What about new oil and gas discoveries?
New oil and gas exploration and development – including oil produced offshore and on federal lands – may help fill the pipeline and create jobs, but will do less to fill the budget gap.
Oil found on federal lands won’t save us. There is huge potential for developing oil reserves on federal lands like ANWR [acronym tip] and NPR-A [acronym tip], but the state receives only 50% of the royalties from federal leases compared to oil produced on state lands. In the NPR-A, state law also requires that local communities receive first shot at federal royalties to cover the impact of development before the state can collect revenue.
Offshore oil won’t save us. A similar story: oil produced offshore on Alaska’s Outer Continental Shelf (OCS) will bring in only half the royalties if found more than 3 miles offshore and no royalties if found more than 6 miles offshore. Like oil produced on federal lands, offshore oil could create thousands of jobs, which would benefit Alaskan workers and the overall economy, but it will do less to balance the state budget.
Gas won’t save us. World gas prices are currently low, making it less likely that a natural gas pipeline will be built anytime soon. Even if a gas line is built, it won’t replace oil as the overwhelming source of state wealth. According to the Federal Coordinator for Alaska Natural Gas Transportation Projects, “We are never going to get rich off gas like we are off oil.” Due to its lower prices and higher production costs, natural gas is less profitable to the state than oil. There may still good reasons to seek a natural gas line. In addition to being part of the state’s fiscal solution, having a gas line could extend the life of the oil pipeline by improving oil company economics on the North Slope and spurring exploration for more gas that is likely to find more oil as well. ,
What about heavy oil? Alaska’s current wealth comes from conventional oil produced on state lands–mostly in Prudhoe Bay–but 80% of that oil has already been produced. Oil and gas experts believe that even the conventional oil that is left is more difficult to recover and more expensive to produce, which may mean the state will receive less revenue per barrel. With the right technology, unconventional sources like heavy oil may also be developed in time, but costs per barrel are expected to be higher and royalties will depend on tax rates the state sets on them.
- Scott Goldsmith, ISER, UAA. High Oil Prices Give Alaskans a Second Chance: How Will We Use this Opportunity?. September 2011.↵
- Pat Forgey, “Coordinator: Gas pipeline is possible.” Juneau Empire. Friday, Jan. 20, 2012.↵
- Lary Persily, “Myths – and the Truth – about Alaska’s Natural Gas Pipeline.” December 24, 2010.↵