Despite a $2.7 billion dollar budget deficit and Sen. Pete Kelly, R-Fairbanks, bent on spending the last of our savings, the governor is promoting sub-marginal natural gas pipeline. Described as an opportunity “whose time is come”, in reality it is massive public subsidy to China and will allow China to operate Alaska like a colony for a very long time.
The governor’s “opportunity” has very significant caveats such as “discounted prices” and “lower profits for long-term supply certainty.” This means is that we are prepared to sell our gas at fire sale prices — and relinquish control by providing a 51 to 70 percent interest to China. These are large and long-term concessions which indicate how marginal the project is.
The existing industry remains lukewarm to the project for good cause. Much of the gas they produce is reinjected into wells to capture more oil and global prices for gas do not cover Alaska production costs including a normal profit margin. Moreover, the existing industry has prior rights to the natural gas and the power to kill the deal. Nonetheless, the industry is circling the wagons, presumably to protect their generous tax breaks gained in Senate Bill 21.
Ironically the governor’s efforts to eliminate the fiscal gap were largely driven to protect the state’s credit rating and the ability to attract big money. Unfortunately, the $2.7 billion deficit and insufficient global markets are clearly working against this alternative. So the China “solution” is born and is moving forward — providing the Legislature makes additional funds available for further planning. That is a big ask and how to pay for the additional planning is a pick your poison proposition. We can take more from the Permanent Fund, significantly increase taxes, sacrifice even more public services, repeal the generous oil tax breaks of SB 21, and/or spend down our dwindling savings even faster.
Perhaps the silver lining in our chronic fiscal deficit is a greater public awareness of SB 21. Indeed, SB 21 was needed and has merits, but there is an urgent need to eliminate the tax breaks that are unnecessarily bleeding the state’s treasury.
Given scale of the fiscal gap and lack of compromise to close it, promoting an economically marginal mega project (with long-term Chinese oversight), is both untimely and too costly. Better to have the governor and Sen. Kelly compromise on the fiscal gap first (including amendments to SB 21) and wait for our gas becomes fully profitable — which in time it will.
• Joe Mehrkens is a retired economist who splits time between Petersburg and Juneau.
