Alaskan issues

Patrick Crow
Washington, D.C.
[email protected]

Like other major oil producing states, Alaska is struggling to finance its state government while oil revenues are dropping.

About two thirds of the state's funding comes from oil royalties, taxes, and fees.

But concurrent dips in oil prices and production (output is about 1 million b/d, half of the 1988 peak) has left the state with a $1 billion deficit in its $2.3 billion fiscal 2000 budget.

Alaska has no personal income tax or sales tax and a low (8¢/gal) gasoline tax. Legislators have rejected proposals for an income tax and a 17¢ gas tax.

State officials are now thinking the unthinkable. They have proposed funding some state operations with interest from the $25 billion Permanent Fund, which was created from North Slope oil revenues.

So far, the Permanent Fund has been used only to pay annual dividends to residents. Last year, each adult and child got $1,540.

The Republican-controlled legislature passed, and Democratic Gov. Tony Knowles signed, a bill calling a Sept. 14 referendum on whether the state should use surplus Permanent Fund earnings.

The plan still would guarantee residents a $1,700 dividend check in 1999 and 2000, and about $1,340 in 2001.

Knowles said, "Alaskans' choice is whether to diversify how we pay for public services or continue to rely on fluctuating oil prices and production."

Merger concerns

The state also is taking an active interest in the proposed merger of its two largest oil operators, BP Amoco plc and ARCO (OGJ, Apr. 5, 1999, p. 38).

Knowles has appointed a team of government officials and outside consultants to review the effects of the proposed merger. He said the combination "could have significant impacts on Alaska jobs and families."

He wants to know how it would affect the valuation of North Slope crude, development of future North Slope fields, current and future oil leasing, marine transportation, operation of the Trans-Alaskan Pipeline System, and development of natural gas reserves.

The state also is consulting with the Federal Trade Commission, which is examining the proposed merger for antitrust implications.

Gas line hopes

Both the merger and lower state revenues have been used as arguments for construction of a trans-Alaska gas pipeline.

Prudhoe Bay field has 26 tcf of gas reserves, and other North Slope fields hold 9 tcf more, but it is currently uneconomic to move the gas to market.

If technology can be developed, some North Slope operators would like to convert the gas to a liquid and ship it through the oil pipeline, which has ample capacity.

But some Alaskan municipalities want the state to create a public corporation to build and operate a gas pipeline paralleling the oil line. The gas would be liquefied at the Valdez terminal and shipped to market.

The municipalities-including Valdez, Fairbanks, Anchorage, and the North Slope Borough-argue that a merged BP Amoco-ARCO would dominate gas production and transportation with its 72% ownership.

And of course, the building of an 800-mile gas pipeline and LNG export terminal would be a multiyear boon for Alaska's economy.