We have many blessings, but challenges too

Alaska jobs are down about 1.3 percent compared with last year, but that's not bad considering what other states are going through. Real estate sales are slow, but home values haven't plummeted as they did elsewhere. We should be thankful for a number of things, including a strong military presence, a sturdy petroleum industry, a rich natural resource endowment of minerals, well-managed fisheries and an unspoiled natural environment that will continue to attract visitors.

We have financial reserves. Our state treasury holds $7 billion to $8 billion in surplus liquid assets not including the $34 billion Permanent Fund. Oil prices and state revenue are holding steady. We're not going broke, unlike California.

This isn't to say we don't have big challenges. Oil is the mainstay of our state treasury and supports a third or more of our economy. The continued decline in oil production from the North Slope is a worry, and there are now major uncertainties, at least among Alaskans, about a natural gas pipeline, given huge new shale gas discoveries in the Lower 48. Ironic, given our huge gas reserves on the North Slope, but Southcentral Alaska faces possible shortfalls of gas because the aging gas wells in the region, which have produced since the 1960s and 1970s, aren't as productive as they once were.

There are worries about our remaining petroleum value-added industry, particularly the Kenai liquefied natural gas plant owned by Conoco Phillips and Marathon Oil (the federal LNG export license for the plant ends in March 2011) and the Flint Hills refinery near Fairbanks, which faces a set of difficult issues with costs and environmental regulations.

Of all of these, the brightest ray of hope is with Shell Oil and its hopes to explore what it feels are very good offshore oil and gas prospects in the Beaufort and Chukchi seas. Shell believes significant discoveries could be made in the Beaufort that would be relatively near existing industry infrastructure. That means if Shell is allowed to explore (drilling opponents have filed new lawsuits) and if the companies' hopes are borne out, new oil could be flowing through the trans-Alaska pipeline in a few years. That's of tremendous significance, because having enough oil to keep the pipeline functioning means we can continue to produce from existing fields on state-owned land. That production pays taxes and royalties to the state.

In the longer term, the Chukchi Sea, with its numerous large oil and gas prospects, could become a major U.S. producing region. Government geologists compare its potential to the U.S. Gulf of Mexico.

As for the gas pipeline, who knows? We have to take the companies working on it at their word, that in 2010 there will be good cost estimates and engineering by two competent competing organizations. We definitely won't have a clear answer on whether the big project will go next year, because the producing companies' bids for capacity will be heavily conditioned, partly on the need for a deal with the state on fiscal terms. Everyone agrees that is needed, but it's a touchy issue to the public and our politicians lack the courage to tackle it.

The decision to proceed with the $30 billion-plus gas pipeline will be an incredible gamble by the producing companies that have to pay for the pipeline, given the risks involved. Alaska has a big stake in their decision and, frankly, I put more trust in the pipeline decisions made in the boardrooms in Houston and London than I do in decisions made in Juneau.

However, the idea of an in-state gas pipeline -- a "bullet line" that only supplies consumers in Alaska -- is an example of a public-sector initiative at its best, and so is the work on a "spur" line, off a larger pipeline to the Lower 48, being done by the Alaska Natural Gas Development Authority, a state agency. It is prudent for Alaskans to have solid information at hand about an alternative gas line to get gas to Alaskans in case the big pipeline doesn't go or is substantially delayed. If the big pipeline goes, we'll still need to get gas to Southcentral through a spur line.

We need the assurance of gas for our major communities because going back to fuel oil or coal isn't practical for Southcentral, although I believe coal, with the new clean-combustion technologies available, could make a big contribution to electric power generation.

Sorting through all this will be messy for our political leaders, but tackle it they must. Harry Noah, who until Jan. 1 is leading the project to permit and engineer a "bullet" gas pipeline, urged legislators in a briefing last week to end the political bickering and indecision over energy projects, including the gas pipeline. That's good advice.

Tim Bradner writes for an Alaska economic reporting service. He also consults for private clients and writes for business publications. His opinion column appears every month in the Daily News.