My turn: Alaska: The envy of the world

Posted: Thursday, December 06, 2007

Alaska has its financial house in order and our social systems intact. And I will maintain below, our prospects for the future look bright indeed.

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I have read with interest the continuous discussions regarding the projected future of Alaska's oil revenue income and economic status. I felt most articles were not correctly characterizing Alaska's tremendous strengths and overstating perceived weakness.

The constant worrying, that Alaska is either about to run out of oil, or that oil prices are about to plummet, or the taxes are too high on the oil companies, are not based on the realities of either Alaska's oil and gas reserves, or the world oil situation.

The ideas that we will soon be on the ropes financially, from diminishing oil production, or a recession in the rest of the United States, is more sentiment than fact, and does not reflect reality for the reasons I will put forth below. I am not an economist, or an oil expert. But I am a Canadian Resource stock trader, and investor, and specialize in said resource markets. I have been doing so, off and on, for more than 25 years. I now make most of my living as a trader or investor in these markets.

First, regarding prices: Many of the best oil traders in the world and most notably T Boon Pickens believe we have reached "peak oil" i.e. not enough supply to meet demand. Many think the large Saudi oil fields are in decline. And most traders believe we are more likely to see $200 oil than $20 oil. I would put the floor for oil at about $50 to $60 (and rising) based on future supply and demand.

Paradigm shift: There seem to be few, if any, large, easy-to-produce oil fields left. None have been found in 40 years. This means the new oil will increasingly need to come from places like Alaska's huge heavy oil reserves which are estimated to contain 100 billion barrels (five times the size of Prudhoe Bay). World prices for oil going forward will prove heavy oil economically viable, and indeed essential.

So what is Alaska's competition? Venezuela has huge heavy oil deposits (but is politically unstable). Alberta has the largest oil deposit in the world in its oil sands (but expensive to produce, capital intensive and long lead times). There is a lot of drilling in very deep water (miles down), but very expensive and shows the limited oil targets. And most of the rest of the oil in the world is in politically unstable and legally unreliable countries. Alaska has laws the industry can depend on.

And Alaska has another huge advantage over other heavy oil deposits. We have infrastructure in place, and unlimited energy (the entire north slope is saturated with natural gas) to get the heavy oil out. Which means oil will be flowing very economically through the Alaska oil pipeline for the rest of our lives.

Some will say heavy oil is expensive to extract. Yes, but $60-plus oil mitigates that problem. And whereas just a few years ago one could only expect to get around 6 percent of the heavy oil out of the ground, with new technology they are getting as much as 40 percent out. And the 40 percent figure is only likely to increase with new technology.

Now for the kicker. There is also projected to be, as much, or more, than 200 trillion cubic feet of natural gas on the North Slope, and add to that the fact there may be as much as one quadrillion cubic feet of gas hydrates and coal bed methane in the North Slope and offshore continental shelf.

And do not worry about the oil companies leaving Alaska or investing less because of the recent tiny tax increase. They are going nowhere, and are only going to increase their investments in Alaska by huge amounts.

All things considered, there is simply no better place on earth to go for oil and gas than Alaska's North Slope.

• Chuck Ramage is a Juneau resident.

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