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The Concerned: Should Alaska create a state-owned oil company?

Scott Woodham
Aaron Jansen illustration

TO: The Alaska Legislature
Subject: Somewhere to the Future

Dear Lawmakers,

Wow, we The Concerned certainly don't envy you as the new session gears up. It seems like just yesterday you ended the last one. The big debate that hamstrung the 2011 session is poised to dominate 2012, too: the long-term future of Alaska's biggest industry and largest source of tax revenue.

Throughput in the trans-Alaska pipeline remains in slow decline, a big batch of court documents now suggest the pipeline could be viable decades longer than anyone thought, and Alaskans -- including we The Concerned -- are as divided as ever about what to do about it all.

In practical terms, it means that you'll have just that much less time to deal with everything except oil. Which concerns us, as is our habit. Regardless of how much oil is being produced over the next two or three decades, a time will come when there is none of it left in commercial quantities on state land. Then what? Well, who knows, but it won't be good unless Alaska has something else going.

Despite new information about what BP has been telling Securities and Exchange Commission regulators about the oil pipeline's lifespan, the debate is apparently reaching a new point of stasis. Old ideas are being resurrected in hopes of doing everything from building a natural gas pipeline to slowing the rate of oil production decline.

Some have suggested that an Alaska oil company could compete with the major North Slope oil producers -- or somehow coerce them to invest in new production, which is something they so far have shown no interest in doing.

We're afraid that instead of exhibiting the rumored Alaskan “can-do” spirit, a state oil company is just another instance of the deep and apparently mutual distrust between Alaskans and their major industry. Not that there aren't legitimate reasons for mistrust on both sides; it seems like every time we The Concerned turn around lately, there's another legal dispute, a previously unknown piece of information, dire or rosy press releases or statutory blind spots.

Unfortunately, every time we turn around lately, it also seems there's another big investment overseas or in North America, another “shale boom,” or another LNG tanker heading to Asia from somewhere that isn't Alaska.

Although there is global precedent for state-backed oil companies, and several of them are doing very well driving investment, we're afraid that Alaska's pride is leading to the entertainment of politically impossible ideas. We also worry that instead of being a benediction sung in harmony by an owner state and its industry partners, a state petroleum company would feel pressure to become the roar of an avenging angel.

Alaska's chance to create a state oil company on par with any of the majors came decades ago, and the current debate climate means that even if one were created, public sentiment might help turn it into yet another large-scale public failure, an Alaska-sized boondoggle.

Many of the world's most successful state-backed petroleum companies sit in partnership with private companies atop large, producing reserves. Such reserves very probably don't exist anymore on Alaska state land. Some of those other state-backed companies, outside the U.S., solved the problem of no reserves by just waiting for private companies to make discoveries or start production -- and then proceeded to confiscate or "nationalize" the bounty. And maybe sending a thank-you note.

But no matter how serious Alaska gets about being an owner state, and no matter how populist it gets, we The Concerned think that's simply not an option here.

The most successful of the state-backed companies also are, to a greater or lesser degree, independent of their governments. If Alaskans are suspicious that a governor with ties to the industry is giving away the farm in an agreement with big companies, how suspicious would they be of a state oil company, which by necessity would be full of people with ties to industry?

Perhaps more importantly, such an "Alaska State Oil Co." would need to sign confidential contracts and keep some information very close to the vest. Many Alaskans don't seem to trust government officials enough for that to fly.

We The Concerned forget just how many public corporations have been created to move Alaska's stranded natural gas off the North Slope. None have succeeded, and they've all been battered by political winds the likes of which battered Southcentral Alaska this week. An independent Alaska petroleum company would be protected from much of that.

However, state oil and gas companies also generally assume risks that are unpalatable to private companies -- that's one thing that makes them so valuable in partnership with private industry. With all the elephant oil fields on state land gone, the biggest opportunities -- and risks -- are in extending the production life of established fields and bringing online satellites and unconventional resources like heavy oil.

Even if an Alaska oil company were created today, it would also not have any ownership stake in the pipeline, and it would not likely be able to buy in. 

To have a production stake, not just an ownership stake, Alaska would need to start fresh. With the sunset of oil approaching, that might mean starting a gas company and going it alone on a natural gas line. And maybe an in-state petrochemical industry, too, because gas can't match oil's revenue stream alone. But with AGIA still limping along toward the $500-million finish line, public support for such a huge risk as building a state-owned pipeline (or a fleet of icebreakers, LNG tankers and a deepwater Arctic port) before having any supply contracts seems very far off.

Even if nothing happens, oil production will continue to decline as tens of billions of dollars keep flowing into state coffers and private bottom lines. Someday -- who knows when? -- oil will actually be gone, budgets will tighten, and lawmakers might be forced to find a way to drag new revenue streams kicking and screaming onto the table. It's just too bad the state can't go back in time to retroactively hold back some of that oil shipped during periods of awful prices in the 1990s.

But no matter what happens, Alaska will still have vast, conventional reserves of energy for a long time. It could be that doing nothing now will turn out to be doing something later on.

Good luck out there,

The Concerned