Arctic oil and gas activity essential to building Alaska’s future

Alaska received a C-minus for the general condition of its infrastructure on its most recent report card from the American Society of Civil Engineers, and even lower grades for the shape of its ports, marine highways and other facilities.

 

The report highlights one of the biggest challenges facing state leaders grabbling to close a nearly $3 billion budget deficit — how to rebuild the economy while simultaneously reducing government outlays.

The mediocre marks are doubly troubling given the essential role of infrastructure in providing a strong foundation for economic growth. In the Arctic — a region quickly emerging as a new theater of economic importance — the report underscores the near lack of infrastructure altogether.

It’s an open question where the funding will come from to rehabilitate and replace aging infrastructure, while also underwriting the deep-water ports, bridges, roads, pipelines, telecommunications, schools, water treatment facilities and other infrastructure necessary to support an emerging Arctic.

Legislators, already tied up in knots over proposals to increase taxes on the oil industry as well as on individual Alaskans, show little appetite for major capital expenditures. Federal coffers are a potential source — particularly if President Trump can be convinced of the national economic and security benefits of greater engagement in the Arctic — but Congress, which holds the purse strings, is more fractured then ever over spending priorities.

Alaska’s best chance is the same vast endowment of natural resource wealth it has relied on in the past. While any number of industries stand to benefit from a more accessible Arctic — maritime shipping, telecommunications, tourism — only the oil and gas sector has the wherewithal to underwrite infrastructure investments on a scale equal to the needs of the region.

Joy Baker, director of the Port of Nome, testified at a recent hearing in Washington, D.C. that construction of a deep-water port — price tag $210 million — in the former gold rush town would allow it to realize employment and economic benefits from increased commercial activity in the Bering Strait while boosting the region’s first-responder and spill-response capabilities.

Unfortunately, the Obama administration’s ban on oil and gas activity across almost the entirety of federal waters in the Arctic removed one of the most effective catalysts for private-sector investment.

President Trump’s commitment to traditional energy production may in time undo the harm done to Alaska’s competitiveness — an effort to reinsert Alaska waters in a revised five-year leasing plan is already underway — but the investment climate remains challenged by the tactics of environmental activists and the uncertainty caused by the state’s ever-changing tax regime.

What’s been lost is significant. According to a February report from the Alliance for Innovation and Infrastructure, restoring access to the Beaufort and Chukchi seas’ estimated 24 billion barrels of oil and 104 trillion cubic feet of gas could spark up to $6.3 billion in infrastructure spending and provide $19 billion in revenue to local governments.

The Alaska we know today was built from such investments. Today, a new generation of companies has rolled the dice on projects from Cook Inlet to Smith Bay. Investments by Hilcorp, Caelus, Furie and others are leading to fresh discoveries and breathing new life into aging fields.

Despite the policies of the previous administration, projects like Liberty in the near-shore waters of the Beaufort Sea could deliver significant investment in the near-term.

Exploration and production, like any endeavor, carries a degree of risk. On balance, though, the oil and gas industry has racked up an impressive record of operational safety and provided three generations of Alaskans with opportunities and rising living standards.

Those who argue we would be better off without the oil industry ignore the transformational benefits oil has delivered across the state, and have not offered a viable replacement for the jobs and revenue the industry supports.

Without significant new investment, it’s unlikely the state will be able to address the cracks in its infrastructure, let alone provide the level of services and standard of living the people of the Arctic deserve. If that’s allowed to happen, Alaska’s next report card could be even worse.


• Robert Dillon is vice president of communications for the American Council for Capital Formation, a pro-growth economic think tank based in Washington, D.C., and the former communications director of the U.S. Senate Energy and Natural Resources Committee.


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