More than supply and demand in play for oil prices

Predicting what the prices of oil and natural gas will be in the next few months requires the weighing of several factors besides just supply and demand. Oilmen Kirk Edwards and Frosty Gilliam, economist Ray Perryman and professor Dennis Elam say fluctuations of the pandemic, the whimsy of OPEC and OPEC+ and the policies of the Biden administration and the Environmental Protection Agency must also be considered. “The price of oil will do exactly what Saudi Arabia wants it to do,” Edwards said. “For some reason during the pandemic, they allowed themselves to keep oil off the market, which reduced inventories and steadily let the price go up from $30 a barrel at this time last year to close to $70 today. “They’re trying to limit how much product they put on the world market. With all the COVID setbacks that there have been in so many different countries and now with the new Delta variant coming around, we’re seeing Saudi Arabia produce half as much oil as they were a year ago and make the same amount of money.” Edwards said the Mideast nation “can drop the price right back down to $30 if they want to, but luckily we have hedging instruments to protect ourselves with, though only for a year or two.” He said gas prices have been just as volatile, falling to minus-zero last year but rebounding to around $4 per thousand cubic feet. Two years ago, the price was $1.30. “It’s been so low for the last four or five years, again because the world market was flooded,” said Edwards, whose Latigo Petroleum is heavily invested in gas production in the Texas Panhandle. “There’s not a lot of gas coming onto the market now and that has caused its price to increase.” The July 18 OPEC+ announcement that it would bump monthly production by 400,000 barrels per day fomented a drop from the mid-$70s to the upper $60s that had partly corrected to the low $70s by mid-week. “Anything they say is probably a lie,” Edwards said. “They’re just trying to keep the Permian in check so we don’t put out a bunch of rigs.” Asked if the domestic industry has considered cutting production to exert more control on prices, he said the Texas Railroad Commission called a meeting of representatives in March last year to discuss prorations, but before action could be taken, “The Saudis did it for us. “They took two million barrels a day off the market.” Thirteen nations belong to the Organization of Petroleum Exporting Counties. OPEC+ has 10 more, led by Russia. Gilliam said the coronavirus factor “will potentially continue to depress travel and projects and indirectly affect fuels and energy, which would cause supply to outgain the demand. “OPEC always tries to play the role of the leader and they’ll want to dictate what the price does,” he said. “The political realm certainly trumps a lot of the practical sciences of oil prices. “Supply and demand should dictate it, but historically attitude and the perception of what might happen end up weighing heavily. All that adds up to a real likelihood of lower prices.” Gilliam said the industry is very uneasy about the Biden administration. “The standard Democrat play is to limit drilling and increase regulations, which make the cost of doing business increase,” the AgHorn Operations president said. “Keeping drilling projects from occurring on federal lands and offshore adds up to a damper on supply and production.” Perryman, an Odessan whose consulting company is based at Waco, Texas, said the recent oil setback stemmed from the OPEC+ announcement and a spike in coronavirus cases domestically and abroad. “As always, there is a lot happening in oil markets that creates a lot of noise,” he said. “The virus is clearly the biggest wild card at the moment. If it reaches the point of substantially slowing global demand growth, then the price will likely fall for an extended period. We cannot get the economy fully on track till the health crisis is manageable. “Assuming we avoid another widespread surge, demand is growing faster than supply, even with the OPEC+ increase, and prices should enjoy an upward trend for the next few months. Global demand is back to about 97 percent of pre-pandemic levels and travel and production are both enjoying substantial growth.” Perryman said a new consumption record will happen next year if there isn’t another crisis with the virus. “Although the domestic rig count has approximately doubled, it remains below prior levels, and oil field service employment, despite impressive recent gains, has only recouped about 20 percent of the lost jobs,” he said. “There’s a lot of room for growth and the market outlook is positive; but as we have said about so many things for so long, it all depends on the virus.” Elam is an associate professor of accounting and finance at Texas A&M University-San Antonio and an Odessa American columnist who writes about the energy industry. “Demand for natural gas in the Far East is still on the rise, making that market stronger,” Elam said. “The fact that refiners like Valero are turning away from carbon-based oil to vegetable oil for so-called clean diesel may keep gasoline prices fairly high. “I expect oil to stage a 50 percent recovery, which is where it is today, and then fall to the lower $60s in August.” Elam said President Biden’s order to stop construction on the Keystone Pipeline from Canada caused more expensive rail shipping from the Dakotas. “The great irony is that Biden forced gasoline prices higher by shutting down Keystone, not to mention the EPA’s general war mongering,” he said. “So gasoline goes above $3 just as America comes out of COVID, when people want to travel. Now he has to ask the Mideast to export more oil and bang, we’re back to depending on that region again.” However, Elam said inflation and a rise in consumer prices may be held down if oil and stocks have peaked and are starting to decline. “That would be deflationary,” he said. “Which will it be? I’m seeing headlines that the economy slows from here and I’m guessing that stocks have topped.” Referring to options contracts that give owners the right to sell a certain amount of their underlying assets at a set price within a specific time, he said: “Many had sold puts and they had to either buy the puts back or sell futures. “It looks like they sold futures. Financial shenanigans have a lot more to do with oil price volatility than supply and demand.”

Why now isn’t a bad time to take out a car loan or mortgage

The pandemic knocked borrowers on their backs in the spring of 2020, but as the economy regained its footing, so, too, has the willingness of consumers to borrow. Consumer applications for auto loans, new mortgages and revolving credit cards all mostly returned to pre-pandemic levels by May 2021, according to a new report by the Consumer Financial Protection Bureau. Skyrocketing unemployment a year ago crushed demand for credit. Who wanted to take on a big car payment when they were unsure whether they could make the old car payment? Or if they weren’t driving to work but instead setting up shop at home? Auto loan inquiries, for example, plunged 52 percent by the end of March 2020. States in the Northeast and California, together with Michigan and Nevada, experienced the largest drops. Many are vaccinated and back to borrowing Going forward, economists say the outlook hinges on the path of the virus and vaccination efforts. The jobs picture improved after progress was made getting people vaccinated and we saw strong stimulus support programs roll out of Washington. But the economic recovery could still face stops and starts. The Federal Reserve policy committee moved July 28 to keep short-term interest rates at the near zero level as worries about the delta variant spread. The Fed noted: “The sectors most adversely affected by the pandemic have shown improvement but have not fully recovered.” Make no mistake, everyone isn’t finding ready access to low-cost loans. “Despite the overall trend toward a recovery, we find that consumers with deep subprime and subprime scores still have not recovered to their pre-pandemic levels, likely in part due to a tightening of credit for these consumers,” the Consumer Financial Protection Bureau noted. Other key trends from the CFPB brief include: • Mortgages: When it comes to shopping for mortgages, we’ve seen unusually high activity in the mortgage market throughout the pandemic following a brief initial dip. Inquiries have exceeded their usual, seasonally adjusted volume by 10 percent to 30 percent, reflecting low interest rates and a stronger housing market. • Credit cards: Consumers appeared to be the least willing to put another piece of plastic into their wallets. It took a full year — from March 2020 until March 2021 — for revolving credit card inquiries to recover back to their usual levels. • Car loans: Consumers with excellent credit or super prime scores surprisingly are not shopping for car loans at pre-pandemic levels. But the report noted that there could be a drop in demand for credit among this group of consumers, which may include workers who are able to work from home may not want to buy a new car if they’re not commuting. (The report didn’t note that a lack of cars and trucks may be coming into play or how the semiconductor squeeze cut into inventories and sales. But that, too, could be an issue.) Overall, the consumer’s willingness to take out an auto loan returned back to pre-pandemic levels by January 2021, according to data reviewed by the federal agency, which was established after the 2008 financial crisis. Low auto loan rates help offset high prices Jonathan Smoke, chief economist for Cox Automotive, said credit conditions have been favorable all spring and summer, supporting strong demand for car and truck sales. Credit to buy a car is easier to get than it was a year ago, he said, shifting back to where it was before the pandemic started. “Rates continue to be lower than a year ago,” Smoke said. “Spreads had widened last year during the pandemic, especially for lower credit tiers.” But now most car loan borrowers have seen lower rates, he said, especially subprime borrowers who have seen lower rates this spring and summer. “Now that bond yields are retreating from their early spring highs,” Smoke said, “it is likely that consumers will continue to see low and attractive rates on auto loans.” And lower auto loan rates can help to offset the impact of price increases since most people take out a loan to buy a car or truck. Not surprisingly, consumers are more willing to borrow if they’re feeling more secure about their jobs outlook and their finances. Total consumer credit shot up 10 percent in May, according to Federal Reserve Consumer Credit Report. That’s the biggest increase in five years. What’s a good deal on a car loan, mortgage, credit card? “The biggest factor in the renewed borrowing interest is the improved, and reopening, economy,” said Greg McBride, chief financial analyst for Bankrate.com. The fearful economic “what ifs” of 2020 are giving way to a greater confidence in a stronger economy, he said. Low rates also are helping fuel many purchases. The average fixed rate for a 30-year mortgage is 3.04 percent — down from 3.3 percent last year, according to Bankrate.com. An even better rate of 2.5 percent is available with no points. (Mortgage points amount to extra fees that a borrower pays a lender to reduce the interest rate and lower the monthly payment. The upfront cost can make sense if you plan to stay in the home or hold onto the mortgage for a long time.) When it comes to a five-year new car loan, the average rate is 4.15 percent now, down from 4.24 percent last year. McBride noted the best rates are in the low 2 percent range, but occasionally you’ll see credit union offer deals of 1.99 percent. Average rates on a four-year used car loan are around 4.71 percent — down from 4.99 percent a year ago. Again, he said, the best rates can be in the 2 percent range for borrowers with strong credit. When it comes to credit cards, the average rate is now 16.16 percent, according to Bankrate.com. That’s up a bit from 16.04 percent last year. But borrowers with strong credit can get much better deals. Some promotions are offering 0 percent for up to 18 months for purchases and balance transfers, McBride said. Credit card debt tumbled, as consumers paid down high-cost credit card debt and cut back on big vacation spending and other purchases for much of the past year. Credit card balances fell by $49 billion in the first quarter, the second largest quarterly decline in the history of the data since 1999, according to the Federal Reserve Bank of New York. Credit card balances are $157 billion lower than they had been at the end of 2019. By contrast, balances continued to increase for mortgages, student loans and auto loans. The Fed noted that auto loan balances grew for the past three quarters and increased by $8 billion in the first quarter of 2021, after a brief pause in the second quarter of 2020, when many dealerships were closed. The Fed noted that older consumers — particularly those age 60 and up — may continue to be more cautious about the risks of the virus itself and may be using their credit cards less frequently, while younger people resumed spending and their outside activities. Consumers, no doubt, found themselves on a firmer financial footing after three rounds of stimulus checks — and now many families are seeing hundreds of dollars in monthly advance payments from July through December for the child tax credit. Some of that extra cash — and extra confidence in the economy — clearly deserves some credit for the rebound in borrowing. Susan Tompor is the personal finance columnist for the Detroit Free Press. She can be reached at [email protected]

Industry groups, advocates applaud infrastructure bill’s broadband funds

Telecommunications industry groups and digital equity advocates reacted positively Aug. 2 to high-speed internet provisions in the Senate’s bipartisan infrastructure bill. The massive 2,702-page bill, introduced late Aug. 1 as a substitute amendment to the legislative vehicle, includes around $65 billion in spending for broadband. And though the bottom line for broadband spending is significantly less than the $100 billion originally sought by President Joe Biden and congressional Democrats, almost everyone has found something to like. Industry groups, for example, were quick to praise the lower overall funding level. The call for $100 billion in broadband spending had led to some concerns of “overbuilding.” “Early proposals from the administration indicated an intent to transform broadband into an old-fashioned utility through massive, wasteful overbuilding,” said Doug Brake, director of broadband policy at the Information Technology and Innovation Foundation. “Significant improvements … have brought it much closer to something ITIF could support.” The bulk of funding for high-speed internet would go toward broadband implementation grants. The grants would total about $42.5 billion that states and territories could use for broadband projects in unserved areas, with 10 percent of the funds set aside for projects in “high-cost” areas. The figure is about $2.5 billion more than what had been in earlier drafts of the agreement circulated last week. Advocates who say digital equity programs are key to closing the “digital divide,” which is especially damaging to low-income families and racial minorities, are applauding the inclusion of $2.75 billion to implement the Digital Equity Act. The bill would direct the Commerce Department to award broadband grants in historically underserved communities. “Just the idea that an infrastructure bill is including funding for digital equity and adoption is big,” said Heather Gate, the vice president of digital inclusion at Connected Nation, a Bowling Green, Ky.-based national nonprofit. Gate said she would have preferred a greater investment in digital equity, but the $2.75 billion is “significant considering we’re coming from zero for equity funding.” The digital equity funding would be awarded via two new Commerce Department grant programs: the State Digital Equity Capacity Grant Program, which would receive $1.5 billion, and the Digital Equity Competitive Grant Program, which would get $1.25 billion. The first of the two programs would disburse funding based on a state’s population, demographics and current broadband availability. The second would provide grants to specific projects aimed at digital equity and inclusion. Another $5 billion would be authorized for state grants that would go toward “middle mile” broadband projects to connect networks operated by major providers and smaller, rural networks operated by smaller providers. The “middle mile” provisions won plaudits from the Wireless Infrastructure Association, which said the money could be used to finance signal towers in rural or underserved areas where they would otherwise be too expensive to build. “This should be a boon for tower builders,” said the group’s president, Jonathan Adelstein. “Best of all, it includes an explicit priority we’ve advocated strongly, which is leveraging existing towers and other infrastructure rather than wasting taxpayer resources by overbuilding.” The bill also includes $2 billion for the Tribal Broadband Connectivity Program and $2 billion for rural broadband. “This unparalleled commitment will help community-based and Tribal providers of broadband bring more connectivity to Americans who lack internet access and enable those who cannot afford access to bridge that gap with government support,” said Mike Wendy, a spokesperson for the Wireless Internet Service Providers Association. Negotiators also agreed to expand the Emergency Broadband Benefit Program, which Congress established in the wake of the COVID-19 pandemic to help low-income families afford their monthly internet bill. The bill would extend the program past the end of the public health emergency but would lower the monthly stipend from $50 to $30. The bill also includes provisions increasing price transparency and ending the practice of “digital redlining,” which has resulted in lower-income areas being served slower internet speeds for higher prices. Both provisions were key priorities for the Biden administration. “Broadband internet is necessary for Americans to do their jobs, to participate equally in school learning, health care, and to stay connected,” the White House said last week. The deal “ensures every American has access to reliable high-speed internet.”

Boeing advances on first profit since 2019 as troubles ease

Boeing Co. earned a profit for the first time in nearly two years, surprising Wall Street and hinting at a potential turnaround after one of the worst financial crises in the planemaker’s century-long history. The shares jumped. Adjusted earnings of 40 cents per share weren’t the only sign of progress in the company’s second-quarter earnings report: the manufacturer burned through just $705 million, better than the $2.76 billion outflow that analysts had predicted. The July 28 results suggest that Boeing is starting to emerge from a deep slump caused by the COVID-19 outbreak and the company’s own quality lapses, which were tied to two deadly crashes of its best-selling 737 Max plane. With its business stabilizing, Boeing has halted large-scale job cuts well short of earlier plans to eliminate nearly 20 percent of its rolls, said CEO Dave Calhoun. “You will see our efforts gaining traction and our recovery accelerating, as reflected in improved revenue, earnings and cash flow, as well as stabilizing workforce levels,” Calhoun said in a message to employees. Boeing said it plans to hold employment steady at 140,000 jobs, representing a 13 percent reduction from pre-COVID-19 levels. Boeing jumped 5.6 percent to $234.77 at 9:32 a.m. in New York after advancing as much as 6 percent, the biggest intraday gain in four months. The shares had climbed 3.8 percent this year through July 27, trailing the 15 percent gain for the Dow Jones Industrial Average. The surprise second-quarter profit compared with an average loss of 81 cents expected by analysts surveyed by Bloomberg. Revenue rose 44 percent to $17 billion. Analysts had predicted $16.5 billion. “Today could be seen as a tactical victory for Boeing, but the strategic challenges remain,” said Robert Stallard, an analyst at Vertical Research Partners. Indeed, the Chicago-based company faces a long road to recovery, and a powerful rival in Airbus SE, which is looking to capitalize on its larger order backlog. Airbus, based in Toulouse, France, was slated to report its results on July 29. Another obstacle for Boeing is frayed U.S.-China relations, which have injected uncertainty into the company’s timetable for speeding production of the Max, which is meant to be a cash cow. The model, which was banned worldwide for 20 months, is still barred from flying in its largest overseas market. In the U.S., regulators lifted the grounding in November. Boeing is also wrestling with manufacturing flaws that have halted deliveries of its 787 Dreamliner aircraft, another key source of cash. The company has temporarily slowed output of the marquee wide-bodies as it searches for and repairs structural imperfections that are about the width of a coat of paint. The balance of deferred production costs still on Boeing’s books from the Dreamliner’s troubled start rose by $124 million in the quarter to $14.9 billion, reversing years of declines. Executives had warned earlier this year that cutting production below a pace of five jets a month could clip margins and force the 787 program into a reach-forward loss. But the company didn’t take the steep accounting charges that some analysts had predicted. Calhoun and Stan Deal, Boeing’s Commercial Airplanes chief, face a difficult juggling act as they try to get production running smoothly without adding to the stockpile of hundreds of undelivered planes, mostly wide-body 787 jets and narrow-body Max aircraft. The jetliner division pared its operating loss to $472 million from a deficit of $2.76 billion loss a year earlier, when the company wrestled with the worst of the Covid-19 crisis. Commercial revenue more than doubled to $6.02 billion as deliveries rose. Boeing is now manufacturing 16 737 Max jets per month and still plans to increase output to 31 per month by early next year. Inventories for the division declined by about $330 million to $70.7 billion during the quarter. “The big picture is: Defense, global services make up for commercial,” where sales were lighter than estimated, according to Bloomberg Intelligence analyst George Ferguson. He expects revenue to be affected near-term by a spate of 737 Max deliveries to Southwest Airlines Co., which used credits to lower its cash payments. The cash that would typically be generated by the Max has been depressed by low production volumes since U.S. regulators cleared the plane’s return last year after a 20-month grounding prompted by the two fatal crashes. Boeing isn’t netting much cash by clearing its inventory of the aircraft, either. Airlines are mostly using credits, both for advances already paid to the planemaker and compensation for the grounding, Agency Partners analysts Nick Cunningham and Sash Tusa said in a July 27 report.

Murkowski touts wins for Alaska in infrastructure bill; AK LNG left out

Sen. Lisa Murkowski was at the center of negotiations to craft the $550 billion infrastructure package that she says will make significant investments in Alaska, but it’s unclear at this point where one of the largest potential infrastructure projects in generations fits in. The Infrastructure Investment and Jobs Act includes roughly $400 billion in baseline formula spending for existing highway and airport programs among others, as well as roughly $550 billion in new spending that will largely go to existing federal grant and formula programs. Murkowski said the bipartisan package by 10 senators partly negotiated in direct talks with President Joe Biden focuses on rebuilding the country’s core physical infrastructure of roads, ports and bridges with additional investments in broadband and renewable energy and carbon capture technologies, for example. “It invests in legacy projects for the long-term,” Murkowski said in a July 30 call with Alaska reporters. “The overall benefit to a state like Alaska, I think, is going to be really, really considerable.” She acknowledged that hard numbers for the state’s share of the spending are difficult to calculate because so much of the funding is formula-driven. It won’t be doled out in lump sums. The bill currently under debate by the full Senate could have a particularly large impact in improving rural water and sanitation systems, according to Murkowski, who said it adds $180 million to Environmental Protection Agency drinking water and wastewater programs and $3.5 billion to the Indian Health Service for sanitation facilities nationwide. “This is really going to be a once-in-a-lifetime investment in sanitation facilities,” she said. The infrastructure spending bill also funds many of the programs established in Murkowski’s omnibus Energy Act of 2020, which passed late last year after six years of work. Absent from explicit inclusion in the bill is the state’s request for nearly $5 billion in federal funding to jumpstart construction of the Alaska LNG Project. In January Gov. Mike Dunleavy announced the state’s latest plan to fund the $38 billion Alaska LNG Project that centered on capturing federal infrastructure funding from a then-conceptual bill for 75 percent or about $4.5 billion, of the initial $5.9 billion phase one of the project to the first section of gas pipeline between the Point Thomson field and Fairbanks. The administration touted it as a way to improve air quality in the Interior — an ever-growing issue for the EPA — by replacing wood and oil burning with natural gas for home heating. The remaining portion of the overall 807-mile pipeline, the North Slope gas treatment plant and the Kenai LNG facility would be funded separately, according to Alaska Gasline Development Corp. officials. AGDC spokesman Tim Fitzpatrick wrote via email in response to questions about where Alaska LNG fits in the 2,700-page Infrastructure Investment and Jobs Act that the project “is clearly aligned with national climate, energy, and infrastructure objectives, and we’re closely watching the legislative process as we move this project forward.” Murkowski spokeswoman Karina Borger wrote that the senator was able to repeal a sunset provision from 2004 legislation that maintains the project’s access to up to $18 billion in federal loan guarantees when asked where the $5 billion request fit into the negotiations and subsequent legislation. Officials in the governor’s office said they requested an earmark for the project from the delegation but also noted the legislative process is not over. Senate leaders hope to move the bill to the House quickly, according to Murkowski. AGDC officials also insisted they didn’t expect a direct appropriation for the project and that it still has commercial interest without the prospect of a federal boost. AGDC leaders hope to secure commitments from developers, operators and investors in the LNG and gas treatment plants by this fall, with the project’s major financial agreements coming next year. In late June the Energy Department announced it would conduct a supplemental environmental impact statement on the project to determine its life-cycle impact greenhouse gas emissions. AGDC President Frank Richards said he believes the analysis will show the Alaska LNG Project would prevent up to 80 million tons of carbon emissions over its roughly 30-year life primarily by displacing coal for power generation in east Asian countries, long a selling point of the project for the state-owned corporation. Elwood Brehmer can be reached at [email protected]

Fate of the Furieous: Hendrix reflects on first year at Inlet producer

Retirement jobs are often meant to be time-fillers, an activity that is mostly enjoyable and provides some walking around money without unnecessary stress. They’re almost always part-time. John Hendrix, on the other hand, bought a bankrupt gas company. But it’s clearly more than a hobby. For him, it’s about what to do to not retire. “It’s fun,” Hendrix, 64, insisted in an interview. “If you’re an Alaskan and you’ve worked in oil and gas and you have an opportunity and you have one chance to strike, why not go for it? We made sure that we protected ourselves in regards to what we had in the bank — we could cover it, my wife and I — and we decided to go for it.” In a separate interview, his wife Candace Hendrix largely confirmed the simple enthusiasm that led to them buying Furie Operating Alaska last year. He learned of the opportunity through some consulting work he was doing for an area utility, according to Candace, who didn’t see much reason to object. “My daughter and I always felt like this was something John was meant to do,” she said. “I have a lot of faith in John because he is so high-energy and he’s capable of doing so many things at once. I knew it was risky…but we just couldn’t see John retire.” That mindset led the Hendrixes to bid on and ultimately win — with the help of a since bought-out silent partner — the Cook Inlet gas producer in a December 2019 bankruptcy auction. Disagreements between the parties involved in the complex bankruptcy stretched it out for nearly 11 months before the sale was complete. John took over as owner and CEO of the formerly Texas-based Furie in July 2020 under their new company Hex LLC. Furie leaders filed for bankruptcy in August 2019 when the company owed lenders approximately $440 million and while itself owed about $105 million in refundable tax credits from the State of Alaska, according to the bankruptcy petition. In 2015, Furie installed the Julius R platform over the Kitchen Lights gas field in the central portion of Cook Inlet at a cost of roughly $200 million, according to Hendrix; it was the first new development platform the Inlet built since the 1980s. However, the company’s financial challenges were significant; Furie absorbed a loss of $58.5 million in 2017 despite netting $25.4 million from gas sales, according to bankruptcy court filings. The situation worsened in 2018 when the company sold $42.8 million of natural gas but took a loss of nearly $152 million. Furie lost $21.4 million in the first quarter of 2019, when a freeze-up in a gas production pipeline kept the company from supplying Homer Electric Association and Enstar Natural Gas Co. with gas for more than a month. The hydrate freeze-up is what Hendrix and other industry experts familiar with the situation blame for ultimately pushing the company into bankruptcy. For one, it forced Furie leaders to buy approximately $17 million worth of gas from other Inlet producers to cover their supply contracts with regional utilities, he said. Getting back to basics About a month after taking over Furie, Hendrix told the Journal the company, which also sought to explore for oil under prior leadership, needed to get “back to basics” and focus revenue-generating natural gas production. Just more than a year in, optimizing Furie’s operations is for the most part going well, he said, reciting several instances in which he found what he concluded to be unnecessary or overly costly processes, equipment, or even operational approaches. He believes Furie’s onshore Nikiski gas processing facility is “way overbuilt” — he estimated it at about $50 million — for what the company was doing and currently does, for one. As a result, a generator meant to power the gas compressors can’t run full-bore as intended to maximize efficiency and is therefore ostensibly useless under normal operations. It currently costs about $50,000 per month to power the facility, according to Hendrix. “It’s cheaper for us, because the equipment is so inefficient — to buy electricity from Homer Electric than to generate it ourselves. So HEA buys our gas, (in periodic spot sales) generates electricity, and sells it back to us cheaper than we can do it,” Hendrix said. “We’re looking at a few things we need to do.” Furie leaders also recently added a desalinization unit to the Julius R platform so they could supply their own drinking water and cut out the steep delivery costs. “Every time a boat comes out it costs us between $12,000 and $22,000 one way, “ he said, later joking that he gave his operations crew an inspirational deadline to make sure the desalinizing unit is working. “I told them ‘we’re not delivering any more water after September.’” Alaska pride A petroleum engineer raised in Homer, Hendrix was general manager of Apache Corp.’s operations in Cook Inlet prior to becoming former Gov. Bill Walker’s oil and gas policy adviser in 2016. He wears his pride for Alaska on his sleeve and a major part of turning around Furie was overhauling its mostly imported workforce into one predominantly comprised of Alaskans, according to Hendrix. “We wanted to bring jobs to Alaskans and that’s what we’ve done. We’ve done everything we’ve said we were going to do and we’re proud of it,” he said. Since informing the small former Furie operations crew last fall that the company would no longer be paying for travel to and from Nikiski, Furie has gone from one Alaskan on payroll to nearly two dozen; one employee agreed to stay on under the new terms. It was that enthusiasm for Alaska and reinvesting in the Kenai Peninsula that coaxed Hendrix’s first hire, Kevin Smith, who is now Furie’s operations superintendent, out of comfortable retirement in Soldotna. The two were connected through mutual friends who thought they would work well together. “The thing that really hooked me was John wanted to make it local hire,” said Smith, who retired from BP when the British major sold its Alaska assets to Hilcorp in a deal that closed last year. “To be honest I really don’t want to work too much longer but I want to help him set this business up.” After having a pilot project to allow the company to discharge its produced water into the Inlet approved by state regulators, Furie has mostly alleviated the risk of future hydrate freezes aside from one minor event, according to Smith. “We definitely did our homework on all of that and were prepared so it wouldn’t take us down for a long time,” he explained. To that end, officials with Enstar Natural Gas Co., which holds Furie’s lone firm supply contract, said the producer has met all of its obligations under Hendrix’s ownership. Part of bringing Furie’s focus back to Alaska has also been an emphasis on using local, rather than Lower 48, vendors, Smith added. “We’ve had pretty good luck sourcing things; I’ve actually been mildly surprised,” he said. Hendrix emphasized the fundamental belief that hiring local in an industry such as oil and gas where employees are often transient can help workers gain a sense of pride in their jobs that translates to better performance, alluding to how the company now sends small but important samples 15 miles from the platform to shore via subsea pipeline instead of air. “They devised a way of sending water samples in for our produced water just like you use at the bank system. We put it inside a (pipeline) pig and we ship it to shore and get the sample delivered back at the facility. We don’t have to fly helicopters back and forth for samples. It cuts back on our production a little bit for the day but that kind of innovation is great,” he described, adding that the company’s total yearly helicopter charter bill is down from about $550,000 to $250,000 since he took over. “There’s just a lot of extra costs out there.” Tax hurdles The omnipresent hurdle to improving Furie’s position, according to Hendrix, has been the state, and specifically Alaska’s oil and gas property tax regime. As he explains it, Furie was purchased for $5 million in cash, with contingencies for former creditors, after first winning the auction with a $15 million bid. They put up $2.5 million and $5 million from the $7.5 million AIDEA loan that capitalized an account to provide initial operating cash for the company as required by Furie’s creditors, according to Hendrix. As part of the deal Furie must also pay $15 million to the creditors who currently hold $103 million in unpaid state exploration and development tax credits if the state does not pay them off by July 2025. “I’ve got to have development enough to pay the $15 million. We have to make sure that in due time — we’ve got that $15 million at a 7 percent note — that we’ve covered that by the year 2025. We have to set aside money for that and for future development but $1.6 million just came out so we’re back to square one,” he said. An AIDEA spokeswoman confirmed Hex’s loan is current. Hendrix noted that in addition to meeting its financial obligations, Furie went the last 12 months without a lost time injury or environmental incident as well. The $1.6 million is Furie’s annual oil and gas property tax bill from the state, according to Hendrix, and he can’t understand how it can be justified based on what the company was bought for last year. He claims state property tax assessors have valued Furie’s assets at $81.2 million. “I love this state. I want to support this state. I want to make sure that what we spend goes to the state, but I don’t want to be unfairly and unjustly tapped when we’re a struggling company coming out of bankruptcy,” Hendrix said. “What they had before was a lot of expenses they shouldn’t have had to pay, that’s some of why they went under before we picked them up. How in the hell do you buy something for $5 million and they assess just the tangible part at $81.2 million? It was a fair auction; anyone could come in and bid on it and we won the bid.” The crux of the issue is the state’s longtime method for valuing often unique oil and gas facilities in the state. Revenue officials could not speak directly to Furie’s taxes, but offered general information on the Tax Division’s process for assessing oil and gas facilities, which at the highest level relies on replacement cost valuation minus depreciation. That means the relatively new Julius R platform — built in 2015 — and the onshore facility still carry significant value. Former Furie officials estimated the value of the company’s assets at between $10 million and $50 million in their initial bankruptcy filings. “If I grow the company to where it’s worth $81 million I’m willing to pay it,” Hendrix said. “You would not put that platform out there for the resources out there today and that’s our problem with the property taxes. The question back is always, ‘well, what would you pay to do it now?’ and we wouldn’t do it.” After having an appeal to the little-known State Assessment Appeal Board rejected last spring, Hendrix said he sees no other option but to sue the state over the matter. “It’s going to cost us a lot of money and it’s going to impact our future on how we spend money, how we employ people but it’s another baseline foundational thing that we have to fix,” Hendrix said of the taxes. “Can you imagine paying 33 percent property tax on something you just bought? How do you make money? How do you employ people? “They’re treating our gathering line like it’s the Trans-Alaska Pipeline; it’s not, it’s a 10-inch pipeline that’s 15 miles long.” Despite the tax issue, and his clear frustration with it, Furie’s first solvent year has largely gone well, according to the Hendrixes. “He feels good about it,” Candace said. “Even when it’s stressful he still feels like it was the right decision; he’s just so happy to be back in Alaska.” Smith described it with the perspective of a 40-year Peninsula resident. “A guy from Homer, from East End road just bought a platform out in the Inlet,” he said. “That’s pretty cool.” Elwood Brehmer can be reached at [email protected]

COMMENTARY: ‘Buy American’ policy must start from the ground up

Since the start of the COVID-19 pandemic, the United States has lost roughly 500,000 good-paying manufacturing jobs. That’s a heavy toll for such an important part of the national economy. However, the Biden administration is working to rebuild U.S. manufacturing with a new rule intended to increase the American-made content of goods purchased by the federal government. Each year, the U.S. government spends roughly $600 billion on procurement, including everything from furniture and trucks to helicopter blades. Spending that money on American-made goods could provide a great boost for U.S. manufacturers. The key, though, is to make sure that this spending goes to domestic U.S. companies — not producers in China. However, China continues to massively subsidize its state-owned factories — including billions of dollars annually for everything from steel and electronics to solar panels and electric vehicles. This has helped to make China the world’s primary supplier for key industrial commodities, and also put many high-tech U.S. firms out of business. Under the Biden administration’s proposed rule change, the threshold for American-made content in goods purchased by the U.S. government would immediately rise to 60 percent, or 5 percent above existing standards. Further increases would be phased in, with a goal of 75 percent domestic content by the end of the decade. Higher domestic content requirements could greatly benefit new industries such as America’s burgeoning electric vehicle manufacturers. However, China is already far ahead in the EV industry, and is planning 107 lithium-ion battery mega-factories. In contrast, the U.S. has only nine such factories in the planning stages. Even if the Biden administration succeeds in directing more taxpayer money to American-made products, all of that planning could still fall short. That’s because the United States remains heavily dependent on China and other countries for the metals and minerals needed to manufacture EVs and other renewable energy technologies. That’s significant, since the International Energy Agency estimates the demand for critical minerals in the energy sector alone could increase roughly six times by 2040. Countries that can supply these important materials will enjoy a significant geopolitical and economic advantage. Unfortunately, the United States now relies on China for many of these resources, including 80 percent of its rare earth metal needs. Overall, America’s dependence on imported metals and minerals has doubled in just the past two decades. It’s deeply troubling that the United States is so reliant on China — a country that uses forced labor and toxic environmental practices — to supply the metals and minerals needed to manufacture advanced technologies. Getting the American-made effort right — and making the most out of the administration’s new industrial policy — will mean reducing this reliance on China. It’s time to bring these supply chains home, including mining and critical materials. Failing to do so will lead to taxpayer money slipping away to China. And that would mean an unfortunate loss of good jobs and national self-sufficiency. Michael Stumo is CEO of the Coalition for a Prosperous America. Follow him at @michael_stumo.

Board of Fisheries denies setnetters’ emergency petitions

Kenai Peninsula setnetters are likely to remain closed for the rest of the season after the Board of Fisheries denied two emergency petitions seeking a partial reopening. In an emergency meeting held Aug. 2, the Board of Fisheries voted 4-2 to deny a petition seeking a limited reopening of the East Side setnet fishery in Upper Cook Inlet. The petitioner, Chris Every, asked the board to reopen the East Side setnets within 600 feet of mean high tide, known as the 600-foot fishery. “We believe by utilizing the 600-foot fishery we can reduce both the economic and biological impact while conserving chinook salmon, which is our ultimate goal with this 600-foot fishery,” he wrote in the petition. The setnetters had a foreshortened and significantly restricted season because of low late-run king salmon returns to the Kenai River. The Alaska Department of Fish and Game estimates that 6,420 large kings have passed the sonar on the Kenai River since July 1, significantly less than the lower end of the escapement goal of 15,000 large kings. In response, the department placed progressively stronger restrictions on the sportfishery, going from no bait to catch-and-release, and finally to a complete closure. Because of the paired-restriction model the Board of Fisheries placed on the East Side setnetters, when the king salmon sportfishery is completely closed, they are too. Setnetters have not been in the water since July 20, and they have watched the peak weeks of the Kenai River sockeye run swim past. Aug. 2 saw the highest daily passage to date: 151,525 sockeye passed the sonar, according to ADFG. Every cited harvest data from ADFG showing that when the entire East Side was open to the 600-foot nets only on July 20, only 11 late-run large Kenai River king salmon were harvested. “We believe that the amount of kings that are impacted by the east set-net 600 foot fishery is equal to or less than the other user groups,” he wrote. “The total chinook harvest in each one of the 600-foot openers is very low.” Board of Fisheries member Gerad Godfrey, one of the members who called for the emergency meeting after hearing from stakeholders, said those numbers were what convinced him the situation is an emergency. “I may not have caught all this in public comment or deliberations,” he said. “That was obviously a very intense meeting with a lot of data.” Board policy makes it hard to qualify something as an emergency. It must be an unforeseen effect of regulations, an immediate threat to the stock or include new information that the board or department did not have on hand when making regulations. The setnetters argue that the harvest data on large kings qualifies as new information, quantifying their exact impact on the run. ADFG Commissioner Doug Vincent-Lang issued a response to the petitions over the weekend, just before the board meeting took place, finding that the situation didn’t qualify as an emergency because it was not unforeseen nor new information. During the meeting, he said the board instructed the department to prioritize meeting the lower end of the late-run king salmon escapement goal over keeping the sockeye run within its escapement goal range. The data from the 600-foot fishery on July 20 does show a small number of large Kenai River kings harvested compared to the approximately 36,000 sockeye harvested on the same day in the East Side setnet fishery, according to ADFG data. Vincent-Lang said that one day’s data may not be demonstrative of the effect of a 600-foot fishery long-term. “That 11 (king salmon) harvest is indicative of that day of fishing, but it may not be indicative of what you can expect in the harvest in the 600-foot fishery that is prosecuted in the area depending upon when king salmon are passing and how big of a run you have going by that site,” he said. Godfrey called the king harvest “de minimis” and said he felt he didn’t think he foresaw the full effect of the board’s actions on the setnet fishery while other fisheries remained open. Member John Wood agreed, saying he would like to see a temporary fix to allow the fishermen to harvest some of the sockeye run, but let the action expire after 120 days and consider permanent fixes in the future. However, the other board members did not agree. Member John Jensen said he thought the situation was serious in allowing that many fish to go by, but agreed with Vincent-Lang’s finding. Member Israel Payton said he agreed as well and cautioned against risking king runs for the sake of harvesting sockeye. “We don’t want to miss a goal more than three, four years in a row, because then it goes into stock of concern, and then we really have to take drastic measures,” Payton said. “My philosophy hasn’t changed that yes, my comfort level is more toward making a goal than exceeding a goal.” The board voted 4-2 to deny the emergency petition. There was a second petition from Paul Shadura II, a south Kalifornsky Beach-area setnetter, asking for openings in the Kasilof section, in the 600-foot fishery, and in the Kasilof River Special Harvest Area. The board voted to take no action on the petition without any further specific discussion. Shadura, who submitted the petition on behalf of the ad-hoc group the South K-Beach Independent Fishermen’s Association, said he felt “slighted” that the board had not taken up the Kasilof petition. He said he felt the board didn’t discuss any of the serious underlying issues in the situation, including overescapement of sockeye into both impacting the future of the runs and the increased amount of large king salmon in the Kenai being unattainable. “There’s a lot of discussion among folks,” he said. “We really have our doubts about the credibility of the escapement number. The target range for the kings in the Kenai River may at this current level exceed what was historically available in the first place.” Shadura has been participating in the Board of Fisheries process for years and commented in the 2017 meeting, when the Kenai River king salmon goals were converted from all fish to large fish only, that it would result in more closures of the setnet fishery. He said this result is not surprising to him, though the results are devastating to the local economy. Most Kenai Peninsula setnetters live in Alaska. “And to the processing industry, who’s really, from COVID … trying to survive in this situation with a reduction in harvest capacity,” he said. “All those fish that go up to the river are potential processing dollars that help the local community in multiple ways, and the national economy. It’s very, very shortsighted and the management system is not doing anything for the repair of our COVID economy.” The setnetters can submit an agenda change request, or ACR, ahead of the board’s October work session to be included in the upcoming cycle of regular meetings, with the hope that board members will accept any proposal under ACR requirements. Otherwise, they will have to wait until the Upper Cook Inlet cycle meeting, which is currently scheduled for 2024. The Upper Cook Inlet drift fleet is currently harvesting sockeye headed for the Kenai and Kasilof rivers, and so far has harvested about 668,269 sockeye. Across the area, commercial fishermen have harvested about 1.2 million salmon total. However, the United Cook Inlet Drift Association has also submitted an emergency petition to the Board of Fisheries, asking the board to suspend area restrictions during the first two weeks of August as well as the one percent rule. The petition states that the request is to help control escapement, which is increasingly coming in after Aug. 1, and the sockeye escapement goals in both the Kenai and Kasilof rivers have been achieved. ADFG is currently reviewing the petition. Elizabeth Earl can be reached at [email protected]

ConocoPhillips posts strong 2Q result, to resume Kuparuk drilling

The resurgence in energy demand has treated ConocoPhillips well as the upstream-focused oil major posted a second quarter profit of nearly $2.1 billion, according to an Aug. 3 earnings report. In Alaska, ConocoPhillips netted $371 million, more than double the company’s first quarter profit of $179 million in the state. ConocoPhillips also reported tax and royalty payments of $279 million to the State of Alaska during the quarter. Year-to-date, ConocoPhillips Alaska has paid an estimated $506 million in taxes and royalties to the state, according to the release. The companywide earnings are also more than double a first quarter profit of $982 million and break down to $1.55 per share. Houston-based major previously announced it will pay a quarterly dividend of 43 cents per share on Sept. 1. ConocoPhillips stock was trading up approximately 3 percent in the $56.50 per share range near the end of the day following the morning earnings release. The company’s overall profit was on the back of more than $10.2 billion in revenue, down slightly from $10.5 billion in the first quarter but a vast improvement over the $6 billion it generated in the fourth quarter last year, which was its best revenue period in 2020. CEO Ryan Lance said in a prepared statement that ConocoPhillips came out of the pandemic-induced oil market crash and the integration of Lower 48 producer Concho Resources with a durable business plan. “We have a stronger, more flexible asset base and greater underlying efficiency resulting from the Concho acquisition and the restructuring work we’ve performed throughout our company,” Lance said. In February, ConocoPhillips Alaska leaders said they would cut approximately 100 jobs from its workforce of roughly 1,100 in the state as part of a companywide restructuring after the $9.7 billion Concho purchase. With drilling rigs active again on the North Slope, President Erec Isaacson said in a separate statement that the company’s motto so far this year has been “getting back to work.” ConocoPhillips put $228 million towards capital projects on the North Slope in the second quarter, which represented 18 percent of the company’s global capital spend for the period, according to Alaska segment leaders. Year-to-date capital spending totals $463 million. As is the case in many industries these days, the results are virtually incomparable to the second quarter of 2020 when oil prices bottomed out globally — Alaska North Slope crude went negative for a day — and production was cut industry-wide. ConocoPhillips reported an average Alaska oil price of $63.93 in the second quarter this year, the highest price in two years. The company’s North Slope oil production averaged 184,000 barrels per day during the period, down slightly from 190,000 barrels per day to start the year, which is a common theme in the warmer months. Kuparuk plan approved ConocoPhillips is planning to get back to drilling in its oldest North Slope field, according to the 2021 Kuparuk River Unit work plan approved July 23 by state Division of Oil and Gas Director Tom Stokes. Along with the now-common caveat for COVID-impacted work and market conditions, ConocoPhillips Alaska “assumes a return to regular operating condition,” the 2021 Kuparuk River plan of development, or POD, states. The 2021 plan covers the August 2021 through July 2022 time period. Drilling at Kuparuk will resume this quarter with the startup of a workover rig, likely followed by the restart of a coil tubing rig in the fourth quarter. Rotary drilling is scheduled to resume next spring, according to the POD. The initial work will focus on reviving wells currently shut-in for mechanical problems or low production with sidetracks or new bottom-hole locations, the plan states. A maintenance turnaround is also scheduled for next summer. The company suspended drilling Slope-wide at the onset of the pandemic in April 2020 and restarted drilling at some of its other fields and development projects late last year. ConocoPhillips produced an average of 91,400 barrels of oil per day from Kuparuk in calendar year 2020, down from 104,700 barrels per day in 2019. The company expects to produce about half of the oil not produced from Kuparuk when it curtailed North Slope production last year at the bottom of the price depression over the next three years and the rest forgone oil will be recovered over subsequent remaining life of the mature field, according to the POD. Elwood Brehmer can be reached at [email protected]

Permanent Fund ends fiscal year topping $81B

The 2021 fiscal year results are in and the Permanent Fund is the big winner. Alaska’s primary revenue source ended June with a total value of nearly $81.1 billion after starting the year at $65.3 billion. The 24 percent growth in the Fund over the fiscal year was on the back of nearly unprecedented overall investment returns, which totaled 26.5 percent for the year through May 31, the most recent performance figures available from the Alaska Permanent Fund Corp. The corporation has achieved full-year returns greater than 20 percent just three times in the history of the fund, the greatest being a 25.6 percent return in 1985, according to APFC records. The Fund had an unaudited value of $81.3 billion on July 27. Its monthly reported value bottomed out at just more than $60 billion during the early days of the domestic pandemic in March 2020. As of June 30, the constitutionally protected corpus portion of the fund alone exceeded $60.1 billion; the remaining approximately $20 billion was in the Earnings Reserve Account, which lawmakers can spend. Royalty deposits, investment gains and legislative appropriations have caused the corpus to grow by nearly 50 percent since March 2020 and another $4 billion legislative transfer from the ERA to the corpus this month will add further to the un-spendable portion of the Fund. Gov. Mike Dunleavy intended to veto a $4 billion ERA-to-corpus transfer approved in the state budget passed by the Legislature and announced as much in a press briefing and materials from his office. However, the veto was mistakenly absent from the final enacted version of the budget and Dunleavy decided against further pressing the issue when legislative leaders rejected his request to change the final budget. The veto issue would become a moot point if the Legislature, and eventually voters, would approve the portion of Dunleavy’s constitutional amendment proposal to combine the ERA and corpus into a single, more traditional endowment-like account. The structural change to the Fund generally has support amongst legislators who prioritize adhering to the 5 percent annual draw limit over dividend appropriations, but it remains unclear if the governor’s broader Permanent Fund and dividend proposal, which includes a $3 billion draw in excess of the 5 percent limit, will gain traction in the upcoming special session set for August. The draw has covered about 70 percent of the state budget since being approved in 2018. Regardless of the long-term outcome of the proposed constitutional changes to the fund, the $4 billion transfer will leave approximately $9.3 billion in unobligated, realized earnings available for appropriation. Department of Revenue officials have generally said the state should try to maintain an ERA balance several times larger than the $3 billion-plus annual draw as a buffer against years of poor investment returns. The current impressive returns have been driven by a continued strong run in stocks. Public equities accounting for 38 percent of the fund’s investment portfolio generated returns of 47.1 percent in the fist 11 months of the fiscal year, though gains have been more modest in recent months. The Dow Jones Industrial Average increased 38 percent over the same period. Matching the fund’s public equity performance was its private equity and special opportunities portfolio — approximately 18 percent of the fund’s portfolio at 14.7 billion — which netted an 11-month return of 47.5 percent. Fund managers expect to gradually step-down the public equity allocation from 39 percent today to 33 percent of the Fund by the end of 2025, according to a chart published by the APFC. Fixed income investments are similarly planned to be a smaller portion of the fund, expected to go from 21 percent to 18 percent of the fund’s portfolio. Those allocations are likely to shift to private equity and real estate, which are planned to go from 15 percent and 7 percent of the fund to 19 percent and 12 percent, respectively. The allocations of other asset classes such as private income, and absolute return are expected to remain steady. About 2 percent of the Fund is consistently held in cash. APFC spokeswoman Paulyn Swanson wrote in an emailed response to questions about the asset allocation changes that the corporation's investment team has taken an active approach to rebalancing the public equities portfolio during the market run-up and the future target allocations were first approved by the APFC trustees in May 2020. Chief Investment Officer Marcus Frampton also said in an emailed statement that the multi-year increases in private investment allocations are indicative of the time it takes for those investments to begin generating corresponding returns. "The reduction in public equities over time reflects the growth in these private asset classes as opposed to a reaction to (the) current market environment for stocks or a desire to lock in gains from recent market moves," Frampton said. Elwood Brehmer can be reached at [email protected]

FISH FACTOR: Alaska crab shells displacing man-made chemicals

Most people are unaware that the yarns and fabrics that make up our carpets, clothing, car seats, mattresses, even mop heads, are coated with chemicals and metals such as copper, silver and aluminum that act as fire retardants, odor preventers, antifungals and anti-microbials. Now, crab shells from Alaska are providing the same safeguards in a bio-friendly way. The metals and chemicals are being replaced by all-natural Tidal-Tex liquid treatments derived from chitosan molecules found in the exoskeletons of crab shells. The bio-shift stems from a partnership between Leigh Fibers of South Carolina and Tidal Vision, the proprietary maker of the crab-based product that it began making in a 20-foot Conex van in Juneau six years ago. The company, which now operates near Seattle and has 22 full-time employees in three production facilities, expects to put up to 60 people to work within two years. In July, Tidal Vision opened its newest facility within Leigh Fibers’ headquarters, bringing its earth-friendly technology into the heart of the U.S. textile industry. Leigh Fibers is one of North America’s largest textile waste and byproduct reprocessing businesses that dates back to 1866 and now services 25 countries. “Partnering with Tidal Vision is a win-win for our company, our customers, and the environment,” said Eric Westgate, senior vice president. “Their Tidal-Tex product line delivers the key benefits that our customers look for in textiles at a lower price and is made from sustainable materials in the USA. At Leigh Fibers, we’re committed to advancing sustainable innovation and repurposing textiles for a cleaner, healthier planet.” “Having a partnership with Leigh Fibers was really strategically advantageous for us because they produce the fibers that then get turned into yarns that then get turned into all sorts of woven or non-woven textiles for everything from the automobile industry to the carpet industry to the acoustic sound insulation industry to the mop head industry to the furniture industry. They are at the top of the supply chain and treating those fibers was the easiest way to have the biggest impact in the textile industry,” said Tidal Vision CEO Craig Kasberg. Most of the raw product comes from snow crab and red king crab delivered to St. Paul Island in the Bering Sea where they are processed into frozen leg clusters. The shells are transported to the mainland where they are put through Tidal Vision’s zero waste, proprietary extraction process that produces chitosan in a flake form and is then made into the ready to use, liquid Tidal-Tex product. Kasberg said it provides the same fabric protections as the manmade agents at far less cost. “Our costs are minimal. They’re basically just tied to the logistics and some of the freezer storage costs but it’s nearly a free input material,” he said. All crustaceans have chitosan, a polysaccharide that is the second-most abundant organic compound in the world next to cellulose. Because of its unique molecular makeup, Kasberg calls it a “turnkey chemistry solution” to displace often toxic synthetic methods. “All these heavy metals need to be mined and refined, and then modified into these metal-based chemicals. Whereas we’re taking an abundant and even problematic byproduct from the seafood industry and with a really low cost extraction method, producing a biochemistry solution that can provide the same properties in these industries. Our inputs are tied to a byproduct,” Kasberg said. Tidal Vision has tested a lot of crustacean “inputs,” Kasberg said, but Alaska crab shells pack the best chitosan punch. “The starting molecular weight of the chitosan is higher,” he said. Tidal Vision hopes to build more partnerships and expand to other countries within the next few years. The company also features a line of other chitosan-based products including water clarifiers and a game animal spray that prevents spoilage and keeps insects away. “Our goal as a company is to create positive and systemic environmental impacts with our chitosan technologies,” Kasberg said. “We’re still on the ground floor of Tidal Vision’s potential today.” Seafood scholarships Scholarships are being offered to small- and medium-sized seafood businesses to help shape and launch a new National Seafood Council. Its mission is straightforward: to provide a unified voice for the industry to encourage Americans to eat more seafood. A task force was formed in April 2021 led by the Seafood Nutrition Partnership to get things underway. “Some of the tasks include designing the governance of the National Seafood Council and the makeup and responsibilities of the board members. We want to make sure that the task force is representative of size of companies, gender, geography around the U.S. and points all along the supply chain,” said Linda Cornish, SNP president. Nominations are wanted from 6 to 8 seafood-related companies whose annual revenue is less than $20 million. The scholarships, backed by the Walton Family Foundation, will be based on those revenues multiplied by 0.00025. A National Seafood Council was created in 1987 as part of a Fish and Seafood Promotion Act but fizzled after five years. In May 2021 a group of over 60 U.S. fishing companies, groups and medical professionals asked Congress to provide $25 million in seed money to revive the group to develop a national seafood marketing and education program. The seafood council would eventually become industry funded, similar to other food industries. “Seafood is probably one of the healthiest foods that people can eat and there’s just not enough funding to get that message out,” Cornish said. “The milk industry has about $300 million a year to market their product, pork about $70 million a year, avocados about $50 million. Seafood doesn’t have that. “So for us to tell our story to the consumers in a more cohesive and unified way, we need some help to get this council started, and provide that resource to have a marketing campaign to do the same as other food groups have.” Cornish said the idea has been well received in Congress. “Right now we’re looking for some champions in Congress to spearhead that request on this group’s behalf,” she added. “There’s a lot of priorities being discussed on Capitol Hill and we need to make sure that the needs of this National Seafood Council are heard by Congress.” Americans overwhelmingly turned to seafood during the COVID-19 pandemic and Cornish said the time is right to advance the health message. “We’re still fighting this COVID-19 pandemic and seafood supports immune health and also is great for brain development and heart health,” she said. “I think the industry is ready to work together in a more collaborative way to get this unified message out to the consumers. And I really think we have the right window of time to do so.” Eating seafood also tops the list in new U.S. dietary recommendations that Americans eat two servings per week, starting with kids at six months. Deadline to apply for a task force scholarship is Aug. 13. Find links at seafoodnutrition.org. Bristol Bay breaks it! The reds are still rolling in at Bristol Bay where a run topping 64 million has officially broken the record for all time sockeye returns since 1893. The previous record was set in 2018 at 62.9 million fish. “Large numbers can be hard to comprehend, so consider this,” wrote Andy Wink, executive director of the Bristol Bay Regional Seafood Development Association, which is funded and operated by driftnet fishermen. “If lined up nose-to-tail, this year’s Bristol Bay sockeye run would stretch on for roughly 20,000 miles, enough to encircle all the Lower 48 states… twice!” It’s natural abundance on a truly epic scale, Wink added: “It’s important to highlight just how special the Bristol Bay salmon resource is. These records aren’t being set while overfishing. All escapement goals were met to propagate strong future runs. Despite all the bad news about environmental degradation and destruction, Bristol Bay is a shining example that healthy eco-systems can and still do still exist. It’s really an ecological treasure. We ask that state and federal government protect Bristol Bay salmon and the natural habitats that allow it to thrive.” Processors have increased the base price at Bristol Bay to $1.25 per pound. At an average fish weight of 4.5 pounds and a catch so far at nearly 39.5 million fish, back of the envelope calculations put the value of the sockeye haul to fishermen so far at more than $222 million. Bristol Bay sockeye currently represents 82 percen tof the statewide sockeye landings of nearly 49 million and 56 percent of all salmon harvested so far across Alaska (80.4 million). “The boats aren’t even dry yet and interest in Bristol Bay drift permits is beginning to trickle in. Permits are popping up for sale, with preliminary asking prices between $200,000 and $240,000,” said the Fish Ticket report by Alaska Boats &Permits in Homer. Laine Welch lives in Kodiak. Visit www.alaskafishradio.com or contact [email protected] for information.

DNR keeps ‘quiet period’ with water rights revisions pending

Mum’s the word from Department of Natural Resources officials regarding their plan to fundamentally change the state’s water rights system. House Fisheries Committee chair Rep. Geran Tarr, D-Anchorage, said DNR representatives declined to attend a July 27 hearing on the agency’s proposed changes to in-stream flow reservations and other water regulations because she was told they are in a “quiet period” while they respond to public comments from the extended period that closed April 2. Tops among the changes first suggested by the Division of Mining, Land and Water in mid-January is adding new language to water reservation regulations stating that water reservation certificates currently issued to private parties would instead be held by DNR, which adjudicates water rights and reservation applications. Resource development advocates insist the change is needed so control of a public resource is kept within a public agency and to prevent opponents of a given project from attempting to impede development by chasing water rights. For their part, conservation groups insist the change would strip Alaskans of their rights to protect the fish — another public resource — in waters vulnerable to development. Alaska’s current system of water rights is generally viewed as one of the most open in the country; it allows anyone to apply for temporary water use authorizations as well as water reservation, or in-stream flow, rights to maintain sufficient stream flows for fish and other wildlife. Reviewing water reservation applications often takes DNR years in coordination with the departments of Fish and Game and Environmental Conservation, a situation Bob Shavelson, advocacy director for the Homer-based conservation group Cook Inletkeeper, said in the hearing is the result of traditionally pro-development state administrations prioritizing water rights, or use, authorizations over flow reservations to protect habitat. Currently, the Department of Fish and Game holds the vast majority of flow reservations; another handful is held by federal resource agencies such as the U.S. Fish and Wildlife Service. The Nature Conservancy is one of the few private entities to hold water reservations. It secured four flow reservations near the Pebble deposit in 2017. DNR officials also said during the public comment period that they could not comment specifically on the proposed regulations. At the time, they cited a section from the Administrative Procedures Act that state’s agency officials proposing a regulatory action “shall make a good faith effort to answer, before the end of the comment period, a question that is relevant to the proposed action, if the question is received in writing or at least 10 days before the end of the public comment period.” The section of the APA goes on to state that common questions can be answered in a consolidated form on the Alaska Online Public Notice System. State officials have historically discussed proposed regulatory changes and officials in other agencies have as well during the Dunleavy administration. Water Section Chief Tom Barrett said more broadly that flow reservations are “significant” in that they can impact other water users in a January interview. He added that the state is not trying to withhold water rights for any one group, noting the DNR commissioner — who approves water reservations — currently has the discretion to discontinue them as well. According to such answers posted by Mining, Land and Water officials, the changes are meant to better distinguish water reservations from more traditional water right appropriations. “Traditional water right certificates are issued to persons for a specific beneficial use. Reservations of water are a reserved level or flow that is reserved for a specific public purpose, not the sole use or benefit of the applicant.” Barrett wrote via email to the Journal on July 27 that it’s unclear exactly when DNR leaders plan to finalize the water regulations but it probably won’t happen for several months. The proposed regulations are a continuation of an attempt by former Gov. Sean Parnell’s administration to overhaul the water reservation structure, according to Shavelson. House Bill 77, which drew strong public opposition and died in the Senate in early 2014, would have limited water reservations to public agencies among many other revisions to state resource policies. While development advocates have long advocated for changes to Alaska’s water use regulations and statutes, one of the state’s largest pro-development lobbying groups is against the current regulations proposed by the Dunleavy administration because they don’t go far enough. Natural resources attorney Eric Fjelstad testified on behalf of the Resource Development Council for Alaska that the new proposed language also gives the in-stream flow reservation applicant legal standing to manage the reservation, even if DNR is technically the certificate holder. “We think (in-stream flow reservations) should be a limited tool held by DNR and state subdivisions,” Fjelstad said. The state’s multilayered process for permitting large development projects addresses the concerns of many who are concerned about the impacts of development on water bodies and fish, notably salmon and the place for instream flow reservations is in a more subtle situation, according to Fjelstad. He suggested several small water withdrawals along a stream or river is a more likely scenario to result in cumulative damage to the watershed and its inhabitants. “If you don’t have that large project permitting you can have water withdrawals that aren’t accounted for,” he said. RDC Executive Director Marleanna Hall wrote in official comments to DNR that giving legal standing to private parties potentially managing in-stream flow reservations “an even more powerful tool for those who oppose development from Alaska. This provision should be removed from the regulations.” Shavelson contended the insistence by RDC and other development advocates that private parties should not be able to hold in-stream flow reservations as a means for protecting fish habitat is inherently hypocritical because developers, and other private groups, can hold water rights and temporary water use authorizations to divert water out of a lake or stream. “A Canadian mining company could hold rights to take water out of a salmon stream but Alaskans couldn’t hold the reservation to keep water in the stream and that’s the crux of it,” Shavelson said. “The DNR proposal really takes a government knows best approach to water reservations.” He urged lawmakers to amend the Alaska Water Use Act to mandate DNR to apply a corresponding water reservation sufficient to preserve fish and wildlife populations — which varies in each water body — to counter each water withdrawal authorization. “This would be the Alaska Legislature looking at the Water Use Act and making some simple but common sense changes,” Shavelson said. Elwood Brehmer can be reached at [email protected]

Payroll aid pushes Alaska Air to first profit since pandemic

Alaska Airlines is back in the black, but not without significant help. The airline’s Seattle-based parent company, Alaska Air Group Inc., officially posted a $397 million profit in the second quarter that compares extremely favorably against the $214 million loss in the pandemic-restricted second quarter of 2020. The profit came after five consecutive quarters of losses that totaled nearly $1.5 billion. “The results we published this quarter show we are successfully rebuilding our company and returning to profitability,” CEO Ben Minicucci said in a July 22 earnings call. However, Air Group’s second quarter profit was also the direct result of the $664 million in CARES Act Payroll Support Program grants and loans the company received during the period. Congress appropriated a second, $16 billion round of PSP aid for airlines as part of the second round of broader pandemic aid spending late last year. Without the federal aid, special items and fuel hedging adjustments, Alaska Air Group reported a net loss of $38 million in the second quarter; that is still a vast improvement over where the airline company, which owns Alaska and regional Horizon Air, has been. The reported $397 million profit translates to earnings of $3.15 per share; the $38 million loss equates to 30 cents per share, according to the quarterly earnings report. Air Group stock closed July 26 trading at $60.65 per share, up 7 percent from a pre-report price of $56.33 per share. Company executives repeatedly emphasized how both operational and financial metrics improved month-to-month during the quarter when compared to 2019. Chief Commercial Officer Andrew Harrison called June “a turning point” for Alaska. “Margins improved significantly during the quarter,” Minicucci said. “We exited March with a 41 percent loss and ended June with a pretax income of 14 percent.” The turnaround is mostly due to a surge in summer leisure travel, according to Minicucci, who added that Air Group leaders expect their business to return to 2019 levels next summer, though activity at Alaska’s SeaTac hub is pretty much there already. They also expect to produce “double-digit margins” in the third quarter and “high-single digit margins” to end the year, he said, crediting the company’s disciplined approach to deploying capacity has helped control costs as revenue returns. To that end, Alaska is likely to temporarily put back into service 10 Airbus aircraft acquired in the Virgin America purchase, a move that could also insulate the airline from scheduling disruptions if delivery of the new Boeing 737s Alaska has traditionally flown is delayed. “Our measured deployment of capital allows us to maximize financial results while allowing our operations to scale up successfully,” said Minicucci, who took over the lead role April 1 following the retirement of former CEO Brad Tilden. Total flight capacity for the quarter was 21 percent less than spring 2019 levels but load factors, or how full a flight is, increased from 70 percent in April to 86 percent in June and are expected to stay in that range for the rest of the summer, according to Harrison. The company’s overall revenue per available seat miles offered was off just 5 percent from 2019 by June because of the larger passenger volumes after starting the quarter down 25 percent, Harrison said. Air Group averaged 19,001 employees during the quarter, up 20 percent from a year ago but still well off the company’s pre-pandemic workforce of more than 22,000. The rebound in travel demand has pushed Alaska leaders to ask some employees to fill other short-staffed roles in the operation, notably ground activities such as baggage handling. Minicucci commended the airline’s employees for supporting each other and striving to “take care of our guests no matter what it takes.” Alaska spokesman Tim Thompson wrote via email that in Alaska, most of the airline’s employees that were on leave during the pandemic have been called back and a small number will return to work before the end of the year. Alaska currently has 1,825 employees across the state and is hiring in some workgroups, according to Thompson. Flying more with fewer empty seats allowed Air Group to nearly double its revenue from the first quarter — when it lost $131 million — to more than $1.5 billion while nonfuel expenses increased just 9 percent from the first quarter. Chief Financial Officer Shane Tackett noted that while much of the $840 million in cash flow generated during the quarter was the direct result of federal aid, $351 million of it was from company operations. “Our results are solidly among the best in the industry,” Tackett said, adding that Air Group has accelerated its debt payoff plan and paid off $570 million in the second quarter. The company’s debt-to-capitalization ratio stood at 56 percent on June 30, down five points from the start of the year. Travel credits have accounted for an outsized portion of the recent bookings, according to Tackett. Customers used approximately $185 million worth of ticket credits in the second quarter, while the pre-pandemic average was about $40 million per quarter, he said. Elwood Brehmer can be reached at [email protected]

Cruise lines navigate complex rules as Alaska sailings resume

It’s a sight Seattle hasn’t seen in a while: lines of vacationers at Pier 91, many dressed in Hawaiian shirts, bucket hats and sunglasses, with suitcases and smiles. The Majestic Princess floats on their left, the Serenade of Seas to the right. Under sunny skies, the first Alaska cruise of the season — and the first since the onset of the pandemic — weighed anchor July 19 as Royal Caribbean’s Serenade of the Seas set off on a seven-night voyage. The long anticipated return of cruising in Seattle continues this month as six other cruise lines resume sailing, among them Seattle-based Holland America Line and Princess Cruises. Starting July 23, ships will leave Seattle almost daily for the rest of the month. In August, some days will see two departures. “We’ve been waiting two years now to go to Alaska,” said Peter Dorney, 52, one of the first people in line with his wife, Kathy, 51, waiting to board the Serenade on July 19. The Massachusetts couple is celebrating their 25th anniversary this year and Dorney said they have been on more than 20 cruises. “We’re frequent cruisers,” he said. But the resumption also highlights the complexities of cruising in the current stage of the global pandemic. The Centers for Disease Control and Prevention asks cruise lines to decide whether they’ll require 95 percent of a ship’s passengers to be vaccinated, thereby qualifying as a “vaccinated cruise.” Depending on that decision, there are guidelines for mask use, social distancing and testing. Royal Caribbean chose not to meet the 95 percent threshold for sailings of the Serenade of the Seas. That doesn’t mean the guests aren’t vaccinated; in fact, every person who is eligible for a vaccine must have gotten one. The nuance in Royal Caribbean’s decision lies in the cruise line’s decision to accept unvaccinated children under 12, who are not yet eligible for the vaccine in the United States. Few other ships are permitting unvaccinated children on board. For a voyage to be considered a “vaccinated cruise,” the CDC requires that 95 percent of passengers and also 95 percent of the crew be fully vaccinated 14 days before boarding. On those cruises, fully vaccinated passengers do not need to wear masks anywhere. They do not need to maintain social distance. There’s no requirement for testing. The CDC also says crew members who are fully vaccinated do not need to wear masks. However, most cruise lines leaving Seattle are requiring crew members to wear them, at least for initial voyages. “You’re kind of at herd immunity on board,” said Gus Antorcha, president of Holland America Line. “On board, it’s like a bubble.” The alternative, or the decision not to require a high vaccination rate for passengers and crew, requires all guests and crew members to wear masks indoors, except in designated “vaccinated zones,” where only vaccinated guests are allowed. Most ships leaving Seattle are pursuing the “vaccinated cruise” route. This includes Holland America’s NieuwAmsterdam, Princess Cruises’ Majestic Princess, and Carnival’s Miracle. While the Serenade of the Seas will not clear the 95 percent vaccination threshold, the cruise line is still requiring passengers 16 and older to have been vaccinated. In August, it will require vaccines for passengers 12 and older. All crewmembers are fully vaccinated. Jay Schneider, chief product innovation officer at Royal Caribbean Group, said the decision to allow unvaccinated children on board — hence preventing the ship from clearing the 95 percent vaccination threshold — was made largely to maintain the brand’s focus on family travel. Royal Caribbean is still simulating the “vaccinated cruise” experience in many areas of the ship, especially those where children aren’t otherwise allowed. This includes the casino, specific dining rooms, pubs, lounges and certain events where guests can remain mask-free indoors. For Princess Cruises, it was “absolutely torturous” to decide not to allow unvaccinated children on board, said Lisa Syme, a vice president at Princess who has been with the company for 38 years. Especially given the cruise line’s efforts in recent years to be a family-focused brand, “that was a particular heartbreaker for us.” For unvaccinated passengers, some earlier precautions instituted during the pandemic remain. They must be tested for the coronavirus at the port before boarding the ship. For voyages longer than four days, they must be tested again upon returning before they disembark, per CDC guidelines. Royal Caribbean will place unvaccinated passengers in specific shore excursions when exploring destinations. Holland America is mandating that unvaccinated passengers — who won’t be children, but rather people with medical exceptions — do the same, and wear a mask at nearly all times indoors on the ship, except when eating. Bhupesh Singh, 44, who was boarding the Serenade of the Seas with his wife, Hansi, and their two unvaccinated children — both are under 12 — said he felt comfortable with Royal Caribbean’s approach, even with the extra precautions he’d have to take travelling with kids. He noted that he brought his family to cruise from Seattle, where Royal Caribbean at least requires all adults to be vaccinated. In Florida, where he’s from, that isn’t the case. The reduced capacity on board the Serenade of the Seas was also encouraging for Singh. Royal Caribbean declined to say exactly how many passengers it will have on board, but said it would be “much lower” than full capacity, which is typically almost 2,500 people. Holland America and Princess Cruises said they will be starting their Alaskan cruises at approximately 60 percent capacity, moving up gradually over the course of the season. Some cruise lines will also be using technology to trace passengers’ location. Royal Caribbean will be using “tracelets,” or wristbands that passengers must wear in order to be tracked on board. Princess Cruises will be using medallions, portable devices used for various functions on board the ship, which will keep a log of who passengers come in contact with. Physically, the cruise lines say the layout of the ships remains nearly identical to what passengers are used to. Royal Caribbean’s Serenade of the Seas will be spacing out dining tables and casino machines. Holland America and Princess Cruises said their lines don’t plan to make any such modifications. All cruise lines say they have made significant upgrades to their HVAC systems, investing heavily in air-filtration systems that bring in fresh air and don’t recycle air on the ship. And they tout their new cleaning protocols, which they say are more thorough and sanitary than before. Cruise lines should be considering the delta variant, said Janet Baseman, a professor of epidemiology at the University of Washington School of Public Health. The variant is more contagious than its predecessors and has sent coronavirus infections spiking again nationwide, increasing the chance that a passenger could contract the delta variant. The risk is also likely to increase if cruise ships have older passengers on board. Baseman added that cruise ships had a “known history of infectious disease outbreaks” even before the coronavirus pandemic, given that a fixed group of people mix in close quarters with each other. Despite her concerns, Baseman said the plans outlined by cruises departing from Seattle — with their required high rates of vaccination — were consistent with the reopening plans of the rest of the United States. “It’s hard for me to think what more they would be able to do.” She said if she found herself in an environment where she knew with certainty that at least 95 percent of the people around her were fully vaccinated, she would feel comfortable removing her mask indoors, as long as she didn’t have any symptoms. Regardless of what policy cruise lines put forth, “people need to be self-aware, and they’ve got to take their own precautions,” said Singh. When asked if he’s worried about the delta variant, Dorney said, “It’s gonna be what it is … Just take the precautions you can take and and then, you know, live your life.”

Consumers wait or pay more as businesses wrestle supply chain

For months, cars were driven sporadically or not at all. So as the economy reopened, when many people grabbed keys and headed out the door to work, shop or visit with friends, an odd thing happened. Nothing. Many vehicles didn’t start. Others badly needed service. And while that is good for a mechanic’s business, it has been bad for getting the parts needed to do the work all at once, said Kevin Keller, a Norcross, Ga.-based mobile technician for YourMechanic.com. Prices are higher and everything has to be ordered early or the job gets postponed — which has happened, Keller said. “Even for simple stuff, like brake pads, I have to be pre-emptive. I need a fuel pump tomorrow for a Dodge Charger. I better have it today.” The problem — supplies coming up short as demand suddenly rebounds — is widespread. And it means consumers sometimes can’t get what they want right away, or they have to pay more to get it. Inflation as measured by the U.S. Consumer Price Index soared 5.4 percent in June from a year earlier, its fastest pace in 13 years. Prices for used vehicles surged 10.5 percent from the previous month, fueling much of the run-up, amid a global shortage in semiconductor chips used in cars and trucks. But prices on other goods and services also rose sharply last month, from airline fares to apparel. That worries some economists and businesses, who wonder whether it’s time for the Federal Reserve to lift interest rates and choke off inflation. Pressed on the idea, Fed Chairman Jerome Powell told Congress he thinks price spikes will be temporary, but that depends on how long the supply chain’s gears keep grinding. It is, of course, all about the pandemic. Fifteen months ago, business closures and stay-at-home orders triggered shortages of consumer products like toilet paper and yeast. Most kinks got straightened out but reopening the economy jangled the supply chains. Like a machine revving up after running in low gear for months, the multi-trillion-dollar global supply network has bucked, rattled and run rough. Part of today’s problem is the efficiency of the pre-pandemic system, said Pinar Keskinocak, professor in Georgia Tech’s Stewart School of Industrial and Systems Engineering. For decades, supply chains were increasingly designed to be economical, using cost-saving tricks like keeping inventories as low as possible. Supply chains “are not designed for flexibility and responsiveness. They are not like race cars. If you turn to the right or the left, they don’t turn quickly,” she said. The effects run the economic gamut. When Winton Machine in Suwanee, Ga., orders an electrical strip that is a component in the fabrication equipment it makes, it used to wait about six weeks, said Maureen Paige, operations manager. “Now, it is looking like 17 weeks.” Some clients won’t wait — they’d rather change the order, said Dean Collins, president of Axis Companies of Alpharetta, Ga., which designs buildings and manages projects, some of them disrupted by a scarcity of steel bar joists. The joists are used to support roofs. But they are in short supply, which forces Axis to hurriedly redesign buildings for impatient customers, he said. “Maybe we use shorter spans in the building. Maybe we go to wood or use Redbuilt trusses, which are metal and wood.” In a restaurant, a change in supply can make an immediate difference, and not always in a good way. Jose “Pepe” Fundora, co-owner of Casa Nuova Italian Restaurant in Alpharetta, said he has been frustrated by a series of shortages, starting with a French liqueur that has been widely used to make Oysters Rockefeller for decades. “Now it’s out of stock,” he said. “We had to use alternatives and it changed the flavor a little. Some people liked it, some people did not.” And sometimes there’s no substitute. “First, calamari was three times the price, and then I couldn’t even get it,” Fundora said. “I tell the customers that it’s just not available, and they look at me like I’m the bad guy.” Uncertainty about what happens next — and for how long For now, higher prices are a nuisance, not a crisis. But all the added costs have not been passed along. Prices of many materials have climbed far more than most consumers realize, because many businesses thus far have been reluctant to raise prices and risk losing customers. Winton Machine is paying an average of 20 percent more for many parts, but is not passing it along, Paige said: “But we will eventually have to build that in. We want to be profitable, too.” So long as businesses think their higher costs are temporary, they will be slow to raise their own prices, economists say. The danger comes when businesses think even-higher costs are coming and start to raise their prices to get ahead of the curve. As others in the chain follow suit, inflation begins to feed on itself, a process that can be painful to people on fixed incomes, businesses that are locked into long-term contracts and workers who cannot get higher wages. If this were an old-fashioned, overheating economy, manufacturers would want to grab the higher profits, ramping up production quickly. Soon, supplies would exceed demand and prices would drop. This time, the problem is much more complicated. Since demand so far has been partly fueled by government spending and stimulus payments, factory owners aren’t sure they can depend on it, so they are slow to expand, said Aleksandar Tomic, associate dean for strategy, innovation and technology at Boston College. “I think the higher prices are here for six months to a year,” he said. The adjustment also depends on where the goods are coming from. The shorter and simpler the chain, the quicker it will adapt, said Sanchoy Das, supply chain expert at the New Jersey Institute of Technology. “Lumber is a good example,” Das said. “Prices jumped but are now closer to normal.” But chains reaching to Asia are more complex, he said. “Christmas could be a challenge,” he said. Production is off kilter because some factories were closed, and many have had trouble rehiring workers as they reopen and try to adapt to a post-pandemic demand. Distribution too is uneven. Thousands of ships were idled or out of position, while air services were curtailed. And the usual paucity of truckers is worse than usual. “A wide swath — nearly everything — is affected. Nike sneakers, computers, bananas, grain, medical devices, heart valves. It will disentangle itself, but it is not going to happen overnight,” said Ira Breskin, author of “The Business of Shipping” and a senior lecturer at the State University of New York Maritime College. The more complicated the industry, the harder the adjustment. “In capital-intensive industries, it’s not easy to ramp down and then ramp up again. Or with something like pharmaceuticals, it is not just equipment. It is rules, regulation and a trained workforce,” said Georgia Tech’s Keskinocak.

Used car prices soar 47% amid national shortage

The global slowdown in auto manufacturing has left many showroom floors and car lots in Alaska nearly empty. Auto dealers say the situation follows a national trend that has boosted demand for used cars and trucks, causing prices of those vehicles to skyrocket. They say the problem is unprecedented, and rooted in pandemic-related supply snarls that reduced the availability of microchips and other parts for new cars. The situation is so dire that some dealerships along the Old Seward Highway in Anchorage have lined up their remaining new vehicles bumper to bumper along the road, highlighting what they have left. Behind the cars are mostly empty parking lots. That includes Continental Auto Group, which sells several brands at four lots in Anchorage. “It is definitely the first time any of us have experienced something like this,” said Marten Martensen, Continental Auto owner, on July 23. Anomalies like the Japanese tsunami in 2011 disrupted auto manufacturing, but not to this degree, he said. “And this is worldwide so everybody is facing the same dilemma,” he said. “And the crazy thing is there is absolutely no light at end of tunnel.” The company usually has about 700 new vehicles on its lots. This past week, it’s been down to about 40, he said. He’s all sold out of Subarus. There’s one Honda left, four Acuras and about a dozen Nissans. Some new cars and trucks are trickling into Alaska, but not many, he said. And with those vehicles in short supply, Continental is scrambling to buy used cars it can sell. “We put a lot of focus on trade-ins, asking every customer if they’d be willing to trade their car in,” he said. “And we’re paying a lot of money to get trade-ins.” The shortage of new cars is prompting more people to keep their used cars longer, adding to the limited supply of those vehicles, said Neal Fried, an economist with the Alaska Department of Labor and Workforce Development. New car prices rose about 5 percent over the last 12 months, he said. Used car prices in Alaska jumped an astounding 47 percent. “That is pretty dramatic,” Fried said of the used car prices. “You usually just don’t see that kind of number for anything.” The higher vehicle prices helped cause consumer prices in Alaska to rise by 6.2 percent over the last 12 months, the highest rate in three decades, he said. Demand for used cars is up, Fried said. That’s due in part to low interest rates and federal stimulus checks that boosted income during the pandemic. Fried says he’s spent several months looking for a relatively new Chrysler minivan to replace his 1998 model, without success. There’s not much to buy. “I may be waiting for a while,” he said. Jose McPherson, owner of Good Guys Auto Sales in downtown Anchorage, said he’s buying cars at auctions in the Lower 48, something he didn’t need to do before the pandemic. Shipping the cars to Alaska adds expense, but there are more options Outside, he said. He’s keeping his lot full, including by selling some used cars on consignment. “I’m buying cars where I can get them,” he said. Alaska’s topsy-turvy rental market also reduced the availability of used cars, said Steve Sautner, owner of Dealers Auto Auction of Alaska, where dealers often acquire used cars. Early last year, the rental companies thinned their inventory as it became clear the pandemic would halt tourism in Alaska, he said. Last fall, they had relatively few cars to sell into the used market, he said. With tourism surging back, some car rental companies have snatched up used vehicles, along with Alaskans who rent out cars through Turo, the online car-sharing service, he said. Everyone is paying more for used cars, including his company. Still, sales are up at his twice-weekly auctions, he said. “I’ve never seen this drastic of a swing in car prices,” Sautner said. Used cars that aren’t very old can now fetch higher prices than their brand-new counterparts, said Martensen, at Continental Auto. “I mean cars appreciating in value, that just does not happen,” he said. “It has never happened in the 25 years that I have been in this business.” Martensen said the low inventory at Continental has forced him to carefully spread out his sales staff throughout the week so they all have opportunities to sell. He’s reduced hours at his lots as he waits for things to improve. “At some point the inventory will return, so keeping our staff is really important to us,” he said. It could be several months before auto manufacturing bounces back, said Les Nichols, owner of Fairbanks Nissan. But even if production reaches full capacity, it will take a while to refill the new car market across the U.S. Nichols said he has a strong inventory of used cars, after stocking up over the winter. He has only 24 new Nissans left. Normally, he has about 60. “If you look at the math, I could be out of (new) cars in two months,” he said.

East Coast firm buys Alaska Communications for $343M

Alaska Communications, one of the state’s largest internet providers, has been sold to an East Coast telecommunications communications company and an investment firm. The sale was announced at the start of the year, and ATN International Inc. said July 22 in a written statement and filings with the Securities and Exchange Commission that the $343 million arrangement is now complete. Through a holding company, ATN will own 52 percent of Alaska Communications. An investment firm called Freedom 3 Investments IV will own 48 percent through another holding company. “Our brand, company name and commitment to Alaska remain the same,” said Heather Cavanaugh, a spokeswoman for Alaska Communications. She said there are no current plans to change prices. The company was delisted from the Nasdaq stock exchange on July 22, with shareholders paid $3.40 per share as part of the deal. Alaska Communications principally sells internet and phone service to businesses, but it’s also the second-largest provider of home internet service. Alaska Communications said in filings with the Securities and Exchange Commission that it has “less than 25 percent” of the state’s market share. Its larger competitor, GCI, was sold to a Colorado firm in 2017. As of March 31, Alaska Communications had 555 full-time employees, and slightly over half were union-represented by the IBEW. State and federal regulators approved the sale earlier this month. In its application to the Federal Communications Commission, ATN said it has previously provided internet access to “insular and underserved markets in the United States and the Caribbean region, and Bermuda.” Approving the purchase on July 16, federal regulators said the sale “is likely to benefit the public interest” in part because ATN is a larger company and will increase Alaska Communications’ access to money needed to expand its broadband network in Alaska. The approval notice said regulators expect the company to provide broadband access to more than 6,000 currently unserved locations — generally homes and businesses — in addition to an expansion planned under a federally funded program. Another planned project could provide more than 60,000 locations in Anchorage, Fairbanks and Juneau with high-speed wireless internet service, the FCC noted. Alaska regulators approved the sale on July 19, noting that “nothing suggests the transaction will meet opposition.” The approval notice said state regulators “have received several informal complaints” from customers on a variety of issues, and that the Regulatory Commission of Alaska has instructed regulatory staff “to monitor ACS going forward.” Brittany Loper, a spokeswoman for the commission, said that language is not unusual and the commission “will continue to monitor and process complaints as usual with the utility.”

Fiscal solution slow to emerge on eve of special session

The gang of eight lawmakers tasked with breaking the ongoing deadlock over the state’s biggest fiscal decisions have gotten detailed Alaska history and finance lessons in recent meetings but have yet to directly confront the longstanding issues that continue to plague the state. The joint Comprehensive Fiscal Plan Working Group ramped up to near daily meetings in the week prior to the Aug. 2 start of the special session Gov. Mike Dunleavy called to solve Alaska’s structural fiscal imbalance and discussed the fundamental operations of the Alaska Permanent Fund Corp. as well as several existing proposals to revamp the Permanent Fund dividend. However, the discussions focusing on PFD-related legislation laid bare the fundamental dichotomy that has continued to stall lawmakers. When outlining House Bill 37 sponsored by Rep. Adam Wool, D-Fairbanks, which would tie the PFD to 10 percent of the annual 5 percent of market value draw on the Permanent Fund and 30 percent of state mineral royalties and result in near-term PFDs in the $1,000 per person range, Wool and others acknowledged the sticking points that emerged in the group members. Working group co-chair Rep. Jonathan Kreiss-Tomkins,D-Sitka, said debate between Wool and Rep. Kevin McCabe, R-Wasilla, over whether or not Alaskans are entitled to a certain level of dividend “effectively outlined the philosophical differences” that have dogged the Legislature since former Gov. Bill Walker first proposed changing the dividend calculation in 2016. McCabe insisted that income from the Permanent Fund “belongs to us (the public); it doesn’t belong to the state.” Wool countered that “the PFD is a budget item just like education and public safety,” a stance held by many legislators since the Alaska Supreme Court in 2017 upheld former Gov. Bill Walker’s partial veto of the dividend appropriation a year prior and effectively confirming the PFD’s position in the state operating budget. “At some point we’re going to have to solve this thing,” Kreiss-Tomkins said July 26. Legislative leaders said in the working group’s opening meeting in early July that they are relying on the bipartisan, bicameral group to formulate a plan that will be the base for legislation in the special session. It is a move intended to give substance to the group’s efforts after prior special committees failed to produce substantive results. The working group heard testimony July 27 from leaders of the Alaska Permanent Fund Corp.’s advisory firm Callan, who suggested the recent surge in commodity and labor prices is more likely the short-term consequence of disrupted supply chains attempting to match rapid economic recovery and will probably balance out, rather than lead to years of high inflation; that is a subtle key in attempting to preserve the long-term value of the Fund. Callan CEO Greg Allen told legislators that the firm’s official outlook is for inflation to average 2 percent per year, but it could be increased slightly to 2.25 percent. Some legislators, notably influential Senate Finance co-chair Sen. Bert Stedman, R-Sitka, and the Permanent Fund Defenders advocacy group led by former legislators Clem Tillion and Rick Halford, among others, have contended a 4 percent annual draw limit is more appropriate to protect against inflation eroding the value of returns and poor market years. Callan also projects there is about a 50 percent chance the Fund will fully maintain its real value over the next decade based on market forecasts and the investment makeup of the fund, according to Allen. The working group is scheduled to take public testimony on the numerous aspects of the state’s fiscal situation in Anchorage, Wasilla, Fairbanks and Juneau in the days leading into the 30-day special session, which will start Aug. 2 according to Dunleavy’s spokesman Jeff Turner, despite prior indications from legislators it could be pushed back to give the group more time. “It remains the governor’s intention to start the special session on Aug. 2. Determining the future of the Permanent Fund and the PFD are the rocks in the road that need to be moved to create a stable fiscal future for Alaskans,” Turner wrote July 27 via email. It appears the public testimony will be held without a formal proposal from the working group for individuals to evaluate. Kreiss-Tomkins said following the July 27 meeting that the group is holding internal discussions on how to build its plan, though nothing has been decided. Elwood Brehmer can be reached at [email protected]

Salmon fisheries turn to chums, pinks as sockeye runs wind down

While the sockeye fisheries in Southcentral and Western Alaska are tapering off after seasons of varying success, the chum fishery statewide is turning out to be pretty dismal. Statewide, chum harvest is actually ahead of 2020’s final catch, almost entirely because of landings in Prince William Sound and the Alaska Peninsula. However, the total volume is still down; as of July 17, the harvest of about 4.4 million fish was about half of the typical volume at that time, according to the Alaska Seafood Marketing Institute. Across Southeast, through July 17, chum harvest was 35 percent less than what it was in 2020. The Southeast troll fishery is seeing both fewer fish and smaller ones in the chum fishery. As of July 23, the trollers had landed 6,900 chums, according to the Alaska Department of Fish and Game, with an average weight of 6.4 pounds per fish, about 2.7 pounds less than the recent 5-year average and about 1.4 smaller than last year’s average weight. “Hatchery produced chum salmon runs throughout Southeast have been variable to date, but harvests have generally been below average as forecasted,” managers wrote in the weekly update July 23. The Southern Southeast Regional Aquaculture Association, which tracks in-season returns of its summer chum, is showing that the actual return is tracking better than the lower end of its forecast. Up until statistical week 28, the run was tracking less than the forecast, but moved up by week 29 to between the lower and mid-ranges of the forecast. Northern Southeast Regional Aquaculture Association, however, is reporting poor returns at its sites. “Returns of summer chum to NSRAA remote release sites through stat week 29 continues to be poor and all indications to date are that we will be at or well below the low range of our preseason summer chum forecast,” the association wrote in its update on July 19. In Prince William Sound, 2.4 million chums have been harvested as of July 25. Harvest is better than last year, which ended at about 1.2 million chums. Dan Lesh, a fisheries economist with the McKinley Research Group, said chum salmon are marketed for both roe and fillets, with the U.S. being an important market for fillets while the roe is often consumed in Asia. Alaskans may think primarily of sockeye and kings in the salmon market, but chum and pink usually provide large amounts of product to serve the markets. “One way to think about it is just volume,” he said. “In certain markets you need a lot of volume, and pink and chum are where we have the volume. Pink and keta are both affordable ways to provide really high-quality protein to people who aren’t tracking salmon closely.” Salmon fisheries are beginning to turn toward pinks. Prince William Sound fishermen have so far landed 22.6 million of them, which are a mixture of hatchery stocks and wild stocks. It’s a surprise, given that these fish would have been born in 2019, when a drought and record-breaking temperatures seared Prince William Sound. “Wild stocks are returning stronger than anticipated given the uncertainty about spawning success from the 2019 parent year that was assumed to be negatively impacted by drought conditions,” managers wrote in the weekly update. The Prince William Sound Aquaculture Corporation is forecasting about 6.6 million pinks to return to the Wally Noerenberg Hatchery this year. They are just starting to show up and are not yet in enough numbers to report, according to the hatchery organization. Cost recovery harvest began on July 26 at the Armin F. Koernig hatchery, which is expecting 5 million pinks to return, and planned to start on July 27 at the Cannery Creek hatchery, which is forecasting 6 million pinks to return. Pink season is still just getting going elsewhere. Southeast has harvested about 3 million total so far, while Kodiak has harvested about 1.2 million and the Alaska Peninsula has harvested about 4.5 million. The Alaska Peninsula is ahead of its recent-year averages, while Kodiak was reportedly slightly behind. Cook Inlet is starting to see some pink harvests mixed in among sockeye, but reds are still the main harvest. Last week saw the Upper Cook Inlet East Side setnetters closed entirely due to poor king salmon returns to the Kenai River, leaving the drift fleet and West Side setnetters as the only commercial harvesters in the upper Inlet. The Lower Cook Inlet fleet is primarily harvesting hatchery pink salmon bound for Cook Inlet Aquaculture Association’s two hatcheries on Kachemak Bay, and so far have landed about 139,000 pinks. Bristol Bay is mopping up the last of its sockeye harvests for the season, but all preseason estimates have shown that this season set a new record at just shy of 40 million sockeye harvested and a total estimated run of 64.2 million. Elizabeth Earl can be reached at [email protected]

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