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Mayor Sullivan: Cook Inlet is proof that oil tax credits are good for Alaska

  • Author: Dan Sullivan
  • Updated: July 7, 2016
  • Published June 21, 2015

As the new mayor prepares to step into his role, it is worth reflecting on how far we have come in one critical area over the last six years. Among the initial challenges faced by my administration, securing a stable and reliable energy future for Anchorage, and all of Southcentral Alaska, was perhaps the most important.

When I was in the midst of my own transition process six years ago, I learned some downright frightening facts. It turned out during the periods of extreme cold in the winter of 2008-2009, when gas usage was at its highest demand, there were concerns with all of the Southcentral utilities there would not be sufficient gas deliverability to meet that demand. A lack of available gas could have caused a natural gas disruption, meaning the city would have gone cold and dark. This was unbelievable to me: How could the state's largest city and economic hub be so close to such an unthinkable disaster?

I immediately formed the Mayor's Energy Task Force to examine the problem and make both short and long-term recommendations for keeping the lights and heat on in Anchorage. Their transition report, which is fascinating to read to see how far we have come, recommended emergency preparedness drills and public education about what to do if Anchorage lost power in the middle of a cold, dark night. Soon thereafter, the Energy Watch program was created, and I and the mayors of Kenai and the Mat-Su Borough began informing citizens about how to prepare and stay safe if we did indeed lose our natural gas supply.

Emergency drills were not a permanent solution, however, and the Energy Task Force recognized that Anchorage needed to increase its natural gas supply in order to maintain energy security. Over time, natural gas deliverability had decreased by 42 percent since its peak in 1999, and the big oil and gas companies were pulling up stakes for larger prospects around the world. We knew Cook Inlet still had plenty of gas left to produce, but new investment would appeal mostly to smaller companies and only under the right financial conditions. I met with the Legislature and governor to strategize how to improve the investment climate in order to attract new explorers into the Inlet.

In 2010, the Legislature, led by Rep. Mike Hawker, addressed the challenge and passed the Cook Inlet Recovery Act and the results came so quickly that even seasoned experts were taken by surprise. Independent oil and gas companies swarmed into Cook Inlet to take advantage of the investment opportunity offered by tax credits, and new rigs immediately began exploring for and producing both oil and natural gas. The unexpected upside was a tremendous boost to local economies as these companies spent hundreds of millions to get their operations up and running. Hilcorp alone spent more than $130 million in its first year as they put Alaskans to work pulling oil and gas out of the venerable oil and gas basin.

How successful was the effort? Since the Cook Inlet Recovery Act passed, oil production in the Inlet has increased by an impressive 80 percent. The Southcentral electric and gas utilities have the natural gas they need for now, and Southcentral residents, while they still need to be prepared for an energy emergency in case of natural disasters like earthquakes, can breathe a collective sigh of relief. Southcentral mayors are no longer on television asking residents to practice turning down their heat in wintertime because of a possible natural gas shortage.

My experience as mayor underscored a long-held economic rule that capital dollars go to areas that compete for investment. Clearly, Cook Inlet was not an attractive place to do business before the Cook Inlet Recovery Act; the continued production decline rates proved that beyond a doubt. Once tax credits were available, independent oil and gas companies made the investment decision to explore and develop their leases.

As political rhetoric about tax credits heats up in these challenging budget times, I encourage Alaskans to remember how effective they have been in the Inlet. The economic activity has been significant, but even more significant is having energy security for over half of the state's population. Similarly, credits to stimulate oil production on the North Slope will help stop the decline in throughput in the trans-Alaska pipeline, which is essential for Alaska's economic security.

Mayor Dan A. Sullivan was elected to the mayor's office in 2009. In 2015, he was a candidate for lieutenant governor on the Republican ticket with then-incumbent Gov. Sean Parnell.

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.

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