Anchorage Daily News, June 5, 2005, p. F-2
(Accessed June 5, 2005 at: http://www.adn.com/opinion/story/6573009p-6456173c.html )
Healthy oil profits
Fineberg report should generate plenty of Alaska debate
There's nothing in the world wrong with the oil industry making healthy profits from its operations in Alaska. A healthy industry is good for Alaska and Alaskans. What's more troubling is the question of whether Alaska is getting its fair share too.
That's why the findings of researcher Richard Fineberg in a study of North Slope oil company profits for the Regional Citizens Advisory Council for Prince William Sound should capture public and legislative attention. The oil industry made $5.5 billion in profits off publicly owned oil and gas resources on the North Slope last year, while the state took in $2.8 billion and the federal government $1.9 billion.
There are many implications for what is clearly a highly profitable industry in partnership with what is also a highly wealthy state. Remember: That oil belongs to Alaskans.
Start with the environment and the reasons RCAC commissioned this study: RCAC wants to stop any slippage of safety measures in the Sound as production through the trans-Alaska oil pipeline slowly declines. "This report indicates the industry can easily afford to do things right in the Sound, as we've always maintained," said John Devens, RCAC executive director. "Alaskans don't need to worry that asking the industry to protect our environment will drive it out of the state."
That is and always has been true. Oil transportation through Prince William Sound is among the safest in the world, thanks largely to improvements made since the 1989 Exxon Valdez oil spill. The state and the industry can afford to make sure it stays that way.
There is also the political: The industry has both the means and the interest to invest heavily in political influence -- through lobbying, through public relations, through business partnerships, even through charitable contributions and community-building efforts. These activities too are healthy and appropriate -- so long as Alaska policy-makers keep in mind their limits and separate carefully those areas where the industry's interests overlap with Alaskans' from those where they do not.
Here it's at least worth noting that it was the RCAC, not the Alaska Legislature, that forced open one of the most important issues in Alaska public policy. This is valuable information; the Legislature should be gathering, discussing and using it.
And there is the economic question: Does Alaska get its proper share from resources owned by Alaskans? The answer to that currently rides on oil prices -- and raises a long-standing policy issue. Alaska's oil and gas tax regime is structured to take a much higher portion at low prices than at high ones. A better system would give the state a bigger share of both the downside risk of low prices and the upside reward of high ones. (The numbers in the Fineberg report were generated from pre-2005 data but would be even more skewed toward the industry if this year's soaring oil prices were included.) In 1998, according to the study, when oil prices averaged $12.55 a barrel, the state took in $1.4 billion while the industry took in about $825 million. By 2004, oil prices had roughly tripled, state revenue had doubled and industry profits had increased sevenfold.
This is an old and important economic question in Alaska. Since at least the days of the Russian fur traders, Alaska's economic problem has been not only producing wealth but keeping a decent part of it.
That has long been the nature of resource development: Fur, fish, gold, copper, timber and now oil all illustrate the dangers. Wealth that leaves Alaska in the form of resource value rarely returns in the form of economic diversity, human development, industrial opportunity, new sources of knowledge or even protection from the harm done by resource extraction.
It's up to Alaskans, not outside corporations and industries, to find ways to move ourselves up the economic food chain. There is still plenty of money being generated in Alaska; the challenge is turning it into lasting wealth for Alaskans – as it is already doing, happily, for Outside companies and their shareholders. That's why the Fineberg report is worth reading, why RCAC did us all a service in procuring it and why Alaskans should contemplate its implications.
BOTTOM LINE: The question of fair shares of revenue for Alaska's oil is worth debate. The Fineberg report will help.