Imagine my surprise as I read the letter-to-the-editor headline: "Democrats are looking out for Alaskans while Republicans continue to fail them." Who would have guessed, especially after the Legislature's last special session?
Mind you, the letter was penned by an Alaska Democratic Party apparatchik, but if "looking out for Alaskans" means being myopic obstructionists on oil tax reform and the state's future, then our lefties -- who cannot prosper without misery all around -- are up to the task. There is nothing like hamstringing the industry fueling more than half of Alaska's economy -- and pretending it is for our own good.
Gov. Sean Parnell pushed Alaska's Clear and Equitable Share oil tax reform, but failed miserably. It sputtered and stalled last year as a handful of senators coquettishly wanted more information. This year, it croaked at the hands of the same senators who used unions -- lapping up ACES' fat capital budgets -- to sell the silly notion that tax reform was a giveaway to the evil oil industry. They rolled over Parnell, who -- unbelievably -- was unable to explain his program.
ACES, which contributes to a marginal tax rate on North Slope oil of about 90 percent at higher oil prices, is a killer for North Slope investment and production. It also steals $2 billion annually that rightfully belongs to North Slope oil company shareholders.
Parnell sought a tax fix to encourage North Slope companies to bolster investment and production. The opposition -- Democrats Hollis French and Bill Wielechowski of Anchorage and Joe Paskvan of Fairbanks, along with Republican Bert Stedman of Sitka, easily come to mind -- wanted the revenue for bigger government and fatter capital budgets.
Political games are fun, but a problem looms. North Slope production is drying up at 6 percent annually. The impact on a government that gets 90 cents of every dollar it spends from North Slope oil taxes has been masked by high oil prices. Alaska still can support a $12 billion overall budget -- or a $3 billion capital budget -- with little pain.
That could end. The break-even point for Alaska's oil-financed government is about $100 a barrel. Last week, Alaska North Slope crude was selling for $110.98 on the West Coast. A week before, $121.16. In April 2010, it went for $82.23; a year earlier, $46.55. Things change. Quickly.
Oddly, the North Slope price is outstripping benchmark West Texas Intermediate, a lighter, sweeter product selling last week at $96.81 per barrel -- and the price falling -- because of an oil glut in Cushing, Okla., a key storage and pricing hub. Cushing, one of the world's largest tank farms, is awash in crude because it lacks pipelines to refineries on the Gulf Coast.
By midweek, the price dip continued. Brent crude, the benchmark for imported oil, was off 47 cents, to $112.26 a barrel in London, the Associated Press reported. "The six-day drop is the longest for U.S. oil since July 2011, and it's the longest for Brent crude since June 2010," the AP said Wednesday.
Europe's economic woes, including France's and Greece's turn to the left, along with disappointing job growth and slower-than-hoped economic expansion in this country have greased the price slide. Add to that, bloated inventories triggered by decreased demand.
Eventually, middle America's oil glut will evaporate and Texas Intermediate and Alaska North Slope oil prices -- generally much closer than now -- will begin to correct. What that will mean is anybody's guess.
The thing to keep in mind is that if North Slope oil prices drop to where they were only a few years ago, Alaska will be in a pickle. Yes, we have about $15 billion in surpluses stashed away thanks to ACES. Without severe, economy-busting cuts in government, that cash will be gone in a blink, and then what?
Perhaps after this fall's election we will have a Senate free of the troublesome coalition that allows a handful of senators to keep a stranglehold on Alaska's future for their union pals -- while pretending to do us a favor.
Without sensible oil tax reform, without more production, Alaskans will have to live with one eye on Alaska North Slope crude oil prices day to day and worry about the national and international vagaries and happenstance that drive them.
Democrats? They will not have to fret. They will be busy.
Looking out for Alaskans.
Paul Jenkins is editor of the AnchorageDailyPlanet.com.
