By Margie Brown, CIRI president and CEO
There can be no real debate about the importance of energy development in Alaska. We have tourism, fishing, logging, mining and other industries, but Alaska’s economy is built on and supported by private energy development.
The energy sector plays a central role in any modern economy. But it is especially important in Alaska because energy, particularly oil production, pays for 85 percent of our state’s government. It also provides many of Alaska’s best paying jobs. And low population density, cold climate and large geographic size cause Alaskans to use more energy per capita than residents of any other state.
Unfortunately, Alaska is quickly running out of developed energy resources. Our known oil and gas reserves and production are in steep decline. Alaska oil exports, for example, are down 70 percent from their peak in 1988, and new Alaska energy exploration and development is not keeping pace with the decline.
So far the majority of Alaskans have escaped the most serious consequences of our energy sector decline because high world oil prices have increased the state’s revenue per barrel of oil produced. But the state treasury will eventually feel the pinch as oil production continues to fall or if volatile energy prices suddenly swing down. And many parts of Alaska are already suffering from the energy crisis.
Alaska fuel prices are trending back up to 2008 levels and making it economically impossible for many rural Alaskans to live off of the road system. Urban Alaska gasoline prices routinely rank among the most expensive in the nation. And even Southcentral Alaska’s traditionally cheap natural gas prices are above the national average and climbing, while most Lower 48 natural gas prices are stable or decreasing.
Economists predict that world energy prices will become increasingly volatile during the next decade while trending higher. This forecast is driven by a combination of factors that include political instability in oil producing regions, increasing world energy demand – especially in emerging markets – and declining world oil reserves and production.
The challenge for Alaska’s political leaders is to formulate and pursue state energy policies that support the development of reliable, secure energy supplies without causing unacceptable environmental damage. The policies should provide for domestic energy needs at economic and stable prices. They should also enable continued energy sector income from export as well as expansion of Alaska’s petro-chemical industry.
Alaska is an energy-rich state that has the resources needed to support significant and sustainable energy sector growth. Estimates are that Alaska has more than 10 billion barrels of recoverable oil in the ground, plus tens or even hundreds of trillions of cubic feet of natural gas and at least 5 billion metric tons of coal, more than the rest of the United States combined. The state also enjoys world-class renewable energy resources, including wind, geothermal, hydro, tidal/wave and biomass.
So what is keeping these energy resources from being responsibly developed?
Unrealistic expectations and policies that favor public funding over private investment.
Alaska’s political leaders need to pursue energy policies that encourage and enable a broad spectrum of responsible energy development instead of a few mega projects that create the illusion of inexpensive energy by shifting costs from energy consumers to state coffers.
Diversification improves energy security and reliability by increasing the number of energy suppliers and the sources of energy. It improves price stability by fostering competition between suppliers and reducing overdependence on the failure of a single resource or technology. Competition also encourages innovations by rewarding project developers and operators for developing and implementing ideas that improve efficiency.
The state should support new and responsible Alaska energy development. But that doesn’t mean throwing billions of dollars of public money at projects that make little economic sense. Instead it means enacting market-driven policies and regulatory structures that support private investment to develop successful Alaska energy projects in a timely fashion.