Draft EIS released for ANWR lease sale

Alaskans got their first look at what oil development in the Arctic National Wildlife Refuge might look like exactly one year to the day after Congress ordered the Trump administration to start leasing portions of its coastal plain. On Dec. 20 the Bureau of Land Management released the draft version of the environmental impact statement that will inform what areas of the roughly 1.5 million-acre coastal plain are open to oil and gas leasing and what other sideboards that should be put on oil exploration in the area. The ANWR rider to the Tax Cut and Jobs Act passed last December directs the Interior Department to hold two oil and gas lease sales, each covering at least 400,000 acres of the coastal plain before 2025. It limits permanent development to 2,000 acres of federal land. The Alaska Native village corporation Kaktovik Inupiat Corp. also owns about 92,000 acres around the coastal village of Kaktovik within the refuge, land that would also be open to development. The draft EIS offers three leasing scenarios with varying limitations on available acreage and activity timing intended to account for wildlife migrations and local subsistence activities. The 756-page, two-volume document also includes a “no action” alternative — a part of all environmental impact statements — as a baseline to compare other options against but Assistant Interior Secretary Joe Balash noted in a call with reporters the no action option won’t be chosen because the law mandates lease sales be held. Balash stressed that the input of residents from villages that use the refuge played a big role in how the leasing alternatives were formed, including input from Gwich’in Tribe members who rely on the Porcupine caribou herd as a primary food source and strongly oppose the industry activity. The eastern Alaska-western Canada caribou use large swaths of the coastal plain as calving grounds and what impact oil development could have on the herd has been a primary debate point in the battle over ANWR oil exploration. Exactly how long it will take to finalize the coastal plain EIS is unclear; however, Interior leaders expect to hold the first lease sale sometime in 2019. A 45-day public comment period on the draft is scheduled to commence Dec. 28 when the document is published in the Federal Register. The members of Alaska’s congressional delegation and Gov. Michael J. Dunleavy praised BLM’s work in formal statements. Sens. Lisa Murkowski and Dan Sullivan said they appreciate the diligence with which the agency built the first draft of the Coastal Plain Oil and Gas Leasing Program EIS. “I am particularly pleased to see the serious and necessary considerations for the Porcupine caribou that migrate through the region, as well as the abundant level of stakeholder input — including from the Alaska Natives in the area, the vast majority of whom support responsible drilling in the 1002 (coastal plain),” Sullivan said. “This draft EIS brings us that much closer to unleashing America’s energy potential, filling up the Trans-Alaska Pipeline, boosting our economy, and providing good jobs for Alaskans, all while protecting the ecosystem in ANWR’s 1002 as we’ve done on the rest of Alaska’s North Slope for over 40 years.” The coastal plain has also been dubbed the “1002 area” for Section 1002 of the 1980 Alaska National Interest Lands Conservation Act, which carved out the potential for industry development in the otherwise off-limits 19 million-acre refuge. Dunleavy said the document “is a significant milestone in Alaska’s long journey to responsibly explore and develop the 1002 area in ANWR. The potential oil discovered will spur new jobs and investments for generations to come, extending the life of the Trans-Alaska Pipeline.” The least restrictive to development, Alternative B would open the entire 1.5 million acres to leasing. Industry activity restrictions during the Porcupine herd’s May-June calving season would apply to about 585,000 acres mostly in the eastern portion of the coastal plain. Another 360,000 acres — mostly along the coast and major river corridors — would be leasable but with a “no surface occupancy” stipulation prohibiting construction of permanent facilities there. Activity restrictions along the rivers and coast are a theme in all the leasing scenarios. The remaining 618,000 acres would be open to leasing under the program’s general conditions. The Central Arctic caribou typically migrates into the western half of the coastal plain in July and August but calving takes place mostly on state land just to the west of the refuge, according to the EIS. Alternative C would also open the entirety of the coastal plain for leasing but place the no surface occupancy restriction over more than 930,000 acres including the caribou calving area and major river corridors. Timing limitations on industrial activity would be put on another 317,000 acres and about 314,000 acres would be open with general conditions. Finally, Alternative D would place the most restrictions on development activity in order to protect biological and ecological resources, the EIS states. A little more than 1 million acres would be available for leasing; however, permanent oil and gas facilities would be prohibited over 708,000 acres and another 124,000 acres would have other use restrictions. Sub-options to Alternative D would have the remaining roughly 204,000 acres either be open with general conditions or open with timing limitations. Approximately 530,000 acres of primarily Porcupine herd calving grounds would be off-limits to leasing under Alternative D. Exactly what level of interest industry will have in the coastal plain leases is also unknown. The most recent U.S. Geological Survey assessment of the oil and gas underneath the coastal plain, done in 1998, put the mean oil estimate at 7.6 billion barrels for the coastal plain-1002 area. The USGS additionally estimated there is a 5 percent probability the area holds nearly 12 billion barrels of technically recoverable oil, which says noting of the economics of extracting it. SAExploration Inc. has a 3-D seismic survey plan for the coastal plain before Interior officials, but whether or not the plan will be approved in time for work this winter is up in the air. Balash said the U.S. Fish and Wildlife Service is reviewing the seismic plan for how the work could impact denning polar bears. Elwood Brehmer can be reached at [email protected]

Only one applicant for ADFG chief

Members of the boards of Fisheries and Game will meet jointly Jan. 16 to choose an applicant to forward to Gov. Michael J. Dunleavy for the commissioner’s seat, but it likely won’t be a long meeting with just one applicant. Doug Vincent-Lang, whom Dunleavy appointed as Acting Commissioner on Dec. 4, was the only person to submit an application to be the commissioner of the Alaska Department of Fish and Game. He previously worked with the department from 1999–2014, last serving as the director of the Division of Wildlife Conservation. In his application to the board, he outlined his wildlife management philosophy, including preserving fish and wildlife for public use, sustainable population management and maximum sustained yield. Maximum sustained yield is embedded in the state constitution, requiring fish and wildlife managers to manage populations for the maximum benefit of Alaska’s residents. “I would exert the authorities of the Commissioner and recognize and work within the authorities of publicly appointed Boards and Commissions,” he wrote. “I believe that sustained yield can have different targets depending upon the population. Many, if not most of, Alaska’s fish and wildlife populations should be managed for their maximum sustained yield, including many of our salmon and ungulate populations. “Other populations, such as rainbow trout and some predator populations, should be managed for some other level of optimized yield different from maximum sustained yield.” He also wrote that while officials should listen to the advice of ADFG scientists, scientists should not be making policy decisions. “In short, science would inform my decisions, but not make them,” he wrote. “I recognize that there are many other inputs into the decision process than science only.” Vincent-Lang has been involved in a wide variety of projects in his time with ADFG, including leading a research group on the since-scrapped Susitna River hydroelectric project, working on legislation to require sportfish guide licensing and leading a team that developed a strategic plan for the Division of Sport Fish. Leadership at the ADFG has historically been fairly contentious. In 2015, five people applied for the seat, with former governor Bill Walker’s choice Sam Cotten ultimately winning the Joint Board’s approval; in past years, more than a dozen people have applied. By law, the joint boards interview and vet the applicants, forwarding an applicant to the governor for his approval before the nominee is forwarded to the Legislature for confirmation. The joint boards are scheduled to meet in Anchorage on Jan. 16, with comments due Jan. 7. Because the Board of Game is meeting in Petersburg just prior to that, the members will travel to Anchorage in time for the meeting to begin at 7 p.m., or if weather delays their travel, the meeting will be delayed or rescheduled for a following day, according to the notice, issued Dec. 18. Meanwhile, as acting commissioner, Vincent-Lang made three key appointments on Dec. 14: Benjamin Mulligan as deputy commissioner, Edward Grasser as director of the Division of Wildlife Conservation and Rick Green as a special assistant to the commissioner. Mulligan previously worked for Fish and Game from 2010–15 as a special assistant and holds a bachelor’s degree in fisheries biology from the University of Wyoming. Most recently, he served as the vice president of the Alaska Chamber. He also previously worked on staff for former Mat-Su Rep. Bill Stoltze, including as chief of staff. Grasser has served as the vice president of the Safari Club International since 2013 and worked as a lobbyist and activist on Alaska wildlife issues for decades. He has also worked with the Alaska Outdoor Council, the Alaska Fish and Wildlife Federation and the Outdoor Heritage Foundation of Alaska. He previously worked in the department as a special assistant from 2005-06, and Vincent-Lang listed him as a professional reference in his application for commissioner. Green, who is better known as conservative radio host Rick Rydell, broadcast his program until accepting the program. He will be charged with outreach to stakeholders, according to the press release. “Green will work closely with the state’s hunters and fishers to improve communication and build trust,” the release states. ^ Elizabeth Earl can be reached at [email protected]

Mozambique aims to take spot among global LNG leaders

Mozambique’s first liquefied natural gas export project is under construction, two much larger developments are targeting final investment decisions in 2019, and the impoverished African nation of 30 million people could go from zero to the sixth-largest LNG producer in the world by the mid-2020s. The two mega-projects — one led by ExxonMobil and Eni and the other led by Anadarko — have a combined development cost of $55 billion and would bring 28 million tonnes of annual liquefaction capacity on stream by 2025, Paul Eardley-Taylor, head of oil and gas for Southern Africa at Johannesburg-based Standard Bank, told a London audience Nov. 22. Those two ventures, plus the smaller floating LNG project under construction and scheduled to enter service in 2022, also led by Italy’s Eni, would total almost 32 million tonnes annual capacity. That would put Mozambique just behind 35-year LNG exporter Malaysia and world leaders Qatar, Australia, the United States and Russia. Eardley-Taylor gave the keynote presentation at the Africa Petroleum Club’s annual fundraiser dinner for wildlife and conservation projects: “Mozambique, Gas Supplier to the World?” Global LNG trade is predicted to grow twice as fast as gas demand overall, the banker said, showing a chart of 12 different LNG demand forecasts stretching out as far as 2040. Starting with actual demand in 2017 of almost 300 million tonnes per year, the forecast average approaches 500 million tonnes by 2030. Mozambique, with offshore gas discoveries of 150 trillion to 200 trillion cubic feet since 2010, is well positioned to serve the growing Asian market, Eardley-Taylor said. The expectations for Mozambique go beyond start-up of the two onshore LNG plants, with the bank forecasting that expansions are likely. “We expect four or five additional onshore (liquefaction) trains could be operational by 2029-2030.” The first project to come online will be Coral South, which Standard Bank put at $10 billion for the all-in cost. Construction of the floating liquefaction and storage unit started in a South Korea shipyard after Eni, the project operator, and its partners made the final investment decision in 2017. BP has a 20-year contract to take 100 percent of the output from the 3.4-million-tonne-per-year project. Of the onshore plants, Anadarko is the lead for the Mozambique LNG project, at 12.88 million tonnes per year, with the company committing to make an investment decision in the first half of 2019. The bank estimated the all-in development cost at $25 billion. Anadarko is working to sign up enough LNG customers to sell its decision to project-finance bankers. As of mid-November, the company had announced sales to gas suppliers and utilities in Japan, Thailand, France and the U.K., totaling more than half the plant’s output, though not all the contracts have been finalized. Talks also are underway on LNG sales to Shell, Total and China National Offshore Oil Corp., the Natural Gas Daily reported Dec. 4. The project already has started resettling residents to prepare the site for construction, according to the bank’s presentation in London. India’s state-run Bharat Petroleum Corp. is a partner in the Anadarko project and will invest as much as $800 million equity for its 10 percent stake — the company’s largest investment in an upstream project overseas — Indian news media reported in October. Other partners with Anadarko include companies from Japan, India and Thailand. At an initial capacity of 15.2 million tonnes and a $30 billion all-in price tag, the ExxonMobil/Eni-led Rovuma LNG project looks to take bids in the first quarter of 2019 for engineering, procurement and construction, the bank said. ExxonMobil’s country manager in Mozambique has publicly confirmed that the company expects to make a final investment decision mid-2019. Partners in the development also include China National Petroleum Corp., Korea Gas and Galp Energia of Portugal. By selling some of the plant’s output to their own affiliates, the partners could speed up financing for the development, the bank said. “We expect sufficient interest from affiliate buyers to launch the project and support the financing,” ExxonMobil spokesperson Julie King told Reuters in July. The company took over the lead role in the joint venture this summer for construction and operation of the LNG plant, while Eni will manage gas field development. To reduce production costs, ExxonMobil has decided to build the largest liquefaction trains in the world outside Qatar, at 7.6 million tonnes each. Mozambique’s National Hydrocarbons Co. is a partner in both onshore projects and will need to borrow $2 billion to finance its participation, according to news reports in October. The country’s minister of economy and finance said the government wants to issue a sovereign guarantee for the $2 billion loan and has put it into its draft 2019 state budget. However, the return of Mozambique to international capital markets will not be easy. Rating agencies classify Mozambique as in “selective default” because in 2013 and 2014 the government issued sovereign guarantees, also for about $2 billion, for loans taken out from European banks by three newly created security-related companies. All three companies are now effectively bankrupt, and the government has defaulted on the loan repayments, arguing that creditors must agree to restructure the loans. Mozambique reached an agreement with creditors to restructure some of the debt, including extending maturities and sharing future revenues from the LNG projects, the finance ministry said Nov. 6. Under the deal, creditors would receive 5 percent of Mozambique’s future revenues from the gas projects, with payments capped at $500 million. Mozambique is one of the world’s poorest countries, having suffered through a 15-year civil war that ended in 1992, according to Standard Bank. The country hopes that production of its offshore gas resources will provide increased supplies for domestic needs and spur development of fertilizer and petrochemical manufacturing plants along with construction of gas-fired power plants and pipelines to serve industry and households. South Africa’s Sasol has been producing gas in Mozambique since 2004, sending most of it by pipeline to power plants in South Africa. ^ Larry Persily is a former Alaska journalist, state and federal official who has long tracked oil and gas markets and projects worldwide.

Movers and Shakers for Dec. 23

Alaska Wildlife Conservation Center added Dr. Michelle Oakley to its animal care staff. Oakley will perform veterinary duties including diagnosis, assisting in treatments, and researching medical conditions of AWCC’s resident animals. Oakley joined AWCC with 18 years of experience as a veterinarian, having previously worked at the Yukon Wildlife Preserve and the Calgary Zoo. She has been the star of the popular reality TV show “Dr. Oakley, Yukon Vet” and has been a visiting veterinarian at AWCC for several years. GCI, Alaska’s largest technology company, recently promoted Heather Handyside to vice president of Corporate Communications and Community Engagement within the company’s Legal and Policy Department. Handyside, who joined GCI in 2015, will continue to serve as the company’s primary spokesperson. Handyside will continue to work closely with the GCI Marketing team to coordinate the company’s philanthropy and volunteer programs, which donates more than $2 million to Alaska organizations each year and provides more than 32,000 hours of paid volunteer time annually to its 2,200 employees statewide. Handyside brings 20 years of government, non-profit and private sector communications experience into her new position. Alex Hofeling has been selected as the next vice president and general manager for TOTE Maritime’s Alaska office and operations. In this role, Hofeling will oversee both the Anchorage and Fairbanks offices. Hofeling has been with TOTE Maritime since September 2013. He began his time with TOTE as a regional sales manager and was promoted to director of marketing in 2016. Before TOTE, Hofeling worked for Coastal Transportation and served in the U.S. Coast Guard. Hofeling will be the face of TOTE in Alaska and work closely with the Port of Alaska, labor partners, customers and community partners. Hofeling will succeed Grace Greene who was promoted to President of TOTE Maritime Alaska in August 2018. In recognition of his extraordinary efforts to support Alaska’s non-profit community, the Alaska Chapter of the Association of Fundraising Professionals has named GCI Senior Vice President of Consumer Services Paul Landes as the organization’s 2018 Outstanding Philanthropist. The Outstanding Philanthropist award is “presented to the individual or family who has demonstrated exceptional civic responsibility by providing ongoing and major financial support, together with effective leadership, to community-wide major fundraising projects,” according to the AFP Alaska Chapter. While Landes has a history of dedicated service to organizations that support Alaskans, his selfless commitment to the non-profit community this year has eclipsed all of his previous efforts. Since the death of Jim Balamaci in early 2018, Landes has helped launch a $2 million endowment supporting Special Olympics Alaska, where Balamaci served as president and CEO. Also with his leadership, dozens of business executives and the community at-large came together to raise more than $1 million at the Covenant House Alaska Sleep Out. GCI donates more than $2 million to Alaska organizations each year and provides more than 32,000 hours of paid volunteer time to its 2,200 employees statewide.

Alaska dominates annual fisheries landings report once again

Alaska is the nation’s super power when it comes to seafood. American fishermen landed just shy of 10 billion pounds of fish and shellfish last year valued at $5.4 billion, both up slightly. Of that, Alaska accounted for 61 percent of total landings (6 billion pounds) and 33 percent of the value ($1.8 billion). That’s according to the 2017 Fisheries of the US Report just released by National Marine Fisheries Service that covers all U.S. regions and species, recreational fishing, aquaculture, trade and much more. The popular annual report also includes the top 50 U.S. ports for seafood landings and values and once again, Alaska dominated the list. “The Alaska port of Dutch Harbor led the nation with the highest amount of seafood landings – 769 million pounds valued at $173 million – for the 21st year in a row,” said Ned Cyr, National Oceanic and Atmospheric Administration director of Science and Technology at a media teleconference. “New Bedford, Massachusetts, had the highest value catch for the 18th year in a row – 11 million pounds valued at $389 million with 80 percent coming from the highly lucrative sea scallop fishery.” The “Aleutian Islands” ranked second for seafood landings thanks to Trident’s plant at Akutan, the nation’s largest seafood processing facility. Kodiak bumped up a notch from fourth to third place. The “Alaska Peninsula” ranked 7th and Naknek came in at No. 9. Alaska ports rounding out the top 20 were Cordova, Sitka, Ketchikan and Petersburg. In all, 13 Alaskan fishing communities ranked among the top 50 list of U.S. ports for seafood landings. The report also highlights the growing role for aquaculture in the domestic seafood industry. U.S. marine and fresh water aquaculture was valued at $1.5 billion in 2016, equal to about 21 percent of the value of the nation’s combined seafood production, with oysters, clams and salmon generating the highest value. The U.S. still imports more than 80 percent of its seafood and federal overseers are intent upon turning that tide. “The Department of Commerce and NOAA are committed to addressing the U.S. seafood trade deficit through regulatory streamlining, increasing aquaculture production and creating a better, fairer trading system for all Americans,” Cyr said. Nearly six billion pounds of fish and shellfish were imported to the U.S. last year, up 1.6 percent, valued at $21.5 billion, a 10.4 percent increase from 2016. Shrimp, salmon and tuna continued to top the list of imports. In other report highlights: • Alaska pollock accounted for 28 percent of all fish landed in the U.S. and 17 percent of the value. • Alaska accounted for nearly 98 percent of the nation’s salmon landings. • The average dock price paid to U.S. fishermen last year across the board held at 55 cents per pound. • Sport fish enthusiasts made 202 million saltwater fishing trips last year with striped bass and blue fish being the biggest catches. Only 2 percent of the anglers went to the Pacific coast. Alaska data were not available for 2017. • The U.S. seafood industry’s contribution to the economy increased slightly, according to an accompanying fisheries economic report for 2016. Commercial fisheries generated $53 billion in sales, supported 711,000 jobs and added $28 billion to the nation’s GDP, all up by 2 percent. Eat more fish! Americans ate more seafood in 2017, reaching the highest level since 2008. Per capita consumption was 16 pounds, an increase of 1.1 pounds from the year before. That’s according to the top 10 list of favorites compiled each year by the National Fisheries Institute and based on data from the NOAA fisheries report. Shrimp remained at the top of the list of favorites with Americans eating 4.4 pounds per person last year. Salmon ranked second at 2.4 pounds followed by canned tuna, at 2.1 pounds. Rounding out the top 10 were pollock, tilapia, catfish, crab, cod, clams and pangasius. Fish watch Cod catches will decline next year in both the Gulf of Alaska and Bering Sea, while catches for pollock will be up in the Bering Sea and down in the Gulf. The 2019 numbers were set this month by the North Pacific Fishery Management Council for more than two dozen fisheries in federal waters from three to 200 miles offshore. The Bering Sea pollock catch got a 2.4 percent increase to nearly 1.4 million metric tons, or more than three billion pounds. Bering Sea cod catches were cut 11.5 percent to just more than 366 million pounds (166,475 mt). In the Gulf, pollock catches will be down 15 percent to 311 million pounds, a drop of 55 million pounds from this year. Gulf of Alaska cod catches will again take a dip to just over 27 million pounds, down 5.6 percent. Meanwhile, boats are still out on the water throughout the Gulf of Alaska and Bering Sea hauling up final catches of various groundfish for the year. The 4 million-pound red king crab fishery at Bristol Bay is a wrap, but crabbers are still tapping away at the 2.4 million-pound Bering Sea Tanner crab quota. Snow crab is open but fishing typically gets going in mid-January. Divers are picking up the last 35,000 pounds of sea cucumbers in parts of Southeast Alaska. About 170 divers competed for a 1.7 million pound sea cucumber quota this year; diving also continues for more than 700,000 pounds of giant geoduck clams. Southeast trollers are still out on the water targeting winter king salmon. Looking ahead: There will be no king salmon catches allowed next year at the Stikine and Taku rivers due to low run forecasts. A fishery for seven kinds of rockfish will open in Southeast on Jan. 5. The 55,000 pound quota can include yelloweye, quillback, canary, copper, China, tiger, and rosethorn rockfish. The 2019 Sitka Sound sac roe harvest has been increased slightly to 12,869 tons. This past season the fleet took just 2,800 tons out of the 11,128 ton herring catch. At the state’s largest roe herring fishery at Togiak, the harvest for next year will be 24,430 tons, a slight increase. The year-round cycle of Alaska’s fishing industry will begin on Jan. 1. Laine Welch lives in Kodiak. Visit www.alaskafishradio.com or contact [email protected] for information.

FERC denies state request for cooperating status in EIS

The law doesn’t allow the Alaska Department of Natural Resources to participate as a cooperating agency in the federal environmental impact statement for the state-led Alaska LNG project, U.S. regulators said. The department had promised not to share any information with the project developer, the Alaska Gasline Development Corp., but that wouldn’t solve the legal problem, said the Federal Energy Regulatory Commission. “Even with a firewall, both agencies would nevertheless be accountable to advancing the interests of the state of Alaska in getting the project approved,” Jim Martin, a branch chief at FERC’s Office of Energy Projects, said in a Dec. 14 letter to the Natural Resources commissioner’s office. The department in July asked if it could formally join the FERC-led team preparing the environmental impact statement for the state-led North Slope gas development. The federal regulator is scheduled to release its draft EIS for the project in February, assuming it receives all the information it has requested from the state corporation. “The state of Alaska cannot participate in the proceeding in the dual capacity of both applicant and cooperating agency,” FERC stated, adding that its rule “does not provide an exception for having off-the-record communications with one part of a state … while walling off another part of a state … The Office of General Counsel has informed us that such an arrangement could result in significant due-process issues.” And regardless if FERC’s rules accepted such a firewall or administrative screen for blocking communications between state agencies, “it would still not resolve the conflict of the state of Alaska acting as an applicant while also seeking to act as an assistant to the decision maker through its status as a cooperating agency,” Martin wrote in his letter. “Although we are not able to grant the state’s request for cooperating agency status, the state may nevertheless communicate its special expertise on the record,” Martin said. There are no restrictions on the Department of Natural Resources or any other state agency submitting public comments to FERC’s docket for the Alaska project. Federal offices with permitting authority over a project are required to assist as cooperating agencies, and FERC’s rules allow non-federal agencies to participate as cooperating agencies in preparing an EIS if they have “special expertise with respect to the environmental impact of the proposal.” The state Office of Project Management and Permitting submitted the July request to FERC. The office coordinates between multiple state agencies with environmental permitting expertise and “routinely enters into agreements with the lead federal agency as the single point of contact for state regulatory agencies … participating in the deliberative process and compiling state agency comments,” the request said. What’s different with the gas line project, however, is that the state is the developer of the proposed $43 billion venture to pipe North Slope gas more than 800 miles from Prudhoe Bay to a liquefaction plant and export terminal in Nikiski on Cook Inlet. In addition to working toward FERC approval, the state development corporation is trying to line up customers, partners and financing for what would be one of the most expensive energy projects in North American history. ^ Larry Persily is a former Alaska journalist, state and federal official who has long tracked oil and gas markets and projects worldwide.

OPINION: Dunleavy budget forces Legislature to face reality

When former Gov. Bill Walker swooped into the weekly Anchorage Chamber of Commerce luncheon on Nov. 26 the only thing he forgot was a “Mission Accomplished” banner. A week before leaving office, Walker revealed the budget he planned to hand off to incoming Gov. Michael J. Dunleavy (who has traded Mike for Michael J. on official communications since taking office). Walker and his budget director Pat Pitney, since replaced by Donna Arduin, declared the budget for the next fiscal year “balanced” and former Revenue Commissioner Sheldon Fisher promised a “surplus” for the current fiscal year. That’s a stark change from the picture legislators faced last session when the projected deficit for the current year would be about $700 million at a price of $63 per barrel. It also strains credulity. To be sure, for the first three months of the fiscal year Alaska appeared to be heading that direction as prices rose to steadily hold at more than $70 per barrel and better — peaking at $85.36 on Oct. 3 — to hit what would be the break-even point for the $700 million deficit. But prices have been on a rapid decent since, dropping more than $5 per barrel in the week after the Nov. 6 election and hitting a new low for the year of less than $60 on Dec. 17. On Nov. 21, just days before Walker would present his “balanced” budget using $75 per barrel, Alaska North Slope crude was selling for $64.82. The pace of the oil bear market has been so fast that the average price per barrel for the current year has dropped $3, from $75 to $72, in less than a month from Nov. 21 to Dec. 17. OPEC has announced plans to cut production by 1.2 million barrels per day in January; and Saudi Arabia has told U.S. refiners to expect fewer cargoes as well as the petro kingdom attempts to force down stockpiles and raise prices that way. Those actions may well force the price back up, but U.S. shale drillers have adapted since prices crashed in 2014-15 and won’t have to shut in nearly as many high-cost wells as they did last time. There is also some evidence of softening global demand that may also offset whatever moves OPEC attempts to raise prices. In any case, after four years of being overly conservative on price and production forecasts — which in turn widened projected deficits as Walker and allies in the Legislature from both parties pushed to use Permanent Fund earnings or institute an income tax or raise oil taxes — it seems a bit fishy that the former governor would declare a budget balanced based on a price per barrel that few believe is realistic. There isn’t a lot an incoming administration can do to alter a budget inherited from the prior administration, but a simple calculation is changing the expected price per barrel. That’s what Dunleavy did on Dec. 14, changing Walker’s number from $75 to $64 for the 2020 fiscal year that will begin next July 1. The other simple change a new administration can make is the size of the Permanent Fund Dividend, which Dunleavy also did in accordance with his campaign promise to follow the statutory formula that has been disregarded for the past three years through Walker’s veto in 2016 and the Legislature’s ad hoc setting of amounts in 2017 and 2018. The more realistic price per barrel and the statutory-funded dividend combined to shift Walker’s “balanced” budget to one with a $1.6 billion deficit. Setting aside Dunleavy’s pledge to pay back the shorted amount from the past three years, or roughly $3,300 per person, his first budget is a cold dose of reality for the incoming Legislature that, unlike Walker’s claims, we are far from out of the woods fiscally. The fact is prices are dropping and could very well bump along at $60 or less for the next couple years. It is also a fact that the statutory formula remains on the books and the PFD debate is not going away as long as there is a governor who is committed to following the law regardless of the Supreme Court decision that he or the Legislature can set it at any number they wish. After ducking the issue for years, it is long past time for the Legislature to either follow the formula or change it. If its members don’t believe that $3,000 PFDs are sustainable while the state is in the red, then adopt a formula that is. Hoping that oil prices go up or ignoring the law and hoping people forget is not a sustainable solution, either. Andrew Jensen can be reached at [email protected]

Year in Review: Shakeups lead top stories of 2018

Several analogies can be drawn between the Nov. 30 Southcentral earthquake and the year in Alaska politics even without stretching them too far. Earthquakes, even large ones, are an accepted and to a point expected part of life in Alaska. Admittedly, the lead up to the election in the governor’s race was highly unusual. What was for months a three-way race between incumbent Gov. Bill Walker, Mark Begich and Michael J. Dunleavy suddenly shifted to a head-to-head matchup when Walker dropped out of the race with less than three weeks to go following the sudden resignation of Lt. Gov. Byron Mallott for unspecified inappropriate comments to a woman. Similarly, even many of Alaska’s most ardent Democrats understand the demographic reality that their state’s politics generally lean red. To that point, Republicans retained a majority of seats in the Legislature as they have for years and Dunleavy’s Election Night victory over Begich — built on a broadly popular campaign of being tough on crime and larger Permanent Fund dividends — was widely predicted. And while the earthquake struck just three days before Dunleavy’s administration was set to take over, the work of former Gov. Walker’s team in concert with Dunleavy’s people made for a smooth transition of power in the midst of a natural disaster. One caveat to that was a request by Dunleavy Chief of Staff Tuckerman Babcock that upwards of 800 non-union executive branch employees tender their resignations and reapply for jobs with an expressed desire to work in a Dunleavy administration. Such a resignation request is standard procedure for political appointees during an administration change, but the broader scope of Babcock’s demand was met with vocal disdain among many inside and out of government who felt it was a demand for a loyalty pledge. Still, the largely smooth transition under difficult circumstances was a general reflection of how well Alaskans — from well-trained school kids to on-the-ground Department of Transportation personnel — handled the earthquake. Miraculously no one was seriously hurt or killed in the shaking, and damaged roads were repaired with amazing efficiency. However, there is still much left unfinished in the aftermaths of Election and Earthquake day even though life for most Southcentral residents has returned to normal. Severely damaged schools in Eagle River and the Mat-Su Borough remain closed, as to many businesses in Eagle River. Countless homeowners across the region also still face daunting repairs. On the political front, much is still unresolved as well more than six weeks after the election. While Republicans have regained their usual position at the helm of state government, the state House is in disarray. House Republican leaders quickly formed a 21-member majority caucus a day after the election. However, that slim majority fell apart even before it had a chance to take office. For starters, it relied on House District 1 Republican candidate Bart LeBon maintaining his 79-vote Election Night lead over Democrat Kathryn Dodge — which after counting absentee ballots, questioned ballot reviews and a recount has shrunk to a single vote. Dodge, unsurprisingly, is challenging those results in the Alaska Supreme Court. Additionally, Kenai Republican Rep. Gary Knopp said Dec. 8 that he would be withdrawing from the caucus because the tenuous one-vote majority could be held hostage by the whims of any single member and as such was doomed to fail eventually. Knopp instead has proposed a bipartisan House majority caucus comprised evenly of Democrats and Republicans. At the time of this writing, who will be leading the House when the Legislature convenes Jan. 15 is anyone’s guess. Things are more settled on the Senate side, at least structurally. Republicans retained control of the body, despite taking a blow in Republican Senate President Pete Kelly’s defeat to Democrat challenger Rep. Scott Kawasaki for his Fairbanks Senate seat. Senate Republicans are aligned with Dunleavy on many policy items, but the size of future PFDs, at this point, is not one of them. Along with Walker, Senate Majority leaders last year led the charge to utilize Permanent Fund income to pay for government services and greatly reduce the state’s ongoing budget deficits in-lieu of new taxes; however, the consequence was likely reducing the size of future dividends. Dunleavy used the historical dividend formula in his first budget proposal released Dec. 14, but he refrained as yet from requesting “back payments” from three prior years of reduced dividends at least initially, which was one of his campaign pledges. On the surface both politically and physically, much has returned to normal, but many of the all-important underlying details remain unresolved. 2. Voters reject Ballot Measure 1 The intense statewide debate over whether Alaska should enact sweeping changes to its salmon habitat protection laws came to an abrupt end on Election Night, when voters rejected Ballot Measure 1 by nearly a 25-point margin. What started as a promising year for measure backers, who in January submitted more than 42,000 signatures to the Division of Elections from Alaskans supporting the initiative, ended in disappointment. The business-backed campaign group Stand for Alaska drummed up more than $10 million of support, led by contributions from Alaska’s “big three” oil producers as well as Donlin Gold LLC, which is planning a large gold mine in Southwest Alaska. Stand for Alaska painted the issue as an attack on responsible development in the state. Yes for Salmon backers insisted it was a way to update nearly 60-year old anadromous fish habitat permitting laws and prevent politics from influencing permitting decisions that could degrade salmon habitat over time and leave Alaska trying to restore lost habitat at great expense as other Pacific Northwest states are now doing. Each side argued the other was driven by Outside interests; either activists wanting to “lock up” Alaska or corporate interests wanting nothing more than to fleece the state of its resources and leave. In reality, the eight-page measure would have put strict sideboards on impact mitigation requirements for developments in salmon habitat, while establishing a public input process for the permitting decisions and provided Fish and Game officials with more authority to penalize permit violators. Opponents argued the state permitting regime is already sound and that while adjustments may be needed, the initiative was overly broad and would threaten development. In August the Supreme Court struck a key provision of the initiative as unconstitutional that would have mandated the ADFG commissioner reject any permit for which “major” impacts could not be mitigated on site. Ballot Measure 1 proponents, who raised less than $3 million, or about 25 percent of what Stand for Alaska had to spend, said after the election that the funding disparity made it impossible for them to overcome Stand for Alaska’s messaging that included a barrage of television ads. The opponents countered that they had the better message regardless of the funding disparity. 3. North Slope enjoys “renaissance” ConocoPhillips started 2018 by going “six for six” with its exploration drilling program last winter. The company hit commercial quantities of oil in each of the greenfield wells it drilled, drastically adding to what was already a feeling of optimism among those in the oil industry. Three wells were drilled to better delineate its $4 billion to $6 billion Willow discovery — another Nanushuk prospect — which was first announced in January 2017. Preliminary estimates from the company put Willow at about 300 million barrels of recoverable oil, with production potential reaching 100,000 barrels per day. Alaska oil experts believe the Nanushuk formation, which for decades hid in plain sight, is largely a western Slope phenomenon; it quickly peters out to the east of the Colville Delta. ConocoPhillips’ westward push on the North Slope took reached another milestone Aug. 7 when the Bureau of Land Management began asking for public input as it drafts permitting documents for the company’s proposed multibillion-dollar Willow oil development. The remote Willow prospect is west of the existing North Slope oil fields in the National Petroleum Reserve-Alaska. ConocoPhillips’ initial development plan calls for a central processing facility and pad, up to five drilling pads with up to 50 wells each, access roads, an airstrip and a gravel mine within the NPR-A, according to BLM. The proposal also contemplates a temporary island in state waters to facilitate module deliveries via sealift barges. The company sent BLM a letter in May requesting authorization for the development, a BLM release states. In October, oil production commenced from the company’s Greater Mooses Tooth-1 project in the NPR-A. ConocoPhillips also sanctioned GMT-2 and increased the peak production estimate to 38,000 barrels per day. ConocoPhillips has been busy in Alaska — also trading its interest in a North Sea field for BP’s share of the large North Slope Kuparuk River field — but its activity is in addition to several other large developments that are underway. Oil Search’s Nanushuk project, with the potential for 120,000 barrels per day, received a final EIS from the Army Corps of Engineers in November. Hilcorp Energy’s manmade island Liberty project was also approved by the Bureau of Ocean Energy Management. It is a 60,000 barrels per day development, although environmental groups sued to stop it on Dec. 17. Rough estimates put the cumulative potential production from these and smaller projects — with $13 billion of investment — at upwards of 400,000 thousand barrels per day. 4. POMV passes Gov. Walker saw his signature piece of legislation passed May 8 when legislators approved an endowment-style formula to draw from the Permanent Fund Earnings Reserve with most of the money going to support government. Hailed as a victory for drastically reducing the state’s multibillion-dollar budget deficits while maintaining the long-term value of the $63 billion Permanent Fund by proponents and as a “raid” on the fund by others, the Legislature’s vote on SB 26 cut across all party and caucus lines. At the time, Senate Bill 26 was expected to cut the fiscal 2019 deficit from roughly $2.5 billion to $700 million. Oil prices and production will determine the final budget gap. While each body passed a version of SB 26 in 2017, it languished on the sideline of budget debates for more than a year as the contrasting contingencies put on a POMV draw by the House and Senate made it a particularly touchy subject. SB 26 was the culmination of three years of work by the Walker administration and a handful of legislators, most notably retiring Eagle River Sen. Anna MacKinnon who often sparred with administration officials on other budget issues, but helped shepherd the bill through the Legislature. 5. Oil tax credit resolution faces legal challenge Gov. Walker’s other big legislative victory was supposed to be resolving the state’s $800 million-plus oil and gas tax credit obligation. After contentious debate, the Legislature approved his administration’s unique but untested plan to sell bonds allowing the state to pay them up front while managing cash flow into the future, which is expected to require shoestring budgets for several years. The plan relies on tax credit holders — small oil companies and banks — taking up to a 10 percent discount on the value of their credits to get them paid quicker. The state would turn around and use the discount to cover the cost of borrowing the money. However, questions about the constitutionality of the scheme started early in the session when a Legislative Legal Services attorney issued an opinion suggesting it may fall outside the Alaska Constitution’s tight restrictions on allowing the state to contract debt. Former University of Alaska Regent Eric Forrer put turned legality questions into action shortly after the Legislature passed the plan in House Bill 331 by suing the administration over it. Forrer actually sued before the bill was signed into law, but state attorneys declined to have it dismissed based on the timing issue, acknowledging that Forrer could just re-file the suit. The Superior Court case that many wanted resolved quickly has been slow and winding. A ruling on the state’s initial dismissal motion was expected in early November; however, none has been issued as of this writing. 6. Pebble applies for permits Pebble Limited Partnership finally made good on a long held promise to start the permitting process, which is seen by many as a way to settle the fight over the massive and divisive mining project. The Army Corps of Engineers kicked of the Pebble mine environmental impact statement scoping process last January. Pebble leaders have touted a much smaller mine plan without the use of cyanide for gold recovery, a new transportation plan and revenue sharing payments for area village corporations and tribes as reasons for opponents to reconsider their stance. Bristol Bay Native Corp. and other area opposition groups have been critical of the Corps’ handling of the EIS, which is being done on a two-year timeline for the huge and complex development. In June, Gov. Walker’s administration called for the Corps to suspend the EIS until Pebble offered an economic review of their plan. CEO Tom Collier told the Journal in April that the company was working to develop a preliminary economic assessment on the project by the end of the year, but one has not been published to this point. Pebble backers scored a two-part victory on Election Night when Ballot Measure 1, the salmon habitat initiative, was roundly rejected by Alaska voters and staunchly pro-development Gov. Dunleavy beat former Begich, who has long opposed the mine. 7. Tourism keeps booming More and more people continue to want to come to Alaska. Alaska’s tourism industry continues to record visitor numbers to the state — and more are predicted for 2019. It’s also been one of very few growth sectors in the state’s economy over the past three years. Final numbers for the year are still being tallied, but the total of cruise passengers visiting Alaska was expected to be up 7 percent from the more than 1 million who came to the state in 2017, according to CLIA Alaska. More cruise ships and bringing more people are coming in 2019 as well. According to Travel Alaska, 37 cruise ships will traverse the state’s waters next year. CLIA Alaska says those vessels will carry nearly 1.2 million passengers. Passenger traffic at Ted Stevens Anchorage International Airport was up 3.1 percent through October, according to airport officials. The growth was 5.3 percent year-over-year in the third quarter. In October, Gov. Bill Walker announced direct passenger service between mainland China and Alaska will begin in 2019. TSAIA Manager Jim Szczesniak said in November that the outlook for 2019 is good as well with daily summer service to New York from United. 8. Roadless Rule reopened Gov. Walker’s administration cracked the Roadless Rule code Alaska loggers and other development interests had been working on for years over the course of 2018. In August, former DNR Commissioner Andy Mack and Interim Forest Service Chief Victoria Christensen signed in a working agreement that laid the foundation for the agencies to revise the Roadless Rule on the likely prospect of reopening more Tongass National Forest land to development of some kind. The August agreement was borne out of a petition sent in January from former Walker’s administration to Agriculture Secretary Sonny Perdue requesting a full exemption from the sweeping Clinton-era Roadless Rule that timber companies in the state blame for crippling their industry. By late November the 13-member Alaska Roadless Rule Citizen Advisory Committee picked by Walker had drafted four general options for revising the conservation measure and a list of recommendations for Forest Service officials to consider in their rewrite of the Tongass Management Plan. Several committee members said they felt their work went well and incorporated input from members who spanned the various Tongass stakeholder groups. The four proposed Roadless Rule options include maintaining all existing inventoried roadless areas, or IRAs, except for those with roads that pre-date the rule; removing previously roaded areas as well as areas identified in the management plan for timber production and others where a modified landscape has been deemed acceptable; removing areas in timber production and modified landscape IRAs identified by conservation groups as critical salmon habitat conservation areas in addition to the other exemptions; and, most broadly, removing all IRAs that are not currently designated with a non-development land-use priority, according to the committee’s report. 9. Rural health care funding fight In May, the Cordova Community Medical Center received a shut-off notice from Alaska Communications for its broadband services unless a balance of nearly $1 million was paid by June 30. Federal Communication Commission Chairman Ajit V. Pai stepped into the dispute and warned the Anchorage-based telecom provider that it’s against the Communications Act to shut down services. However, the Cordova Hospital wasn’t the entity not paying its bill. At that time, Alaska Communications hadn’t received funding for going on 11 months through an FCC that bridges the high cost of bringing broadband service to rural Alaska, called Rural Health Care, or RHC. The Cordova hospital is just one of about 40 rural health care facilities that Alaska Communications supplies broadband services. Alaska Communications and fellow in-state telecom GCI Liberty were owed millions from the RHC program through the first half of the year. By law, Internet service providers have to serve rural health care clinics at the same cost they give to urban health care clinics, and to make up the difference, they can apply for funding through the RHC program. The catch is that they have to justify the rates they’re charging for rural connections. After an investigation, the FCC found that two non-Alaska carriers were inflating their rural rates to increase their payments from the program in 2017 and fined the companies about $40 million. The agency then requested more information from the participating companies to justify the rural rates they charged. That proved to be an issue for Alaska telecom providers, where Internet connections are notoriously expensive and limited outside urban centers. The FCC announced Oct. 10 that GCI would receive $77.8 million in funding through the program. That’s about $28 million less than the company requested in its cost estimates. GCI objected, saying in an Oct. 12 press release that the reduction from the funding request essentially forces the company to swallow $28 million in services that had already been provided. The FCC emphasized the “fiscal responsibility” of the decision to reduce the funding to GCI in a prepared statement. Alaska Communications previously outlined the difficulties in meeting the information request specifications for the FCC to approve its rural rates. As of mid-October, most of the requests from the providers the company served in 2017 had been approved, but a handful had not yet been approved and therefore not funded, according to an Alaska Communications spokeswoman. In June 2018, the FCC increased the available funding from $400 million to $571 million, which has since been scaled to $581 million for inflation, according to an FCC spokesman. 10. NPR-A plan revisions Led by former Alaska Department of Natural Resources commissioner Joe Balash, in November Bureau of Land Management officials began the process of reopening the National Petroleum Reserve-Alaska Integrated Activity Plan on the prospect of opening more areas to oil exploration. Now an assistant Department of Interior secretary, Balash said in a call with reporters that the emergence of the Nanushuk geologic formation since the last plan was written — the primary source for two discoveries with the potential to produce upward of 100,000 barrels per day each — as well as advances in drilling technology make it an appropriate time to rewrite the federal land-use plan. One of those discoveries, ConocoPhillips’ Willow prospect, is in the eastern part of the NPR-A. BLM is in the early stages of an EIS for the $4 billion to $6 billion Willow project. The most prospective Nanushuk area, according to the U.S. Geological Survey, is in the northeast portion of the NPR-A around Teshekpuk Lake that was made off-limits to oil and gas leasing in the 2013 plan. Last December the USGS dramatically increased its mean recoverable oil estimate for the reserve to nearly 8.7 billion barrels. The Bureau of Land Management started a 45-day scoping period Nov. 20 to seek input on what should be considered in drafting the environmental impact statement, or EIS, that will drive the work. State and local officials have also pushed BLM to reconsider the current land use plan for the reserve. The North Slope Borough is a major financial benefactor of oil development in the NPR-A as the local government, by federal law, is eligible to use up to half of the federal royalty revenue from oil production in the NPR-A for capital grant projects. On Dec. 12 the agency held its annual NPR-A oil and gas lease sale. BLM received 16 bids over 16 oil and gas leases covering 174,044 acres, which netted a total of $1.13 million. Balash concluded that the relative lack of bidding compared to what has happened recently on nearby state lands “underscores the need for us to take a look at the NPR-A Integrated Activity Plan.”

Groups sue to top Liberty offshore oil project

ANCHORAGE (AP) — Five conservation groups filed a lawsuit Monday seeking to block oil production from a proposed artificial gravel island in federal Arctic waters. The groups asked the 9th U.S. Circuit Court of Appeals to review an offshore production plan approved for the Liberty project in the Beaufort Sea off Alaska's north coast. The groups said the plan violates federal law governing outer continental shelf drilling, the environment and endangered species. The Trump administration failed to consider impacts of an oil spill in remote Arctic waters or effects of drilling on polar bears and other endangered species, said Kristen Monsell of the Center for Biological Diversity, one of the groups that sued. "An oil spill in the Arctic would be impossible to clean up in a region already stressed by climate change," she said. Drilling law requires the administration to reject development if the risks to the human and marine environment outweigh the benefits of oil extraction. That includes both spills and climate change, Monsell said. "Here the agency used the totally inadequate analysis that actually found that the 'no action' alternative — not approving the project — would actually result in more greenhouse gas emissions, which is just completely ridiculous on its face, and also ridiculous given the modeling they used," Monsell said. The Bureau of Ocean Energy Management did not immediately respond to an email request for comment Monday. BOEM in October approved a plan submitted by Houston-based Hilcorp for production wells on an island proposed in 19 feet (5.8 meters) of water about 5.6 miles (9 kilometers) off shore. The site is 15 miles (24 kilometers) east of Prudhoe Bay, North America's largest oil field. Hilcorp plans to extract oil from federal leases sold in the 1990s. BP Exploration Alaska drilled at the site in 1997 and sold 50 percent of the assets to Hilcorp in 2014. The base of the gravel island would cover 24 acres of ocean floor, about the size of 18 football fields, with sloped sides leading to a work surface of 9 acres, the size of nearly seven football fields. To create the island, trucks would travel by ice road to a hole cut in sea ice and deposit 83,000 cubic yards (63,450 million cubic meters) of gravel. The surface would have room for 16 wells. Hilcorp anticipates extracting 80 million to 130 million barrels over 15 to 20 years. Hilcorp proposes to move oil to shore by buried pipe. Liberty would be the 19th artificial drilling island in Alaska, including four now pumping oil from state waters. Liberty spokeswoman Lori Nelson did not respond to a request for comment Monday. The four other groups suing are Friends of the Earth, Greenpeace, Defenders of Wildlife and Pacific Environment. They're represented by environmental law firm Earthjustice.  

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