SitNews - Stories in the News - Ketchikan, Alaska


State Takes Big Risk on Gasline
by Rep. Ralph Samuels



July 02, 2007

In every decision we make in life we balance risk and reward. Should the family buy a bigger house? Change jobs? Go to school? Spend more? Spend less? Change brands of soap? Every choice we make, we first look at those two factors.

Obviously, sometimes the scales are tilted overwhelmingly to one side or another. There's probably not much risk in choosing to walk to the store during a sunny day in Anchorage; a little higher risk at noon during the winter. You might slip on the ice. And even higher risk at 2 a.m. during the winter. Personal safety could become a factor from both the elements and less savory members of our community. You would probably agree the benefit of grabbing that late-night snack wouldn't be worth the potential cost.

When it comes to economic risk, what factors should be considered when the state analyzes the risk/reward choices we make? Currently, the price of oil, while very painful at the pump, makes the job of running the state much easier than a mere four years ago, when the price of oil was in the low $20 range. But the price is masking the real enemy.

The enemy Alaska faces today is the reduced oil production level on the North Slope. It won't matter too much what the price of oil is when the day comes that Alaska has only half of the North Slope reserves we have now. At its peak, the pipeline carried 2 million barrels per day. Right now we are at less than 800,000, and declining at 6 per cent every year.

Couple this production decline with the fact federal spending in Alaska is also deteriorating at an alarming rate, and you see the risk to the economy of the state rising rapidly. The money that is spent by the private sector to keep the Slope running spreads throughout our economy, and the result of that spending - the production of more oil - benefits both the state and the Permanent Fund. The Permanent Fund dividends and state spending then further feed money into the state's economy.

When the initial capital investment of the North Slope deteriorates, it will affect every business in the state, and all of their employees, and their employees' home values, as the amount of circulating dollars declines.

The only way out of our declining oil and declining federal dollar problem is to find something to replace it. The only thing we have to replace its worth in our economy is natural gas.

Whether you are a clerk, laborer, bank president, pilot or teacher, you should be very concerned about making sure Alaska makes money from its gas. This should not be a concern just for the government of the state of Alaska, but for all the individuals in the private sector who will inevitably be affected by the Slope's waning production. The consequence of failing to take notice and letting others weigh the risks and rewards of your economic future could be catastrophic to the economy of Alaska.

So how does Alaska balance the potential cost to our economy with the benefits a natural gas pipeline would bring? Currently, the state is on course to play a game of "chicken" with the three major oil companies. We might win. But what are the consequences of failing? If we are wrong, how long will the lawyers argue while Alaska's economy tatters? Even if Alaska "wins," how long will it take to reach a viable agreement and see a profit, and what will happen to you and your family in the meantime?

At a 6 percent decline per year, in a short five years Alaska will be down by more than a quarter of the oil we have today; in 10 years, better than half. How much risk to the state are we willing to take just to show those SOB's that we mean business?

I desperately hope the gasline plan we have in place works, but the risks and potential costs to the economy of Alaska are huge. If it fails, we will need to have a Plan B in place, and without natural gas, our options for keeping our economy whole are very scarce indeed.


Received July 02, 2007 - Published July 02, 2007

About: Rep. Ralph Samuels (R) is a member of the Alaska State Legislature representing District 29 - Anchorage.

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Ketchikan, Alaska