We should always be wary of Big Oil

commentNovember 3, 2011 

Alaska is bedeviled by oil dependence. For all the individualist bravado about self-reliance and the freedom to do whatever we like, most people have become aware in the last decade of the systemic dependencies that characterize the state and its people.

Begin with the state Department of Labor's data that 70 percent of Alaskans are urban, with half of the population living in Anchorage and the Matanuska Valley, enjoying a thoroughly urbanized life-style. For all but a few these, hunting and fishing are recreational; one or more regular jobs generates the major income for their families.

Urban Alaskans, and all other Alaskans availing themselves of the material norms of American society, are tied to the basic economic structure of the state. An essential aspect of that structure is the one-third of the economic base comprised of oil production, oil patch servicing, and oil taxation, the latter of which accounts for about 90 percent of state general fund revenue.

As the decline in pipeline throughput has become significant for Alaska over the last several years, the general public has become increasingly aware of the consequences: a serious diminution of state revenue must mean inevitably a decline in government services and contracting, a substantial jolt to the Alaska economy. As well, there's a decline in money flowing into the Alaska Permanent Fund.

The more widespread the realization of the consequences of the oil production decline becomes, the more anxiety it generates about Alaska's economic future, especially as it will affect individuals. As Alaskans experienced in 1985 and 1986, when world oil prices fell precipitously causing a general loss of jobs and a major economic contraction, the impact on families can be devastating.

The oil industry in Alaska has always sought to maximize the political potential of Alaska's oil dependence. With other considerations, by repeatedly reminding Alaskans of the dire effects of production decline, the industry hopes to generate support for reduced taxation and regulation, thus increasing profitability.

There should be no surprise at such behavior. The well being of Alaska and Alaskans is not the principal concern of the oil industry in Alaska. If it were, the managers could be charged with dereliction of their long-term fiduciary responsibility, which is to generate profit for the companies' shareholders. And since Alaska's oil managers include some of the most competent corporate personnel in America, no one should marvel that they use any tactic and device at their disposal to maximize their position.

Industry spokespersons claim "partnership" with Alaska, and ConocoPhillips asserts that it is "Alaska's oil and gas company," suggesting a trusting marriage in which neither partner abuses the other. Yet, oil companies in Alaska have abused the partnership, and have been called on it.

For fifteen years, from 1977 to 1992, in the Alaska v. Amerada Hess case, the state pursued the companies invested in the pipeline over deliberate falsification in computing the price paid to Alaska for its royalty oil, 12.5 percent of what comes out of the ground. In fact, at one point in the suit the presiding judge said the state had been guilty of "inexcusable trustfulness" in dealing with the companies, apparently anticipating neither misrepresentation nor manipulation.

One result of the state's victory in that suit is today's Constitutional Budget Reserve, the available balance of which last July was over $9 billion.

After the Exxon Valdez spill in 1989, the Alaska Oil Spill Commission found general abuse in Exxon's approach toward risk management regarding tanker traffic in Prince William Sound. The commissioners wrote that the company manifested a "corporate culture of irresponsibility," and broad unwillingness to jeopardize profit by attending appropriately and prudently to safety and to risk mitigation.

Remarkably, the president's commission on the Deepwater Horizon spill came to a nearly identical conclusion about BP's performance. Analysts have reached similar conclusions regarding BP's Prudhoe Bay spill.

Albert Einstein once defined insanity as doing the same thing over and over and expecting a different result. This is a caution Alaskans might keep in mind as they assess the arguments over rolling back the ACES tax on oil production. The oil companies have their interest, and Alaska has its own. No one should think they are the same.


Steve Haycox is a professor of history at the University of Alaska Anchorage.

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