Consulting the Crystal Ball: Alaska’s Fossil Fuel Future


Forecasting the future is a chancy business; Dr. Mike Rice demonstrated a long time ago that the best predictor for commodity prices like crude oil was the Drunkard’s Walk, a statistically random path. But when there are external forces in play, things may not be quite as random, or the future quite so unknowable.

Let’s assume the price of crude oil stays below $60 per barrel through calendar year 2020. It seems extremely likely, with the Saudis not inclined to play supply-side games, and with Iran re-entering the market. A number of national economies – Venezuela and Russia, to name just two – are heavily dependent on crude oil sales at relatively low prices. With that assumption, Alaska’s crude oil-dependent economy will be a long time recovering from its present recession.

Let’s assume, too, that the overwhelming majority of climatologists are right, and that anthropogenic climate change is as real as a heart attack and even more serious. If that assumption is right, there will come a point, possibly as early as 2020, when even the U.S. Congress can’t pretend any more.1 And that as a consequence of that belated realization, a serious shift away from fossil fuels will begin. Perhaps a carbon tax, perhaps restrictions on CO2 emissions; perhaps both. The effect will be to consciously, intentionally depress demand for crude oil. And with reduced demand will come lower, or at least flat, prices. Forever, or at least for the next few centuries.

In that likely future, exactly how is Alaska’s crude oil-based economy going to recover? Why would oil companies have any inclination to drill on the North Slope? How will new crude oil be found to keep the Trans-Alaska Pipeline operating? And without the Trans-Alaska Pipeline, how can Alaska’s oil-based economy survive?

Let’s suppose that Congress remains bullheadly stupid for longer than 2020. Let’s suppose it isn’t until high tide is splashing against the Washington Monument in, say, 2040, that Congress wakes up to reality. Might that give crude oil prices a chance to recover? Who knows. But we do know that the North Slope is a very expensive place to explore for and develop crude oil. It won’t be the first oil-producing region to see increased exploration. WC’s point is that the fossil fuel industry will be taxed, and CO2, directly or indirectly, will be regulated. And that means there will never be a time when oil prices are $100 a barrel again (at least not in 2016 dollars).

Never mind the irony that global warming impacts the arctic and subarctic first and hardest. Never mind that the greatest victim of crude-oil based CO2 emissions is Alaska itself. Set aside the self-destructive character of a fossil fuel economy on Alaska.

WC offers as a conclusion that oil prices are never going to recover. That it is probable – not possible, probable – that crude oil prices below $50 a barrel are the new reality.

What is the Alaska Legislature doing in preparation for this new reality?

Spending down Alaska’s budget reserves waiting for oil prices to recover, of course. The Alaska Dispatch News reports,

The senators, at a Tuesday morning news conference, said the tax proposals may not be necessary. Instead, they plan to wait for a rise in the rock-bottom price of oil — taxes and revenues from which have long paid for the vast majority of state services.

Ain’t gonna happen.

 


  1. WC appreciates that Senator Mario Rubio (R, Florida and Denial) is a climate change denier, even as ocean level rise floods the State of Florida. WC expects that the Senators Rubio and Imhofe of the Congress will either be struck by metaphoric lightning on the road to Damascus, or will have been replaced by politicians who are better in touch with reality. 
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