Oil industry vital to Alaska

June 5, 2010 

A sense of gloom is spreading through the nation's energy industry from the Gulf of Mexico, and it's touching Alaska. Our confidence that advanced technology can handle any problem, even gushers gone wild at the bottom of the sea, is severely challenged.

BP will eventually get this Gulf of Mexico well under control, but the effects of this spill will be profound and longlasting.

Shell's planned 2010 exploration for the Arctic offshore is an immediate casualty due to the president's six-month moratorium on offshore exploration, the practical effect of which is to lose another year for Shell because of seasonal constraints on operating in the north. There will inevitably be big political pressures to extend the moratorium for the Arctic and to even make it permanent.

An immediate concern for Alaska is that Shell's Beaufort Sea prospects, which are not far offshore and near existing pipelines, represent our best hopes for getting substantial new oil into the trans-Alaska pipeline. This is needed badly given declining North Slope production. We need new oil to keep the pipeline operating so our other fields can produce, even if at diminished levels.

Another possible casualty of the mess in the Gulf will be on the financial capabilities of BP itself, which is a major Alaska producer and investor, as well as Anadarko Petroleum, BP's partner in the Gulf well, which is also an important Alaska producer and one company that is still aggressively exploring. The Gulf spill won't have immediate effects on these companies' operations here, but any long-term crippling of their investment capabilities would have ripple effects.

GAS PIPELINE

We also don't know how this could affect BP's and Anadarko's consideration this summer of the huge financial commitments needed for a gas pipeline. TransCanada's open season is under way now and Denali's will begin soon. To have the companies' senior management preoccupied with the Gulf emergency doesn't help this, to say the least.

On a broader front, we're undoubtedly headed for a period of intense regulation and government scrutiny of everything offshore, and that's not bad. We're realizing now that the deep ocean is as alien a world as the surface of Mars, and we might not know as much as we think we do about how things -- like well cement -- work down there.

It also wouldn't hurt if this pushes us to a real national energy program for energy alternatives. It is our own thirst for oil that pushed the industry into deep waters.

As for government, there will be a period of over-reaction, but pragmatism will return. What we need is the right blend of vigilant oversight and flexibility so the petroleum industry can still innovate.

This shouldn't be entirely a federal show. Our own state regulators are now re-examining Alaska's rules. I wouldn't be surprised to see any jack-up rigs brought to Cook Inlet given very close scrutiny, along with the financial capabilities of companies wanting to drill in the Inlet.

WHERE THINGS LOOK BRIGHT

So, if our petroleum industry is in a funk, is anything else going well for Alaska's economy? Yes indeed!

Things are quite bright for mining, for example.

The new Kensington gold mine near Juneau is about to start production and has added new reserves; the Pogo gold mine near Delta has solved startup problems and is meeting its production goals; the Fort Knox mine near Fairbanks is extending its life with old resource additions; and work is advancing on a possible major new gold mine north of the Interior town of Livengood.

Development of a new pit that will extend the life of the Red Dog Mine north of Kotzebue, one of the world's largest lead-zinc mines, is set to begin. Also, the Usibelli mine at Healy is producing and exporting record amounts of coal this year. Add to this continuing work at the big Donlin Creek gold and Pebble copper-gold prospects, which could become large mines.

It looks like it will be a good commercial fishing year. Salmon prices are up.

Tourism is down, but it appears headed for recovery.

These industries provide good jobs, taxes for municipal governments and business for local firms, but they don't pay the bills in Juneau, which is why we still must be concerned with those who do pay our bills, our state's petroleum industry.

We will all survive the trauma in the Gulf and we know this industry, so important in Alaska, will rebound. However, there will be efforts from outside the state to impede that rebound, and Alaskans need to be vigilant. We have some arrows in our quiver.

We must explain that Alaskan offshore waters are mostly shallow and that we've safely drilled there many times. Let's also remind the nation that the coastal plain of the Arctic National Wildlife Refuge, long closed to exploration, is onshore.


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 Anchorage Daily News.

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