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What's at stake for Alaska in Shell's Arctic exploration? Plenty

  • Author: Paul Fuhs
  • Updated: June 29, 2016
  • Published September 2, 2015

A lot has been said by many people about Shell's Arctic drilling program but I have yet to see a real analysis of what it would mean for Alaska and our people.

Some have said: "Well, it is in federal waters so we won't get anything out of it." I just don't believe that is true. Here are some of the direct benefits we will receive if Shell is successful in their endeavors.

The current throughput of the trans-Alaska oil pipeline is about 400,000 barrels a day and declining by about 5 percent a year. It has been estimated that below 200,000 barrels a day the pipeline will not be able to operate. A study by the Idaho National Energy Lab estimates that if this were to occur, we would strand at least 1 billion barrels of oil on the North Slope.

At even $50 per barrel, that is $50 billion of value left in the ground. At current tax rates that would mean at least $1 billion annually to the state's treasury of which 25 percent would go to the Permanent Fund.

If Shell has throughput of 750,000 barrels a day as they have projected, it will drastically lower the cost per barrel for shipping oil through the pipeline. This would increase revenues to Alaska by increasing the wellhead value. The lower cost of shipping would also encourage the development of marginal fields on state and Native corporation lands that would otherwise be uneconomic.

Keeping the pipeline active would provide ongoing substantial property tax revenues to local governments along the pipeline route that would otherwise be lost. Other communities would be helped as well. A little known provision of SB 21, the tax reform bill, identifies corporate income tax as a source for municipal revenue sharing to provide services or reduce local taxes. While Shell wouldn't pay Alaska production or severance taxes they will pay corporate income tax.

The production and severance taxes will be paid to the federal government and our congressional delegation is working hard to get revenue sharing of these funds to the state of Alaska and local governments, just as other states have done.

While there are risks to Arctic drilling, there are definite environmental benefits as well. For instance, Shell's substantial support vessels are some of the only emergency response assets we have in the Arctic now, not just for Shell's operation but also for vessels on the Northern Sea Route. Just a couple of years ago, an international vessel called the Golden Sea lost power and was in imminent danger of running aground and causing an oil spill.

Shell was contacted and they voluntarily released their icebreaking support vessel Tor Viking to go rescue that ship and tow it to safe harbor in Unalaska where it could be repaired.

If Shell's exploration program is successful and they proceed to full field development, the onshore port services that will be needed will be the financial impetus for finally building the Arctic ports we have been talking about. This would also improve the efficiency of shipping for Arctic communities and reduce their cost of living along with providing facilities for emergency response for vessel traffic in the Bering Strait.

Regional and village corporations of the North Slope have joined Shell's operation in a joint venture agreement. The profits from this association will circulate throughout Alaska's economy as our Native Corporations keep the money within Alaska rather than sending it Outside.

Then there are jobs for Alaskans. Jobs in onshore support services, jobs operating the trans-Alaska Pipeline, jobs in developing marginal wells on the North Slope, jobs in oil spill preparedness and jobs on the offshore rigs. Offshore gas finds could also extend the life of our hopefully soon to be built Alaska gas line.

Yes, there is risk to any endeavor such as this, but let's remember that we have been drilling in ice covered waters in similar depths for over 40 years in Cook Inlet without ever having a major incident. And the regulations for drilling in the Arctic are even stricter.

I hope this helps Alaskans understand how much is at stake in Shell's drilling program. If they are successful, other companies like ConocoPhillips and Statoil will come behind and will help build a thriving economy for coastal communities just as they have in the European North Sea offshore developments. And that will be good for all of us.

Paul Fuhs is the former mayor of Unalaska/Dutch Harbor, former Commissioner of Commerce and Economic Development, and is currently a port development consultant for ports that may be used during Shell's exploration and development operations.

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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