoline is sold to an essentially captive Alaska market) but also recommends against the Legislature acting to intervene in a private market. Last week a long-awaited report from the state Attorney General’s office on an anti-trust investigation of the gasoline market was released. It found no illegal activity, but noted the same issues as did the House committee report (a small market geographically isolated, a few number of sellers, technical and economic challenges faced by refiners, etc.) The advocates of the price-gouging bill were not swayed by these reports, however. Their proposals would impose penalties on refiners if the price difference between Alaska and the Seattle area exceeds 10 percent. There is a fair amount of consumer angst over this issue, and public support for the legislation. Prices for gasoline and others fuels have come down, however, which may take some of the steam out of the issue. This week legislators are awaiting Gov. Sarah Palin’s amendments to her Fiscal Year 2010 budget, as well as a revised revenue forecast. These are due Feb. 18. The governor is expected to propose a somewhat reduced spending plan for the next budget year, which begins July 1. The revenue forecast is also expected to be reduced. There are concerns by legislators as to how large the gaps between revenues and spending will be. In January the governor estimated the gap for the current FY 2009 could be $1.36 billion, but it may be greater. The Senate Finance Committee estimates the FY 2010 gap at $2 billion if oil prices average $50 per barrel through the fiscal year. This number will undoubtedly change, to be greater or lesser. Given these circumstances, withdrawals from savings of $3.36 billion or more will be needed to cover revenue gaps for FY 2009 and FY 2010. The state has reserves of about $7.7 billion. The concern is that even if the national and world economy recovers in the next year and a half, the state will be left with thinner reserves to cushion the years until natural gas could flow through a gas pipeline (2018 or 2020) if the pipeline is even built. Mike and Tim Bradner publish the Alaska Legislative Digest and Alaska Economic Report.

Denali group to build gas treatment plant

  ConocoPhillips President Jim Bowles (left), listens to BP’s Doug Suttles shortly after Denali, the Alaska Gas Pipeline, was formed June 2008. The Denali group recently signed a contract with an engineering firm to build a gas treatment plant, a major step toward the gas pipeline project. File Photo/Rob Stapleton/AJOC     The Denali pipeline group on Feb. 10 announced the award of an engineering contract for a $2 billion gas treatment plant in Prudhoe Bay. The plant would be part of a $30 billion-plus Alaska natural gas pipeline project. The contract was awarded to Fluor WorleyParsons Arctic Solutions, a joint venture between major engineering companies Fluor and WorleyParsons. The joint venture has named CH2M Hill as its Alaska support subcontractor to provide support services during the design phase of the project, Denali spokesman Dave MacDowell said. "The joint venture recognized the need to select an Alaska-based engineering company with Alaska experience and knowledge," he said. Denali is owned by ConocoPhillips and BP, and is developing cost estimates for the pipeline in preparation for a 2010 open season. Technical studies for the plant will include cost estimates, execution planning, project design and all other steps needed to move the project forward, MacDowell said. The gas treatment plant, which will be the largest of its type in the world, will remove carbon dioxide, hydrogen sulfide and other impurities in the natural gas stream. It will also chill the gas and provide compression before shipment of gas through the pipeline. Modules for the treatment plant will weigh up to 9,000 tons, the press release said. MacDowell said the amount of the contract is confidential. "However, we can say it is in the range of several million dollars," he said. CH2M Hill has an established track record of engineering and project management in installation of large process plant modules on the North Slope and elsewhere, including the Russian Far East, through the company’s acquisition of Veco Corp., an Alaska oil field services company. The gas pipeline project planned by Denali would be built from the North Slope to Alberta through Interior Alaska, with a possible onward extension to the U.S. Midwest. A rival project is planned by TransCanada Corp., which would also involve a gas pipeline from the Slope to Alberta. TransCanada also plans an open season for its project in 2010 and plans to let contracts for engineering studies including its own study of a gas treatment plant on the North Slope.

Coal is a bright spot in Alaska exporting

Even amid a global recession, one Alaska resource commodity is doing well in export markets. Surprisingly, it is coal. Usibelli Coal Mine Inc. experienced a strong upturn in coal exports in 2008 from its mine in Healy, located south of Fairbanks. So far, sales for 2009 are looking pretty good, according to Steve Denton, Usibelli’s vice president for business development. "We exported about half a million tons last year in eight shipments. It was a lot better than we expected," he said. "We have six shipments scheduled for 2009 so far, which is the strongest position we’ve been in at the start of the year for a long time."   A massive crane scoops up dirt and coal at the Usibelli coal mine in this 2008 file photo. Coal shipments from the Alaska mine are among the few economic gems in a depressed economy. File photo/Tim Bradner/AJOC     Export shipments were to power plants in South America and Asia. Usibelli also produces about 800,000 to 1 million tons a coal per year for its Interior power plant customers. The company also supplies coal-fired power plants in Interior Alaska. Denton said coal prices haven’t strengthened Usibelli’s export marketing position - those have gone down like all energy prices - but the cost of shipping coal has dropped sharply, mainly thanks to plummeting oil prices. Even though the market price of coal is lower, the netback value to Usibelli from coal sales has remained stable, he said. "Pacific coal prices have fallen off like all commodities. They are about half what they were six months ago. But the cost of freighting the coal has dropped by five times, to about 20 percent what they were last summer. The net effect of this is that the value of our coal has remained steady," Denton said. Usibelli ships its export coal by rail from the mine to Seward, where it is loaded on bulk ocean carriers. The Alaska Railroad Corp. owns the coal terminal, but Usibelli operates it under a contract with the railroad. Alaska Railroad President Pat Gamble said the coal exports have been good business for the railroad as well as Usibelli. "They have proven to be very profitable and it was almost like a full contract year for exports, but because most of them were sold as spot cargos, they are difficult to predict," Gamble said. "We would like to tie them down in long-term contracts so we can do the capital expenditures needed to make the operation more efficient." Coal from the Usibelli mine is classed as sub-bituminous, which has a lower energy content than bituminous and other higher-grade coals. Its major advantage, though, is that the coal has an extremely low sulfur content, which means there is less air pollution when the coal is burned. That has made Usibelli coal attractive to Pacific Rim coal buyers, who often combine it with coal from other places that contains higher sulfur, in an effort to meet local air quality rules. Usibelli began coal exports in 1984, shipping about 700,000 tons a year to Korea Electric Power Corp.’s coal-fired power plant in Honam, South Korea. Sales to Korea began tapering off in 2002 due to competition from coal producers in Asia. The Alaska coal producer is now marketing much of its export sales through Glencore Ltd., an international brokerage firm specializing in commodities. Glencore facilitated the first test shipments of Alaska coal to power plants in Chile in 2004 and shipments have continued since. The ocean shipping distances to Chile from Alaska are about the same as the shipping distance from the nearest competing coal mines in Indonesia, Denton said. Shipping distances to Korea are also about the same as from Indonesia. For customers in Japan, however, Alaska has an advantage in a shorter shipping distance, he said. Usibelli is set to get another big order for its coal if the Healy Clean Coal Project, a 50-megawatt coal plant that has been shut down for 10 years, is restarted. Denton said the plant would require about 300,000 to 350,000 tons of coal a year. In January, the Alaska Industrial Development and Export Authority, which owns the plant, reached an agreement with Golden Valley Electric Association of Fairbanks that would allow GVEA to purchase and reopen the plant. The agreement is to be finalized in mid-February. GVEA, an electric cooperative that serves Interior Alaska, has been locked in a dispute with AIDEA over the plant that has dragged on for years.

Bills aim to control gas prices

JUNEAU - A battle over legislation to punish Alaska refineries if they overcharge for gasoline is shaping up in the Legislature. Several bills have been introduced in the state House and Senate, and a report issued by the House Judiciary committee Jan. 30 may add fuel to the controversy. The legislation, House Bill 68 and Senate Bill 54, is being pushed by five Democrats in the state House and four Democrats in the Senate.   File photo/Rob Stapleton/AJOCA Chevron station employee changes gas prices on a sign in this 2008 file photo. Prices at the pump continue to be higher in Alaska than in the Lower 48. Both houses have introduced bills to ding refineries if prices are higher than those in the Seattle area. File photo/Rob Stapleton/AJOC     Democrats have more influence this year than in previous Legislatures. There is a coalition Senate organization that has put Democrats in influential positions. If passed, the bills would impose substantial financial penalties on refiners if the price of gasoline in Alaska exceeded Washington state prices by 10 percent. The House committee report, authored by Rep. Jay Ramras, R-Fairbanks, and committee Chief of Staff Jane Pierson, says the state’s refineries may be taking higher margins on gasoline sold to a captive Alaska market to make up for lower margins in sales of jet fuel in markets that face more competition. However, the Judiciary report also warned against the state attempting to influence the market. Alaska’s refineries face their own sets of challenges, the report said, and if the state creates a situation where the refineries close, there could be unintended, but severe consequences, such as more expensive jet fuel for air cargo carriers stopping in Alaska. Pierson said the report condenses information from several hearings on gasoline pricing the committee conducted through the summer and fall of 2008. Ramras said he could not document any reason for a price difference of more than 70 cents a gallon in late 2008 when comparing prices in the Pacific Northwest and Southcentral Alaska. The cost of shipping fuel from the Northwest to Alaska is about 15 cents per gallon, the report said. Gasoline is made at two refineries in Alaska, a Tesoro Alaska Petroleum Corp. plant near Kenai and a Flint Hills Resources plant in North Pole. Both refineries produce jet fuel, which they sell to airlines flying through the Anchorage and Fairbanks international airports. Two other refineries in the state, owned by Petro Star Inc., mainly produce jet fuel and diesel, but not gasoline. Jet fuel pricing is competitive and is influenced by international markets because the airlines, operating through a fuel-purchasing cooperative, import jet fuel by barge to supplement Alaska-made fuel from the Tesoro and Flint Hills refineries. Gasoline wholesale distributors, in contrast, have no way of importing gasoline as a check on the refineries because the two refining companies own most of the bulk storage facilities and most retail outlets in the Anchorage and Fairbanks markets. There have been times when Alaska gasoline sold for the same price or even below that in Seattle, but for the most part Alaskans have paid higher prices, the Judiciary committee report said. "Historically, the price of gasoline in Alaska has been in relative parity with gasoline prices on the U.S. West Coast and in Seattle," according to the report. "Gasoline prices historically trended 11 cents per gallon higher than the U.S. market and from 2002 through 2007 the average spread between Anchorage and Seattle retail gasoline prices, before taxes, was 17 cents per gallon." That spread was out of whack by mid-2008, with gasoline in Southcentral and Interior Alaska as much as $1 per gallon higher than the national average. When crude oil prices started dropping, prices for gas followed in the Pacific Northwest, but not in Alaska. Economist Barry Pulliam, of Econ One Research, a Los Angeles-based consulting firm, did an analysis of several years of price trends and showed the Judiciary committee that historically Alaska gasoline prices quickly followed crude oil on the upswing but lagged on the price decline. The lag through the summer and fall of 2008 was more extreme, however. "The last four months have seen the widest disparity in prices ever," Pulliam told the House committee in November. The committee’s report indicated that some of this could be because the refineries saw their jet fuel margins squeezed during the period of high crude oil prices last summer, and delayed dropping gasoline prices to allow the refiners to make up the losses. "One question that remains unanswered is: Are refiners in Alaska making exceptionally high profits to carry and make up for losses elsewhere … or are high gasoline prices due to unsustainable losses in markets related to other refined products?" the committee report asked. Refined gasoline could be responsible for carrying the burden of much of the refinery plant’s operating costs, a disproportionate amount of these costs are being borne by Alaska consumers, the report said. Embedded in Alaskans’ gasoline costs are the occasional operating losses Alaska refineries incur in the jet aviation fuel market. Each dollar lost in jet aviation fuel sales are compensated for by spreading the cost over a gallon of gasoline produced for consumption by Alaska consumers. However, the report warned against the state attempting to interfere with or influence the market, such as with legislation triggering penalties when the gasoline price spread between Seattle and Alaska reach certain points. "Economic conditions governing Alaska’s refining industry are quite different than those governing the refining industry in the state of Washington," the report said. "Directly tying Alaska refiners’ pricing structure to Washington’s refining prices may prove to be like comparing apples and oranges. Refiners in Alaska, by the very nature of the Alaska market, are already constrained by product pricing of jet fuel." Under the proposed legislation refiners would find their flexibility to respond to market shifts in pricing commodities taken away, the report said. Sponsors of Senate Bill 54 include Sen. Bill Wielechowski, D-Anchorage, as prime sponsor and fellow Democrats Sens. Johnny Ellis and Hollis French, both of Anchorage, and Joe Thomas of Fairbanks, as co-sponsors. The House bill has Rep. Pete Petersen, D-Anchorage, as prime sponsor, and fellow Democrats Scott Kawasaki of Fairbanks, and Chris Tuck, Les Gara and Max Gruenberg of Anchorage, as co-sponsors. The legislation would impose penalties on refiners’ economic gain or $50 million if prices in Alaska average 10 percent over Washington state prices for a period of time.

Natural gas cooperative formed to help utilities buy gas

A member-owned Alaska natural gas cooperative has been formed to allow the state’s small electric utilities to negotiate and purchase gas more efficiently than the utilities could do on their own, according to Harold Heinze, one of the three founders of the co-op. Heinze, a former Atlantic Richfield Co. senior manager, currently is the executive director of the Alaska Natural Gas Development Authority, or ANGDA, a state corporation responsible for facilitating the supply of gas to Alaska communities. Two other founders of the co-op are Joe Griffith, retired general manager of Chugach Electric Association, and Tony Izzo, former manager of Enstar Natural Gas Co. Heinze said the state gas authority is assisting in the startup the new co-op, called the Natural Gas Supply Corp., and will help finance purchases of gas and provide technical support. Under Alaska law, individuals must form cooperatives. ANGDA is an independent state corporation with its own authority to sell bonds, including tax-exempt debt. Heinze said the co-op is modeled after similar gas supply cooperatives owned by electric utilities in southeast U.S. states. Alaska electric utilities that could join and operate the co-op say they are interested in the idea. "We think working cooperatively with other utilities is a good idea," said Lee Phibert, senior vice president for strategic planning for Chugach Electric Association. "We’re working now to develop a memorandum of understanding with the co-op that we’ll be taking to our board soon." Heinze said two ideas drove the formation of the co-op. "First, there is a need for some entity with resources to act as a gas supply aggregator in financing large purchases of gas for future delivery because electric utilities here, organized as co-ops themselves, are too small to afford it," Heinze said. Secondly, the larger volumes that would be purchased by the utilities as a group would lead to volume discounts, he said. The state gas authority could do all of this on behalf of the utilities, Heinze said, but it’s better if the utilities own and manage the supply effort themselves with ANGDA playing a support role. "This will work a lot better if utilities who are members run the co-op themselves," Heinze said. There is some urgency that the utilities get themselves organized because open seasons for a large-diameter North Slope gas pipeline are planned next year, Heinze said. Both TransCanada Corp. and the Denali pipeline group formed by BP and ConocoPhillips are pursuing separate and competing pipeline projects, and plan to have open seasons in 2010. Heinze said the co-op could also tackle development of gas storage facilities to handle seasonal swings in gas requirements. Southcentral Alaska gas producers Chevron Corp. and Marathon Oil Co. now have some capacity for gas storage in depleted gas reservoirs, but utilities may want to have their own storage, Heinze said. The co-op could also assist utilities in negotiating and purchasing gas supplies now. Chugach Electric has been stalled in efforts to renew or secure new supplies of gas with Cook Inlet producing companies in the Cook Inlet region. The utilities current supply contracts expire in 2010 and 2011.

Lawmakers hustle for state share

JUNEAU - State administration officials and legislators are hustling to stay abreast of a federal stimulus package that is evolving fast in Congress, and which could bring to Alaska an additional $800 million to $1 billion in federal funds. Gov. Sarah Palin had asked for a much smaller portion of federal funds for Alaska, but the state’s congressional delegation is working to get a larger share. Part of the new federal money would be for basic bricks-and-mortar infrastructure, part for an expanded social safety network, such as extended unemployment insurance and Medicaid health insurance coverage, and part to beef up education funding from elementary through the university levels. Lawmakers in Juneau welcome the federal money as a one-shot chance to catch up on a list of bridge, road and public building construction and major maintenance projects, as well as rural school projects that have been deferred for years. The stimulus money would also supplement what is likely to be a bare-bones state capital budget for next year, the result of low state oil revenues. However, some lawmakers worry about any strings attached to the federal largesse in requirements for states to sustain expanded programs on their own dimes. "The criticism I’m hearing is that that there will be programs created that we won’t be able to get rid of," said Rep. Les Gara, D-Anchorage, in a House Finance Committee hearing Feb. 3 hearing. John Katz, the state’s representative in Washington, D.C., told the House committee there are huge unknowns about the federal package - sharply differing House and Senate versions must be reconciled - but that it is likely that states will get stuck with some of the tab in paying for programs in years ahead. "Congress is creating an expanded social safety net and there may be requirements that some enhancements be continued, and the federal dollars may not be there in the future," Katz told the House committee. There are also concerns about whether Alaskans can mobilize projects quickly enough, given seasonal constraints on construction, to meet strict timing requirements for projects to be underway. Katz said President Barack Obama wants "shovel ready" projects and that deadlines in the pending congressional bills range from 90 days to 120 days. Palin and the state’s congressional delegation are working to push that to 180 days, but what’s more important is to define what the deadline means, Katz said. "There are now two interpretations of this, one that the deadline apply to funds being obligated to projects and a second in that contracts be actually awarded," Katz said. "The state Department of Transportation and Public Facilities tells us that the latter could be very difficult, so we’re putting our efforts into having the deadline refer to funds being obligated to projects." In any event the state DOT is gearing up to get projects out quickly and the agency is aware of the potential federal requirements, Katz said. One clear requirement is that projects must have cleared environmental hurdles. So no large projects requiring new federal environmental impact statements will make the cut. What’s also clear now is that the stimulus project will have no earmarks, or specific projects, designated in the legislation, Katz said. The money will instead be channeled into existing federal programs that provide money to states, such as federal surface transportation and airport aid programs. State administration officials and legislators will have to sort out where Alaska’s share of the money goes in terms of projects, Katz said. For surface transportation projects, like highways and bridges, the existing State Transportation Improvement Plan, or STIP, will be followed. For school construction, a priority list of needed new school construction and major maintenance projects maintained by the state Department of Education will be a guide. A concern is whether school projects now on the list will meet federal requirements that may be attached to the money. Randy Ruaro, the governor’s deputy chief of staff, said the state will have to be creative in getting some of the stimulus money to needed harbor projects in coastal communities. "There is no federal program for harbors. Perhaps we can use some of the provisions that will apply to public transit to do this," Ruaro told the House committee. Katz said the stimulus package would also have provisions for grants, which will be a way to channel money directly to municipalities. Alaska communities are being asked to send lists of desired projects directly to the state’s congressional offices, Katz said, but these will be used in next year’s regular federal programs rather than in the stimulus package. Rep. Anna Fairclough, R-Anchorage, a member of the Finance Committee, asked Katz whether there could be funding for renewable energy. "There is a lot of emphasis on renewable energy in the legislation and that is one of President Obama’s goals," Katz said. "It’s likely that a lot of this funding will go through the U.S. Department of Energy. The president also wants research on renewable energy." Rep. Bill Thomas, R-Haines, also a member of the Finance Committee, asked Katz if local-hire goals might be swept aside in the rush to get projects out, particularly in rural areas. "I see a lot of examples where a contractor brings in 22 people from out of town and hires maybe five from the local community, or puts a camp five miles out of town so there’s no economic benefit," Thomas said. Katz said federal programs have requirements for percentages of contracts and business to go to disadvantaged people, a category in which some rural residents might fit. There are some legislators, as well as senators and members of Congress, who worry about the long-term financial consequences of the stimulus package or whether it is really needed. "We’re still debating here in the Legislature whether the package is good or bad, particularly in piling up more federal debt and possibly devaluing our currency. Has the train left the station? It is too late to rethink this?" Fairclough asked Katz. "I’m afraid the train has left the station," Katz said. "There is a minority in Congress who disagree but there’s a majority that believe some form of economic stimulus is needed. The debate is over its proper balance between infrastructure, tax relief and programs."

Legislative week in review

Legislators in Juneau were focused on the prospect of a billion dollars of federal stimulus money for Alaska as the second week of the 2009 session ended Friday, Jan. 30. A few details were emerging on how the money might be appropriated if the package passes Congress. It has been approved by the U.S. House but not the Senate. Both the House-passed and Senate-pending versions channel the federal money through existing programs with states, thus avoiding the taint of "earmarks," or special designations. For Alaska, this means that surface transportation infrastructure money, for example, will flow through the existing federal-state transportation program. Projects already on the Statewide Transportation Improvement Program, or STIP, will be first in line for funding. Money for Alaska airports, most of which are state-owned and operated, will similarly work through the existing programs for federal aid to airports. It is less clear how funds for school capital improvements will be handled, but presumably each state’s existing school construction program will be followed. In Alaska, this means that the new school and school major maintenance projects on the state Department of Education priority list would be followed. There will be substantial flexibility on how some of the funds will be apportioned. Legislators are most interested on how money can be channeled to municipalities, for example. On other issues, last week legislators heard from TransCanada Corp. and the BP-ConocoPhillips Denali pipeline on those companies’ efforts to develop a North Slope natural gas pipeline. The two are competitors in developing a project. Both told lawmakers that they are taking the long view on prospects for the pipeline, and that they are not discouraged by the current slump in energy markets, which they see as short-term. However, many legislators attended the Alaska Support Industry Alliance’s "Meet Alaska" conference the previous week, on Jan. 23, where they learned from BP, ConocoPhillips and Wood MacKenzie, a consulting group, of substantial inroads into North American gas markets being made by new shale gas production, and of substantial surplus capacity in facilities to re-gasify imported liquefied natural gas, or LNG. The concern legislators have is that as the all-important 2010 open seasons for both TransCanada and Denali approach, it is apparent that energy markets are in a high state of flux. Even though customers purchasing capacity in either pipeline project will take the long view, the current environment in which "take-or-pay" contracts worth tens of billions of dollars must be signed can’t help but have an impact. Concerns over the supply of natural gas in Southcentral Alaska is also on the minds of legislators, and there is a lot of talk in the capitol over the "bullet line" idea being advanced by Enstar Natural Gas Co. The concept is for a 20-inch or 24-inch pipeline from the foothills region of the North Slope to Southcentral Alaska. The foothills region is where Anadarko Petroleum and its partners are working on a potential gas development. It is not yet known whether this gas can be commercially produced, however. If it cannot be produced, Enstar’s alternative is to build its pipeline on to Prudhoe Bay, where there are substantial gas reserves. Enstar says it needs gas by 2015, several years before a large-diameter gas pipeline can be built. The bullet line could be built and operating by then, the company says. There is an additional uncertainty over demand for the gas on the southern end of the pipeline, however. Enstar is quite clear that the Southcentral utilities cannot, by themselves, use enough gas to make the project viable. One or two large industrial customers, such as the existing Kenai LNG plant or a restarted fertilizer plant also near Kenai (the plant is now closed due to lack of gas feedstock) will be needed in addition to the utility customers. Enstar now estimates the cost of its project at about $4 billion, but new cost estimates are being worked on. Gov. Palin says that an in-state gas pipeline will be one of her priorities for this legislative session but details have yet to emerge on what the governor has in mind. Legislators are unclear just what the state can do beyond what has already been done in creating the Alaska Natural Gas Development Authority, or ANGDA, which has the capability to issue bonds to finance projects. ANGDA is currently engaged in planning and environmental studies of a spur line to Southcentral Alaska from a large-diameter pipeline built through Interior Alaska. Enstar has, to date, indicated that it intends to do its bullet line as a private venture without state assistance. One thing the state could do that would make a substantial impact on the economics of a bullet or spur line (and the cost to consumers) would be to make a substantial front-end cash investment in the project. Gov. Palin seems to shy away from this prospect, however, as do many legislators. Mike and Tim Bradner publish the Alaska Legislative Digest and Alaska Economic Report.

Wobbly energy market may crimp Alaska gas line

The global recession has created new uncertainties for a $30 billion-plus Alaska natural gas pipeline, according to the companies involved in the project and to independent analyst Wood MacKenzie. But pipeline developers BP and ConocoPhillips are taking the long view and see present low prices as a cyclical wobbles in energy markets, company representatives told members of the Alaska Support Industry Alliance during its "Meet Alaska" conference in Anchorage Jan. 23. A pipeline wouldn’t be carrying gas for at least 10 years but it would operate for decades, developers said. Still, the current turmoil in energy markets comes at a delicate time for the project. Two competing pipeline projects, one by North Slope producers BP and ConocoPhillips and a second by independent pipeline company TransCanada Corp., both plan open seasons to solicit shippers in 2010. The shippers can be either owners of gas or customers who would purchase gas. They will have to sign contracts during the open season that will commit them to tens of billions of dollars. This comes just as the recession is cutting demand as it roils North American energy markets and as aggressive development of shale gas brings substantial new domestic production into the market, ConocoPhillips President John Carrig said at the conference. If the pipeline were in operation today, its viability would be in question. Brian Frank, president of BP Energy’s North American trading group, said studies in 2001 on the Alaska pipeline estimated costs at $20 billion and a tariff of $2.50 per thousand cubic feet to move gas from Alaska to Chicago. Today the cost is likely in the $30 billion to $40 billion range, which would put the tariff at about $5 per mcf, which is about where North American gas is currently trading, Frank said. He agreed with Carrig that the strong entry of shale gas into the market was unexpected, and added that there is now substantial surplus LNG regasification capacity in North America. That means LNG imports can be increased quickly when gas markets recover. "There is now 12 (billion) to 13 billion cubic feet of regasification capacity, most of which didn’t exist five years ago," Frank said. "We’re only importing about 1 billion cubic feet of day of LNG, so there is enormous potential for increased use of the existing capacity. This is the equivalent of three Alaska gas pipelines." The U.S. Energy Information Agency predicts that surplus LNG regasification capacity will hang over the market for years, he said. "The EIA is predicting that LNG imports will be 4 billion cubic feet per day by 2010, which is one-third of the present capacity. There is a lot of flexibility to bring additional gas to the market," Frank said. Growth of shale gas in recent years caught the market by surprise, Carrig and Frank said. "The increase of supply from unconventional sources was an unexpected development that is helping drive gas prices down," Carrig said. Frank said no one thought this much shale gas production would be possible two years ago. "The shale gas plays show us how quickly technology can change things. Ten years ago we didn’t think we could produce most of the gas being produced today from shale," he said. "There has been an increase of 2 (billion) to 3 billion cubic feet per day this year compared with last year, and this really caught the market by surprise. It has helped make what was a bullish market for gas last year into a bear market today." Thanks to technology advances, shale gas can still be produced at even today’s prices. "The potential of yet-to-find gas from shale is enormous, about 30 times the North Slope resource," Frank said. BP is still committed to its Denali project, but the current market environment just highlights risks for the project, he said. "This just means that the Alaska pipeline will have to be able to compete with shale gas and LNG," Frank said. Carrig said, "We’re having to find innovative ways to move projects forward," like the Alaska project. Ed Kelly, Wood Mackenzie’s vice president for North American gas and power, said his firm thinks gas markets will recover, but when they do, renewable energy and energy conservation measures by consumers will take a bite out of the power generation market that had been previously served by gas. "Alaska gas could enter the market at the time when demand is growing again, but the growth may not be as fast as previously thought because of renewable energy," Kelly said. The consulting firm now estimates Alaska gas entering the market in 2021, he said. On the other hand, Wood Mackenzie thinks climate change legislation will be net positive for gas and will help speed recovery because some coal plants will be taken out of the power generation market. But if major industrial nations and the U.S. fudge on emissions-reduction commitments, as Europe is now doing with Kyoto, it will delay recovery for gas, Kelly said. ConocoPhillips’ Carrig disagreed with Kelly on the effects of carbon legislation, which will speed development of clean coal technology as well as nuclear, which will compete with gas for the power generation market. Energy markets will eventually recover. ConocoPhillips’ estimates reserve replacement for medium-cost projects at about $50 per barrel, which is higher than current prices. "We’ll come out of this, because the population will continue to grow," Carrig said. Frank said it is important to stick with the long-term vision of the gas pipeline. "Commodity prices will go up and down. The next step is to get a viable option," for a project, he said. "We believe the market will rebound, and prices will rise. Meanwhile, competition (from other gas) is good because it makes us sharpen our pencils."

Seven crew rescued after supply vessel sinks

A 166-foot platform supply vessel, the M/V Monarch, sank in Cook Inlet after being pinned against the Granite Point oil production platform by heavy ice. Seven crewmembers on the vessel were rescued and evacuated by helicopter from the platform along with eight platform personnel.   This photo released by the Coast Guard, the partially submerged oil supply vessel, Monarch, blue boat, is seen next to Chevron Corp.’s Granite Point oil platform in Cook Inlet about 45 miles southwest of Anchorage on Jan. 15. A boat that was moored to an oil rig platform in Cook Inlet sank, prompting at least 14 people to evacuate from the rig. AP Photo/Coast Guard     Seven other workers remained on the platform, but production operations were suspended, according to Roxanne Sinz, spokeswoman for platform operator Chevron Corp. Accidents among oil support vessels in Cook Inlet are rare. Marilyn Crockett, executive director of the Alaska Oil and Gas Association, said she cannot remember a sinking of a vessel in the 40 years she has worked in the industry. The sunken vessel has been located on the bottom, at about an 85-foot depth. An immediate concern is fuel aboard the ship, about 34,000 gallons of diesel, as well as 690 gallons of lubricating oil and an undetermined number of barrels of chemicals that were scheduled to be delivered to the platform. The accident occurred at 5:30 a.m. Jan. 15 as the Monarch approached the platform to make a delivery. Ice pinned the vessel against the platform and it began to sink, according to information provided to the state Department of Environmental Conservation. An emergency response tug based in Cook Inlet, the M/V Vigilant, was called to the scene, but by the time the vessel reached the platform, the Monarch was upside down and sinking. Later that day, at 12:08 p.m. the vessel sank. Chevron also emptied oil transit pipelines serving the platform out of concern that the submerged vessel might get pushed by tidal currents and damage the pipelines, state oil and gas director Kevin Banks said. In a statement, ADEC said the U.S. Coast Guard Cutter Hickory and tug M/V Champion were on location near the Granite Point platform to assess the integrity of the platform legs and associated pipelines, and used side-scan sonar to locate the vessel. Ice, winds and currents in the inlet were of concern for operations, ADEC said in its statement. The vessel owners have contracted with Global Diving and Salvage Inc., and is currently preparing a salvage plan and making efforts to locate a suitable dive and salvage platform, ADEC said in its statement. The primary objective of the salvage operation, now that the vessel has been located, is securing it in place to prevent damage to production platforms and sub-sea pipelines. Spill response contractor Chadux currently has spill response specialists mobilized at the command center in Nikiski.

Palin unveils renewable energy plan

Gov. Sarah Palin on Jan. 16 unveiled a new state energy development plan focused on renewable energy sources and set a long-range goal of generating 50 percent of the state’s electricity with renewable resources by 2025. Palin also released a list of 79 renewable energy projects, mostly for small rural communities, she will recommend to the state Legislature for approval. Last year, state lawmakers appropriated $100 million for wind, biomass and small hydro projects around the state and tasked the Alaska Energy Authority with the task of doing technical reviews on proposals and making final recommendations to the Legislature, which must approve the projects.   Special Assistant to the Governor Joe Balash talks about the the state’s energy plan during a news conference in Anchorage. Revenue Commissioner and Alaska Energy Authority Chairman Pat Galvin (left), Bill McAllister, Gov. Palin’s spokesman, Energy Coordinator Steve Haagenson, and Gov. Sarah Palin listen. AP Photo/Al Grillo     The Legislature approved a three-year program to fund $250 million in renewable energy projects, with the $100 million appropriated in 2008 as the first phase. Three more increments of funding are expected to be approved by lawmakers, with $50 million anticipated in 2009. Low prices and an expected state deficit this year may dent the Legislature’s enthusiasm for funding the program, however. Palin said she will press for approval of the 79 projects and the future funding. "We will ask the Legislature to stand by its commitment," she said. In a briefing held in Anchorage Jan. 16, Palin said 234 proposals were received by the energy authority totaling $755 million in requests for funds. Some 79 of the 234 were given high technical and feasibility rankings. Those can be funded with the $100 million appropriation, Palin said at the briefing. Most of Alaska’s electricity is now generated with natural gas and oil, but hydroelectric facilities in Alaska’s southern panhandle region provide a significant percent of power for several small communities in that region. In Southcentral Alaska, where most of the state’s population lives, a hydro facility at Bradley Lake, on the Kenai Peninsula, supplements power generated with natural gas by utilities in the region. Diesel is used for power generation in small rural villages in remote parts of the state. Joe Balash, Palin’s energy aide, said the governor’s plan is to gradually move rural communities off diesel-fueled electrical generation and to diversify the energy sources for power generation in Southcentral and Interior Alaska, which now rely on fossil fuel generation. Balash said the state energy authority has been working with utilities in the region on a plan to develop large new energy projects to serve Southcentral and Interior Alaska. One or two larger renewable energy projects are likely to be in the plan, Balash said. Palin will also recommend to the Legislature the creation of a new authority to build generation facilities for Southcentral and Interior Alaska, Balash said. Existing power plants, mostly gas-fired, are aging and are due for replacement. The state is also studying a hydroelectric project on the Susitna River, located north of Anchorage, and private firm TDX Power is working on a lake-tap project at Lake Chakachamna, southwest of Anchorage. A geothermal project is also being evaluated by firm Ormat Nevada Inc. at Mount Spurr, an active volcano near Lake Chakachamna. In the briefing, Palin said Alaskans have enjoyed inexpensive natural gas and subsidies for diesel generation for many years, but with the recent volatility in prices it is time to diversify the fuel mix. "We have long had very affordable energy, but there were harsh lessons learned last year when energy prices went up. There is a new sense of urgency," to diversification, Palin said. The recent drop in oil prices has given Alaskan consumers some relief, "but we shouldn’t let this lull us into complacency. We must stick with our energy plan," Palin said.

Healy power plant sparks to life under new agreement

The state-owned Alaska Industrial Development and Export Authority’s board approved an agreement Jan. 14 to sell a mothballed 50-megawatt coal-fired power plant in Healy to Golden Valley Electric Association, the electric cooperative serving Interior Alaska. The Healy Clean Coal Project is located near a coal mine in Healy owned by Usibelli Coal Mine Inc. and a smaller 25-megawatt coal-fired power plant now owned by GVEA.   Golden Valley Electric Association board chair Bill Nordmark speaks at a Jan. 15 press conference announcing a deal between Golden Valley, Homer Electric Association and the Alaska Industrial and Export Authority to revive the Healy clean coal plant. Photo/Rob Stapleton/AJOC     In a Jan. 14 briefing, state Revenue Commissioner Pat Galvin, who is also chairman of AIDEA’s board, said he hopes the plant would be operating in six to 18 months. The plant was built in 1998 to test new clean coal technology. The plant started and operated for a year to test new clean coal combustion systems but was idled in1999 when a commercial dispute developed between AIDEA, which owns the plant, and GVEA, which had contracted to buy power. Litigation stemming from the dispute has kept the plant closed since. At the briefing, Galvin hailed the agreement. "This is a win-win for all of us. Years of conflict have been set aside, and recent good-faith negotiations have produced a positive result for all concerned parties," he said. The commissioner said GVEA will pay $50 million to AIDEA for the plant. The state authority will finance the purchase at a 5 percent interest and also extend a $45 million line of credit to the cooperative to pay costs for restarting the plant. AIDEA will charge a 6.5 percent interest rate on the line of credit, Galvin said. Final details of the sale agreement will be worked out in the next 30 days and the sale is expected to close in six to eight months, Galvin said. Homer Electric Association will purchase 50 percent of the plant’s electric output. Coal for the facility is to be provided from the Usibelli mine. There are some questions as to whether environmental permits issued in the 1990s for the plant are still valid, however. At the briefing, Galvin said there is uncertainty over the status of several permits, but Kate Lamal, GVEA’s vice president for power supply, said the permits are still in effect and will not have to be renewed. An air quality permit issued for the plant is an area of special concern because the facility is within a few miles of the boundary of Denali National Park. Federal law puts special restrictions on industrial plant emissions near national parks. A restart of the plant may provide an early test for how President Barack Obama’s new administration will treat new coal plants or, in this case, a restart of a plant. The Healy Clean Coal project has advanced systems for reducing sulfur dioxide and nitrogen oxide, and some other pollutants, but it has no systems to capture or store carbon dioxide or mercury. In the years since the plant was built, concerns over both carbon dioxide and mercury from coal plants have developed. In the briefing, GVEA board chairman Bill Nordmark said the utility will operate the plant with its existing experimental technology, which was developed in the 1990s and installed in the Healy plant as a demonstration project. This represents a shift in position for GVEA, which had earlier pushed a plan to remove the new technology because of the uncertainties over operational reliability and to replace it with modern, but conventional, coal combustion technology. One of GVEA’s principal concerns is that the plant is the only one of its kind. This could mean higher maintenance and operating costs since replacement parts for equipment in the plant may not be available, and some may have to be custom-manufactured. The U.S. Department of Energy contributed $117.3 million toward the plant’s $281 million cost. The experimental equipment performed well in meeting its goals in reducing pollution. In 1998 AIDEA operated the plant for a year for the DOE to test the new equipment in burning different types of coal. During a 90-day commercial operating test in 1999 done with GVEA, operating problems arose that the utility said made the plant uneconomic to operate. AIDEA and its engineering consultants disagreed, and a lawsuit ensued. The utility was eventually relieved of its obligations to purchase power, but for a decade no deal could be reached on terms for restarting the plant.

CIRI cautiously optimistic about business in 2009

Cook Inlet Region Inc., the Anchorage-based Alaska Native regional corporation, is optimistic about 2009 and sees opportunities for the future. "There is no doubt the recession will test Alaska businesses this year, but we remain cautiously optimistic. CIRI is prepared to pursue opportunities and these appear to be growing," Sophie Minich, the corporation’s chief operating officer, told the Anchorage Chamber of Commerce Jan. 16. CIRI’s holdings include real estate, tourism businesses, oil field service and construction companies in Alaska, and telecommunications and hotels and resorts out of state. "Some of our businesses are being hit by the recession but others are OK," Minich told the Anchorage chamber’s annual "Back to Business" conference. In tourism, CIRI expects a down year but the extent of that is still uncertain. The corporation has a flexible strategy that will allow its businesses to respond as the season develops, Minich said. "We will ensure that our costs match revenues, so we are scaling operations to meet demand. Our hotel facilities have the option to open in stages, and our tour boats have this same capability. We’re also taking steps to manage fuel costs for the tour boats by pre-buying fuel at today’s low prices," Minich said. CIRI owns Prince William Sound Cruises and Tours, Kenai Fjord Tours, as well as two hotels, the 200-room Talkeetna Lodge and 108-room Seward Windsong Lodge. On an upbeat note, CIRI will go ahead with the launch of a second catamaran day-cruise boat in Prince William Sound, joining one catamaran now in service there. The catamarans are stable and comfortable for passengers and offer a 45 percent savings in fuel compared to conventional single-hulled boats, Minich said. Alaska tour companies will have a better picture of what the season might look like in March. That is when major cruise ship operators notify their Alaska partners as to what kind of volumes to expect, Minich said. CIRI is also expanding the conference facilities at the Seward Windsong Lodge, from the capability to accommodate 80 people to facilities for 160, she said. Minich said CIRI is bullish about its new Tikahtnu Commons mall in east Anchorage. Retail giant Target had a successful opening of its new 171,000-square-foot store last year, and two more major retailers, Kohl’s department store and Lowe’s home building products, are set to open this spring. Best Buy and Sports Authority will also open new stores there this summer, she said. A number of small retailers, some new to Anchorage - including Marble Slab Ice Cream - have also leased space. CIRI is developing Tikahtnu Commons with Browman Development Co., which is also managing the property. Two companies CIRI owns in partnership with Nabors Industries, a major U.S. oil field drilling companies, did well in 2008, but the group expects some challenges in 2009. Peak Oilfield Services set records in revenues and profits last year and is off to a good start for 2009 with ice-road construction on the North Slope, Minich said. Alaska Interstate Construction, also owned by CIRI and Nabors, was busy in 2008 and has pursued a diversification strategy to pursue more public sector construction. AIC is now engaged in some of the major road projects in Anchorage, she said. A downturn in mining activity will result in less mining-related business for both companies in 2009, Minich said. "This year will have some challenges but there are excellent opportunities as well. Our portfolio has taken a hit but we retain significant liquidity and we are well positioned," Minich said.

Gas supplies strained in recent cold spell

Alaska utility managers told the Regulatory Commission of Alaska that natural gas and electricity supplies were strained during Southcentral Alaska’;s recent cold snap, but the system held together with only a few minor mechanical hiccups. Still, declining production from gas wells in the region meant that things were right at the edge and a disruption could have caused serious problems.   A container is filled with liquid natural gas. Utilities pulled supplies from the LNG plant during the recent cold spell. File Photo/Melissa Campbell/AJOC     The commission has asked natural gas and electric utilities in Southcentral Alaska Jan. 12 to develop a coordinated emergency plan to deal with unexpected curtailments of gas supply due to mechanical failure or other mishaps. Colleen Starring, Enstar’;s senior manager in Alaska, said a joint meeting of utilities is planned for Jan. 15 and that a emergency plan would be developed. Gas and electric utilities have their own internal contingency plans but no formal plan to coordinate responses among all utilities, Brad Evans, CEO of Chugach Electric Association, told the regulatory commission. “There is a rich history of cooperation between Chugach and Enstar,” Evans said, but he acknowledged there were gaps. An important gap is information from the gas-producing companies about the extent of gas reserves and the ability of gas wells to produce enough to meet peak consumer demand during cold weather, Evans said. Bob Pickett, chairman of the Regulatory Commission of Alaska, said the hearing was held to get information on gas supply and system reliability during a prolonged cold snap in Alaska that sent temperatures to minus 20 degrees in parts of Southcentral Alaska. There were 13 days of below-zero temperatures, Pickett said. The cold snap, which ended Jan. 12, was actually milder than periods of cold weather seen in previous Southcentral Alaska winters, which means regional gas supplies could be strained even more. Starring told the commission that Enstar’;s gas supplies were tight, but the system held up during the recent cold spell with only a few mechanical hiccups. However, Mark Slaughter, Enstar’;s gas supply manager, said operators of a liquefied natural gas plant in Kenai, which serves as a gas supply backstop to Enstar, were “scraping the bottom of the barrel” in their ability to divert gas from LNG production to help Enstar offset shortages of gas from producing wells in gas fields in the region. Under an informal arrangement the LNG plant, operated by ConocoPhillips Alaska Inc., diverts gas to Enstar if the utility runs short during a winter cold snap. ConocoPhillips would not comment on the status of LNG production from the plant, but other sources said that about 40 million cubic feet per day for LNG production is needed to keep the plant operational. The company was at that point while diverting gas during the cold snap, the source said. The major problem for the region’;s utilities, and the LNG plant, is that aging gas fields in Southcentral Alaska, most of them discovered and developed in the 1960s, are declining in production. Operators are also facing increasing problems with water encroachment and maintenance on 30-year-old wells. “In the last two years we have lost 100 million cubic feet in daily deliverability. That’;s a 30 percent decline and it is quite alarming,” Slaughter told the regulatory commission. As an example, he said that almost all of the gas used for power generation by Chugach Electric Association and Anchorage’;s Municipal Light and Power, Southcentral Alaska’;s two major electric utilities, as well as gas for some of Enstar’;s needs, come from the large Beluga gas field 50 miles west of Anchorage. “On a good day we can get 60 million cubic feet to 70 million cubic feet out of Beluga. Four years ago we could easily get 100 million cubic feet to 110 million cubic feet,” Slaughter said. The Beluga field owners, which include ConocoPhillips, Chevron Corp. and the municipality of Anchorage, have new gas development efforts underway in the field but the results are mixed. “They’;re out there trying, but the success is not what was anticipated,” Slaughter said. “There’;s not a lot more we can pull out of the LNG plant, either.” ConocoPhillips and Marathon Oil Co. own the LNG plant. ConocoPhillips supplies gas for LNG from its North Cook Inlet field while Marathon supplies gas to the plant from onshore producing fields it owns on the Kenai Peninsula. What complicates the regional gas-supply picture is uncertainty over the future of the LNG plant. A federal license allowing exports of liquefied gas expires in March, which would result in the plant being closed. While the U.S. Department of Energy is likely to issue an extension of the export permit before March it would be for only two years. ConocoPhillips and Marathon could request another extension for the export permit, but they must first develop additional gas supplies. Given its supply outlook, Enstar has embarked on plans to build a 24-inch pipeline to the North Slope, and is in talks with Anadarko Petroleum Corp. on purchasing gas from the small Gubik gas field in the southern part of the Slope. Anadarko drilled and tested a well at Gubik last winter and plans another test well this winter, but has not yet indicated whether the deposit can be commercially produced.

North Slope producers do better than expected in sustaining production

North Slope oil operators did better than expected in sustaining production last year, but the decline rate is expected to steepen this year. Production from the Slope declined 3.9 percent over a 12-month period of 2008, compared to the same months in 2007, figures provided by the Alaska Department of Revenue indicate. The state revenue department had forecast a 5.8 percent decline. Production performance on the North Slope was aided by high crude oil prices over the two years, which stimulated operators to step up the pace of drilling of new production wells and to push enhanced oil recovery projects. Cook Inlet production did not fare as well. The data showed that Cook Inlet oil production declined 9.1 percent between the two years. For 2009 the Department of Revenue is forecasting a 3.5 percent North Slope production decline. One North Slope producer disagrees with that, however. In a presentation to the Resource Development Council in Anchorage, Doug Suttles, president of BP Exploration Alaska Inc. indicated the decline may be greater, reaching 6 percent to 8 percent. The steeper decline rate will result if North Slope operators cut expenditures in 2009, which is considered likely with current low oil prices. Cathy Foerster, a commissioner with the Alaska Oil and Gas Conservation Commission, agrees this may happen. “If you reduce spending in the producing fields you’;re going to see an effect on production,” she said. Suttles said BP plans to reduce drilling by 10 percent on the North Slope in 2009. ConocoPhillips Alaska Inc., another North Slope operating company, is still reviewing its plans, company spokeswoman Natalie Loman said. The two major North Slope operating companies employ a number of strategies to sustain production, including drilling of new production wells as well as waterflood and enhanced oil recovery programs. The production data from the state compares total liquids production for 12-month periods covering two years, from November 2006 through October 2007, and November 2007 through October 2008. Final figures for November and December 2008, were not available at the time the analysis was done, Department of Revenue economist Jennifer Duval said. Production of crude oil and natural gas liquids from the North Slope totaled 258.839 million barrels for the 12-month period from November 2007 through October 2008 and 269.355 million barrels for the November 2006 through October 2007 period, the revenue department figures showed. Offshore oil fields in Cook Inlet produced 5.410 million barrels in the November 2007 through October 2008 period compared with 4.923 million barrels in the November 2006 through October 2007 period.

Legislative session to start Jan. 20

Lawmakers are gathering in Juneau for the start of the 2009 state legislative session. As the formal session kicks off Jan. 20, the big issue - no surprise - is money. Unlike the last four years, when rising oil prices brought a gusher of cash to the treasury, prices are now down and legislators and executive branch officials are staring at possible big budget deficits. On the political front, there is great curiosity as to how Gov. Sarah Palin, fresh from the national campaign stage, will treat the Legislature and how lawmakers will treat her proposals. The governor had great influence over lawmakers in the past two sessions because of her immense popularity with the Alaska public. The rough-and-tumble presidential campaign, where Palin was Republican John McCain’;s vice presidential running mate, seems to have dampened her popularity in Alaska, according to recent polls. Because of that, legislators may be more willing to be critical of the governor’;s initiatives. It’;s a new Legislature - the 26th since statehood - which means that leaders like the House speaker and Senate president, as well as the chairman and members of legislative committees, are selected for the two-year term of the Legislature. Leadership, committee chairs and members can be changed at any time by a majority vote, but that happens infrequently. A batch of new legislators also will be sworn in when the session formally begins. Alaska’;s congressional delegation also has a new look, with Sen. Mark Begich, Anchorage’;s former mayor and the state’;s lone Democrat in Washington, D.C., replacing veteran Republican Sen. Ted Stevens. Begich is likely to give Alaska crucial influence with the Democratic majority in Congress and the new Obama administration, even if he lacks Stevens’; former seniority. With Begich being sworn into office, Sen. Lisa Murkowski has become Alaska’;s senior senator. She is also now the ranking Republican on the Senate Energy Committee, which is of great importance to Alaska. On the state level, however, what’;s foremost on peoples’; minds in Juneau is the revenue picture. Oil prices soared to $145 per barrel last summer and then fell to below $30 per barrel a few weeks ago. If prices stay down, there could be a $2 billion deficit for the current fiscal year 2009, according to an analysis by the Legislative Finance Division. Even if there is a modest recovery in oil prices the deficit could range between $500 million and $1 billion. The good news is that the state has ample cash reserves. Legislators are likely to draw on savings and approve a budget somewhat smaller than last year’;s $4.8 billion in state general fund spending, but with no drastic cuts, out of concern for Alaska’;s economy. Cash reserves include $6.7 billion in the Constitutional Budget Reserve, the state’;s main savings account, and another $1 billion in a separate budget fund, the Statutory Budget Reserve. There’;s also another $1 billion in the state Education Fund, a reserve used to finance school district budgets ahead of the normal legislative appropriation cycle that typically ends when the Legislature adjourns, this year in April. Legislators are unlikely to tap that fund, out of concern that it could disrupt the budgeting cycle for school districts. Finally, there are several billion dollars in the Permanent Fund’;s Earnings Reserve Account that can legally be appropriated by the Legislature, because the earnings are not part of the principle of the fund, which is protected by the state constitution. Using this money would probably be a last resort for legislators because of a likely adverse public reaction. Even though the earnings account is separate from the fund itself, it is close enough to get the public’;s attention. The permanent fund’;s latest report indicates that the earnings reserve was worth $4.1 billion on Nov. 30, but changes in financial markets since then will have affected its value. Money aside, there doesn’;t yet seem to be a lot on legislative agendas. Oil and gas legislation is likely to have less attention this year. That was a top priority over the last three years as lawmakers grappled with oil tax and natural gas pipeline legislation. Several legislators are interested in minerals taxes, and the state Department of Revenue has done background work to prepare for a debate in the Legislature over appropriate minerals taxation. It’'s certain that bills will be introduced, but how much attention they get is uncertain at this point.

Alliance Meet Alaska

Movers and shakers among Alaska’;s oil services and contracting companies gather in Anchorage Jan. 23, to discuss the uncertain state of state’;s petroleum industry, which directly and indirectly supports one-third of the Alaska’;s economy and about 90 percent of the state budget. “Meet Alaska,” the Alaska Support Industry Alliance’;s big annual conference, will meet at the Anchorage Sheraton Hotel. The Alliance is the trade association for oil and gas contractors and service companies. It has about 450 member companies, which collectively employ 35,000 to 40,000 Alaskan workers, according to Paul Laird, the Alliance’;s general manager. Speakers at this year’;s event include senior executives with the major North Slope producing companies, BP, ConocoPhillips, ExxonMobil and Pioneer Natural Resources Co., as well as exploring companies like Talisman Energy, parent company of FEX LLC, which has been drilling in the National Petroleum Reserve-Alaska. Companies typically lay out their plans for the year at the Meet Alaska conference, but this year, given recent low oil prices, the industry faces an unusual degree of uncertainty. Among topics likely to be discussed at the conference are the dispute between ExxonMobil Corp. and the state of Alaska over whether ExxonMobil can, at long last, begin work at Point Thomson. State officials are blocking ExxonMobil efforts to begin development now. The state has cancelled leases over a dispute. The issue is now in court and settlement talks are underway. Nabors Alaska Drilling Co. is also on the conference agenda, to discuss plans for the drilling challenges at Point Thomson, which include the difficulties of drilling into a high-pressure gas reservoir. Oil prices likely also will be a hot topic. Prices plunged from more than $140 per barrel last summer to below $30 per barrel in December, and have since bobbed up and down in the $30 per barrel to $40 per barrel range. Demand for oil is down, with the economies of major industrial nations plagued by recession. Most analysts expect a gradual recovery of prices to the $70 per barrel range later this year, if the nation’;s economy begins to recover, but there is no way to know for sure. BP has already announced some cutbacks, but will proceed with several important projects, mainly the new Liberty offshore field and a heavy oil experimental production project. Parker Drilling Co. is to discuss unusual drilling challenges on the Liberty project, which will include “extended-reach” wells drilled about eight miles laterally from the surface location of the drill rig, a potential new world record. ConocoPhillips has not yet released details of its 2009 plans but could do so at the conference. Company officials are still hoping to resolve permitting issues on a crossing of a Colville River channel and to develop CD-5, an important extension of the producing Alpine field. Both Parker Drilling and ConocoPhillips are expected to continue with ongoing drilling and field maintenance work in the large producing fields. What complicates the picture for industry is that while oil prices are down, costs are still high, and that digs into corporate profits. Oil companies have made record profits in recent years, however. Oil producers and many explorers are blaming the state’;s high oil production taxes for contributing to the dampening activity. Gov. Sarah Palin and the state Legislature approved a substantial increase in state taxes in 2007 as oil prices boomed. The net profit-type tax is also supposed to lower taxes if there is a downturn in prices, but there is evidence that this isn’;t really happening. For one thing, deductions of operating costs are limited for the big Prudhoe Bay and Kuparuk River fields. BP said state taxes were one reason for its cancellation in November of a $120 million natural gas processing project in the western side of the Prudhoe Bay field. Earlier in 2008 ConocoPhillips cancelled an ultra low-sulfur diesel manufacturing project planned in the Kuparuk field, also blaming state taxes. The new state tax law does have incentives for explorers and generous tax credits, which have helped smaller companies looking for new oil and gas deposits. Brooks Range Petroleum, which has made discoveries, said the incentives have been a real help. It is not yet known whether Brooks Range’;s discoveries are commercial. If the industry ratchets down its work levels in 2009, as is expected, it comes after three years of booming activity and record employment, mainly on the North Slope. High oil prices have encouraged more drilling and development within the big producing fields. Costs also increased as demands for services, equipment and skilled labor outpaced supply. One case in point was BP’;s replacement of four crude oil transit pipelines in the Prudhoe Bay field in 2007 and 2008. When corrosion was discovered in the original pipes, built in 1977, BP moved to replace the old pipes and install additional facilities protect the system and detect any leaks. The construction workforce on the project reached 700 workers at the peak of activity. Besides BP’;s Liberty and heavy oil projects, Eni Oil and Gas is drilling its first wells on the Nikaitchuq offshore project and plans to have the new field in production by the end of the year. Pioneer Natural Resources is continuing the drilling of development wells in its Oooguruk offshore field, which began producing in 2008. Oooguruk is near where Eni is working. Several important North Slope exploration projects are also proceeding this winter. Chevron is continuing its multi-year exploration program in the White Hills area south of Prudhoe Bay. Anadarko Petroleum and its partners, which include BG Energy and Petro-Canada, is continuing its program to explore for natural gas in the Brooks Range foothills region southwest of Prudhoe Bay. ConocoPhillips and Anadarko Petroleum, working together, have plans to drill additional exploration wells in the National Petroleum Reserve, near where the companies have made small oil and gas discoveries.

Prosperity site links local info

An Anchorage-based Internet information service that helps employees stay in touch with political events and state and federal legislation has been growing by leaps and bounds since its inception just over a year ago. The main Web page for Prosperity Alaska, a nonprofit project, had more than 10,000 hits in December, up from 150 in December 2007. That’;s according to Heath Hilyard, a former legislative assistant in Juneau who runs Prosperity Alaska as a sideline to his job as business development manager for Advanced Supply Chain International. ASCI specializes in Web-based information tools for procurement and supply chain management. Scott Hawkins, president of ASCI, and his partners in the company conceived the concept for Property Alaska and worked with Hilyard to develop it. Prosperity Alaska now has about 30 sponsors, which are listed on its Web page at www.prosperityalaska.org. The group operates out of ASCI’;s offices in south Anchorage. It is one of several similar Internet-based information groups, all developed under the umbrella of the “Prosperity Project” of the national organization Business and Industry Political Action Committee. Hawkins said he and Hilyard started working on the concept of an Internet-based information service in early 2007 and looked to see if there were any national models that could be adapted to Alaska. They came across the BIPAC’;s Prosperity program, and it seemed a perfect fit. Hilyard said Prosperity Alaska doesn’;t advocate for or against candidates or ballot measures, but provides information on pending legislation with ramifications to Alaska business. The group makes no secret that it is pro-business and pro-economic development, however. “In our analysis and review of business-related legislation, we often provide sample letters that cover the major bullet points of the issue. These are examples that employees are free to agree or disagree with,” Hilyard said. Hawkins said the concept behind Prosperity Alaska is to get information to the grass-roots level of the workforce that will be affected by political decisions. “The business community does a good job in identifying and working issues at the senior management level, but there is a lot of untapped power among the employees and suppliers to Alaska businesses,” Hawkins said. “Organizations like chambers of commerce, the Resource Development Council and the Alaska Support Industry Alliance are very good at generating the information, but a lot of it doesn’;t make it down to individual employees, at least to the degree it could,” he said. Hilyard said managers typically lack the time or ability to spread information down through the ranks, and that leaves employees in a position of getting information about issues that affect their firms, and potentially their jobs, from the mainstream media. It’;s also important, Hilyard said, that the information is seen by employees to be coming with the support of management, who have signed on with Prosperity Alaska for the service. “National surveys are consistent in showing that employees regard information that comes from or through their employers with a great deal of credibility, Hilyard said. “They don’;t always agree with their employers, but they regard the information as credible. When the information is provided consistently, however, most employees wind up sharing the views of their employers because they see that their jobs could be affected.” That Prosperity Alaska is Internet-based is important. Many people today are comfortable in the unobtrusive environment of electronic information, e-mail and Web pages, and that’;s even more so with young people who are likely to be swing voters, Hawkins said. “There is a convenience factor and a demographic factor. The Internet is a very convenient and cost-effective way to deliver information, and once people decide to get involved it is super-easy to use tools like ours top write a quick note to a public official and hit ‘send.’; It dramatically reduces the personal overhead costs, the time needed, for individuals to become involved,” Hawkins said. On the demographic side, national surveys show younger voters are more likely to get their information through the Internet, particularly younger women in their 20s and 30s. These people tend to be swing voters, “who can make a big difference in elections,” he said. For those reasons politicians pay attention to what they say. That Alaskans are more connected to the Internet than anywhere in the nation, on a per-capita basis, makes this vital, Hawkins said. Online Gov. 101 Prosperity Alaska’;s Web page has tools for people to find their legislators, with voting records, e-mail addresses and phone numbers, along with templates for letters to lawmakers. Sections now being updated have information on President-elect Barack Obama’;s work in shaping his new administration as well as the new Congress, including information about Alaska Sen. Mark Begich. There is a “Government 101” that explains how laws are made and how government works, as well as an “issues and policies” library that provides links to information about legislation, and Hilyard strives to have multiple sources and viewpoints available. During the 2007 debate over Gov. Sarah Palin’;s oil tax legislation, for example, the links provided quick access to extensive information about Palin’;s tax bill, as well as legislative Web sites, including the extensive document library maintained on the Web by the Legislative Budget and Audit Committee. Hilyard and Hawkins write basic templates, but users are encouraged to edit what is in the template and must add their own content. In fact, the software doesn’;t allow letters to be sent without the additional of original content from the sender, Hilyard said. Similar Internet-based information groups operate in other states, all developed with the assistance of the Business and Industry Political Action Committee. BIPAC began in 1963 as a business political action group, and started its Prosperity Project in 2000 to assist members in getting information about issues to employees, and to broaden its scope from simply raising money to a grass roots-type effort to get support for business issues from employees of companies. By 2006 there were 33 organizations operating in different states under the Prosperity umbrella, including Alaska, and four more are being formed to begin operations in 2009, Hilyard said. The national Prosperity Project provides software and other assistance, including some start-up financial aid, and in return state Prosperity organizations follow guidelines set out by the national group. Most Prosperity groups elsewhere operate as a part of local chambers of commerce. Alaska’;s project is unusual in that it was created by a single firm, ASCI, but Hilyard said he and Hawkins were in a hurry to get it launched. Legally, Prosperity Alaska is a Chapter 501(c)6 organization, formed as a business group, the same status that is typical for chambers of commerce. This means the group can do more than education. However, because Prosperity Alaska does no political fund-raising for lobbying, it is not registered with the Alaska Public Offices Commission, Hawkins said. If that changes, the group could register with APOC, he said.

Enstar secures enough gas for 2009, future supplies still short

It was nip and tuck, but Enstar Natural Gas Co. secured enough gas to cover a projected 2.1 billion cubic feet supply shortfall in 2009 after state regulators approved one-year contracts for the utility with Cook Inlet producers, Enstar spokesman Curtis Thayer said. The agreement is only a band-aid though, and more serious gas supply issues loom for Enstar over the next three years. In 2011 and 2012, the utility will be short about a third of its annual need for gas. Meanwhile, a lengthy cold snap is driving natural gas consumption to record levels in Southcentral Alaska, to the point that gas-producing wells can’;t keep up with demand. Gas is being diverted from a liquefied natural gas plant near Kenai to Enstar, according to Natalie Loman, spokeswoman for ConocoPhillips Alaska Inc., which operates the LNG plant. Loman would not say how much gas is being diverted. Enstar shipped a record 234 million cubic feet through its system on Jan. 3, exceeding a previous record for gas use of 227 million cubic feet set on Jan. 9, 2007. The price of Enstar’;s gas is taking a 22 percent jump in 2009, also. Enstar adjusts its gas prices annually based on what the utility is charged by gas producers under existing purchase contracts. Much of the gas now being sold by Enstar is priced on a formula linked to past crude oil prices, which soared to record heights last summer. As for the longer-term gas supply issue, in its Dec. 22 decision the Regulatory Commission of Alaska did not deal with a contentious issue in Enstar’;s efforts to get supply contracts, which is the pricing mechanism for the gas, Thayer said. Enstar and Cook Inlet producers have been attempting to get the commission to approve long-term contracts with the price based on an average of gas sales prices posted at U.S. gas trading hubs. The RCA rejected the proposals, the latest on Oct. 31, for gas deliveries for 2009 that would begin Jan. 1. That left Enstar within two months of not having sufficient gas under contract to cover its needs, and at a time in mid-winter when demand for gas peaks, Thayer said. The utility and the producing companies had to scramble to come up with an alternative deal, and to get the RCA’;s approval. The one-year contracts with ConocoPhillips and Marathon Oil Corp. sidestep the pricing controversy by allowing Enstar to buy gas for 5 cents under its weighted average cost for gas provided under all supply contracts, including some where the gas price is indexed to past crude oil prices. Agreement on a long-term pricing mechanism is needed to give producers sufficient incentive to do new drilling and well work to ensure sufficient reserves but also to ensure deliverability of gas during cold winter weather, Thayer said. The contracts with ConocoPhillips and Marathon that were rejected Oct. 31 would have based the price of Cook Inlet gas sold to Enstar on a formula linked to several gas trading hubs in the Lower 48. Enstar actually now has one supply contract, with Chevron Corp., where the price is linked to the Henry Hub index in Louisiana. That was approved by the RCA several years ago. Two years ago, the commission rejected a contract Enstar negotiated with Marathon Oil using a similar link to Henry Hub, as well as the recent contracts with Marathon and ConocoPhillips that were tied to several trading hubs. In its Oct. 31 decision, RCA put forth its own suggested solution, linking the price to Lower 48 gas producing regions rather than trading hubs. This would have resulted in about a 15 percent reduction in prices for the producers compared to what would have been paid in the contracts linked to the trading hubs. ConocoPhillips and Marathon rejected that approach, however, arguing that it did not provide sufficient revenue to justify investments needed to ensure the gas can be produced and delivered to Enstar. Enstar needs about 32 billion cubic feet per year for its customers in Southcentral Alaska. Under the one-year agreements, Enstar will purchase 1.1 billion cubic feet from ConocoPhillips Alaska and 1 billion cubic feet from Marathon, giving it enough gas to cover the 2.1 billion cubic feet shortfall for 2009. The supply shortfall will grow though over the next few years. In 2010, Enstar will be short 8.6 billion cubic feet for its needs. In 2011 the shortfall is estimated at 10 billion cubic feet, and in 2012 it is estimated at 11 billion cubic feet. Enstar and the producing companies will be taking new long-term contracts to the regulatory commission to cover those needs, Thayer said, with hopes of getting agreement on a pricing mechanism.

Oil, gas cutbacks likely to level employment growth

  Prudhoe Bay oil wells will continue to provide oil for the Trans Alaska Pipeline. Onshore exploration for new fields continues. File photo/Rob Stapleton/AJOC     For the first time in two decades Alaska employment growth is likely to level and even decline slightly in the new year due to cutbacks in oil and gas employment and an expected soft year in tourism. “Oil is still the most dynamic industrial sector we have. Just looking at the numbers, without the oil growth things flatten out,” said state labor economist Neal Fried. “It’s an important industry because the effects of its growth trickle through a lot of other industries like transportation and business services, which includes engineering,” he said. North Slope operator BP Exploration (Alaska) Inc. has already announced the delay in one construction project and a 10 percent reduction in drilling in the Prudhoe Bay field. The company says it intends to use one less drill rig in 2009, BP’s Alaska president, Doug Suttles said in November. Similar reductions are considered likely among other companies operating on the North Slope. “It’s likely to be a difficult year,” ConocoPhillips Alaska Inc. president Jim Bowles told a business conference in November. Prices for Alaska North Slope fell below $30 per barrel in late December. The last decline in Alaska statewide employment was during a regional economic recession in the late 1980s, also sparked by a sharp decline in oil prices. The economy began recovering after 1989 and a major factor in the recovery was the spending by Exxon Corp. (now ExxonMobil) on the cleanup of spilled oil from the Prince William Sound oil spill. The huge infusion of cash into the regional economy from spill cleanup work in 1990 helped end the recession and started the state on a trend of gradual growth in jobs that has continued until now. That may end. A 1980s-type recession isn’t expected because Alaska’s economy is now larger and more diversified, however. Also, the state has substantial cash reserves to that will help it ride through a temporary decline in oil prices. The rate of statewide job growth has been gradual for years and has been actually slowing over the last two years. It is predicted to increase about one and a half percent in 2008 over 2007. What was mostly driving the growth was a robust expansion in oil and gas employment, however. In November, preliminary estimates by the state Department of Labor and Workforce Development put statewide wage and salary employment at 310,700, or 2,200 jobs higher than statewide employment in November 2007. Over half of the additional jobs, about 1,200, came from the oil industry, however. Petroleum employment was at 13,000 in November, compared with petroleum employment of 11,800 in October, 2007 Other sectors of the Alaska economy were mostly level in November, with some industries showing small increases, like an increase of 100 jobs in retail, and others showing decreases, like construction, which was down 200 jobs. Construction employment actually picked up a bit in the third quarter of 2008 and is down less now than was expected earlier. The industry is expected to remain stable through 2009. “But 2010 is more of a question.” Fried said. Retail was helped by the opening of new stores and an increase in consumer spending from this record 2008 Permanent Fund dividend and one-time energy rebate from the state. “We now have as much retail in Alaska, as a percentage of the economy, as there is on the national level,” Fried said. “For many years we had less retail here than nationally, which was what spurred the growth. Now retail is mature in Alaska,” which means retail will grow slowly, along with population and income growth. Alaska tour operators are bracing for a poor year, due to a recession that is now spreading globally. Advance reservations are down for major cruise lines and many Alaskan businesses that depend on tourism. High-end sports fish lodges that cater to wealthy out-of-state clients could be less affected, and other Alaska operators are likely to do more aggressive marketing to Alaskans, which could offset the loss of business. “Retail is a big question for us,” Fried said. Alaska mining exploration will also take a hit in 2009 because many mineral exploration firms depend on equity financing for their projects, and money in capital markets has dried up. Companies working on gold projects, however, have fared better than those exploring for industrial metals like zinc, lead and copper, so the Alaska mining picture isn’t entirely bleak. Federal spending, another major driver in the economy is expected to slightly decline in 2009. Most attention has focused on the oil industry, which drives about a third of the state’s economy, according to researchers at the University of Alaska Anchorage’s Institute of Social and Economic Research. Much of the economic impact of petroleum is felt indirectly, through the spending of oil revenues received by the state. State spending has increased substantially in recent years in lock step with rising oil prices and state revenues. State legislators sharply increased construction spending, through the state capital budget, but also set aside several billion dollars in surplus revenues in state savings accounts. Those savings will now help the state ride through what may be a sharp dip in oil revenues. The state capital budget will likely be smaller this year but spending in the operating budget, which finances state agencies and major programs like school funding, are likely to remain stable. Even if the state capital budget shrinks it won’t affect the state’s construction industry for a year or two because of a backlog in state and municipal-funded projects built up during two years of record state capital budgets, which also funded many local government projects. The state will also benefit from an economic stimulus package planned by the Obama administration in the new year, but how much of this Alaska garners will be colored by politics. It will measure Gov. Sarah Palin’s clout, if any, with the Obama administration and the Democrats in Congress. It will also test whether newly elected U.S. Sen. Mark Begich, D-Alaska, can use his influence in the Democratic congressional leaders to offset any negative feelings toward Palin, who campaigned against Obama and other Democrats as Sen. John McCain’s Republican vice presidential running mate.

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