Opinions

Alaska needs to ensure a fair share of offshore oil and gas revenue

It may be a new day for oil drilling in the Chukchi and Beaufort seas off Alaska's North Slope. Despite President Obama's announcement two weeks ago that certain biologically sensitive areas of the Chukchi and Beaufort off the Slope will be off limits to drilling, it seems increasingly likely that offshore drilling there will pick up soon. Just this week, following a federal court ruling against environmental challenges, the Interior Department's Bureau of Ocean Energy Management began the validation process for leases it sold in 2008, leases Shell Oil attempted to drill with its drill vessel Kuluk. The bureau estimates there are 4.3 billion barrels of oil and 2.2 trillion feet of natural gas in those leases. In addition, the bureau has announced its intention to undertake two additional offshore lease sales in the Arctic in the next several years.

Drilling in the Chukchi and Beaufort is opposed by a host of environmental groups, and the demoralizing experience Shell had with the Kulluk suggests that there is certainly significant danger to the environment there. Accounts of the failed tow and grounding of the drilling vessel raise the hair on one's neck. On the other hand, about 30 wells have been drilled already in the Beaufort Sea and five in the Chukchi, four of those by Shell. Those drilled farthest offshore have not produced marketable oil.

Since drilling is nonetheless likely to proceed, it's fair to ask whether it makes more sense to drill the Arctic National Wildlife Refuge coastal plain or the Arctic Ocean. The U.S. Geological Survey estimates that 13 percent of the world's undiscovered oil lies under the Arctic, a good portion of it off Alaska. The National Energy Technology Laboratory (in the U.S. Department of Energy) predicts peak production from the Chukchi and Beaufort to be just more than 1 million barrels a day. Their prediction for the Arctic refuge is almost the same, 985,000 barrels per day, even though the Chukchi and Beaufort are thought to have three times as much oil. As the impact of a spill on land in the refuge would likely be less disastrous than in the Arctic Ocean, the refuge might be the better bet. But drilling the refuge is so politically circumscribed, with a clear majority of the country opposed to it and likely to stay that way, that the Arctic Ocean is where the gambling is going to be.

That being the case, there's reason for Alaska's congressional delegation to get busy. In 2006, in the Gulf of Mexico Energy Security Act, Congress provided that Texas, Louisiana, Alabama and Mississippi should receive 37.5 percent of revenue collected from bonus bids, rentals and production royalties collected from oil and gas development of the outer continental shelf adjacent to those states. A second phase of that act is set to take effect in 2018 and may include Florida.

Rebating a percentage of the revenue the federal government collects from mineral leasing (coal, oil and natural gas are classified as minerals) on its lands, and now waters, in or near the states where the mining or drilling takes place is not unprecedented. The Mineral Leasing Act of 1920 provided that 37.5 percent of federal lease revenue on coal lands in Montana, Colorado, Wyoming and other states should be rebated to those states to cover the social and economic impacts of development. In 1976, the Federal Coal Leasing Amendments Act increased the transfers to 50 percent. The 2006 act expanded this concept to include offshore oil development.

In the Alaska Statehood Act of 1958, to help the new state pay its expenses Congress provided that 90 percent of federal mineral lease revenue collected in Alaska should be given to the state. Alaska is the only state ever to have received 90 percent of such revenue.

Alaska's congressional delegation needs to build support for revenue sharing legislation for Alaska from new Arctic offshore development. Sen. Lisa Murkowski has been working on a multi-state framework for revenue sharing, the Fixing America's Inequities with Revenue Act. The bill has generated stiff opposition because of its high cost. Now is the time for a new, Alaska-specific initiative. Alaska won't get 90 percent of Arctic offshore revenue, but without the delegation's concerted attention, we'll get nothing.

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

The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com.

Steve Haycox

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

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