A Lesson from Alaska’s Fiscal Crisis: Approve AKLNG

Decades ago, the construction of the Trans Alaska Pipeline (TAPS) transformed the state into a cornerstone to strengthen  American energy security, fuel the state’s revenues, propel unparalleled economic growth, and provide job security to thousands of Alaskans.  However, Alaska appears to be reaching a turning point in its history.

Today, with the recent downturn in oil prices, Alaska faces a staggering $3.5 billion dollar deficit, up $2.5 billion from what was predicted last year.  Oil has been the lifeblood of the Alaska economy, and the Alaska tax base for decades, and for many years it allowed the state to chart its own destiny, free of dependence on the lower 48.  But with oil prices continuing to fall, it’s time to diversify and invest again in the future.  In 1977 with TAPS, Alaska saw what large infrastructure projects can do for its economy.  Now, as researcher Bill White illustrates, the state must do to gas what it did for oil in the 1970s.  In the past few years, the state has begun a decade long effort to do just that.

The Alaska LNG project would create a next generation megaproject on the scale of TAPS.  In fact, at a cost of up to $65 billion, it represents the largest proposed infrastructure project in North America.  In addition to providing new access to natural gas for Alaskans, the pipeline will generate a new revenue stream for the state and help insulate the tax base from the volatility of oil price fluctuations that have recently shocked the market and sent state fiscal reserves plummeting.  Current estimates predict between $2 and $3 billion in new state revenues annually from sales from the pipeline.

In response to the budgetary crisis, the current Governor Bill Walker has announced plans to tighten the fiscal reigns by seeking to end investment in five major state investments such as plans to build a bridge across the Knik Arm west of Anchorage.  Just weeks after having been sworn in, the Governor demonstrated he was not going to waste much time in downscaling the state’s investments back toward the reality of its huge deficit.

During his successful campaign, the Governor promised to keep progress moving ahead to commercialize North Slope gas.  He also promised that his administration would not try to change the state’s oil tax structure.  A third energy promise was that he would drop his citizen lawsuit against the state’s Point Thomson settlement.

So far, he appears to be keeping those promises.  Despite penning an opinion piece in the capitol newspaper questioning the fairness of the oil tax structure in Alaska, the Governor has since insisted that his administration would not seek to change the law during this legislative session.  And last week, he moved to dismiss his citizen lawsuit against the Point Thomson project a week after the Alaska House Majority sent a letter to the Governor asking him to settle his dispute.

Pulling off a megaproject on the scale of the proposed gas project will not be easy.  In recent years, the state of Alaska partnered with major North Slope producers and TransCanada, signing agreements that have initiated the first steps for the project.  In order to be successful, the state of Alaska must work with its partners closely.  Governor Walker so far appears to be keeping his campaign promises.  There will be plenty of tests to be overcome.  But, staying the course will lead to a brighter future for Alaskans and users of natural gas.