‘An Abrupt Wake-Up Call’: Alaska Peers into a Future Without Oil

Yereth Rosen June 18, 2020

This pullout offers tourists a closer look at the Trans Alaska Pipeline. Since before the pipeline began operating in 1977, Alaska has depended on oil revenue.

Siqiniq Maupin, a young Inu­pi­at moth­er and activist try­ing to help steer Alas­ka away from its fos­sil-fuel depen­den­cy, is con­vinced that the coro­n­avirus pan­dem­ic will be a turn­ing point. Oil prices have cratered, the indus­try has shed hun­dreds of jobs and the usu­al flow of oil mon­ey has dried up, sig­nal­ing the urgent need for a Plan B,” she said.

Per­son­al­ly, I think this is absolute­ly the end of the oil era, and I think this is going to be an abrupt wake-up call for peo­ple,” she said in a phone inter­view from her Fair­banks home.

Though a harsh crit­ic of oil devel­op­ment, Maupin acknowl­edges that oil mon­ey brought impor­tant improve­ments to rur­al Alaskans’ lives, like run­ning water and flush toi­lets. It’s nice to have the neces­si­ties,” she said.

But oil mon­ey came with costs. For her fam­i­ly mem­bers and oth­ers liv­ing on the North Slope, the coro­n­avirus pan­dem­ic has put those costs into stark relief, she said.

For years, she explained, Inu­pi­at-owned cor­po­ra­tions made mon­ey from oil devel­op­ment, enabling them to dis­trib­ute hefty share­hold­er div­i­dends that blunt­ed the stick­er shock for peo­ple buy­ing high-priced food in vil­lage stores. Indige­nous peo­ple of the North Slope could afford to drop some of their reliance on tra­di­tion­al wild foods like cari­bou meat and fish.

Now that the mon­ey has got­ten scarce, many peo­ple have begun to return to more tra­di­tion­al diets ― and been forced to con­front the habi­tat dam­age wrought by decades of oil devel­op­ment, Maupin said.

In the North Slope vil­lage of Nuiq­sut, where some of Maupin’s fam­i­ly mem­bers live, oil devel­op­ment has edged up almost to Nuiqsut’s doorstep, bring­ing dust, hazy pol­lu­tion, indus­tri­al noise and bright lights to the vil­lage. You can’t real­ly escape it,” she said. Gath­er­ing tra­di­tion­al food is now more dif­fi­cult and time-con­sum­ing, she said; cari­bou that used to roam in easy reach near­by, for exam­ple, have now fled to dis­tant areas. And the in-your-face pres­ence of indus­try is stress­ful, she said: It takes away that med­i­cine that we’re look­ing for when we go out on the land to hunt.”

In many ways, the dilem­ma fac­ing Maupin’s rel­a­tives and friends sym­bol­izes the chal­lenge fac­ing Alas­ka as a whole.

For decades, oil mon­ey car­ried Alas­ka. That was by design. The state con­sti­tu­tion, draft­ed in the 1950s ter­ri­to­r­i­al era, and the sub­se­quent fed­er­al law that grant­ed state­hood, struc­tured a sys­tem of com­mon pub­lic own­er­ship of all nat­ur­al resources, includ­ing oil. Almost every bar­rel of oil ever pro­duced in the state has come from state lands and state-owned min­er­al rights. In Alas­ka, there is no pri­vate indi­vid­ual own­er­ship of min­er­al rights; there are no Texas-style oil barons. Some his­to­ri­ans insist that the pres­ence of oil in the far north con­vinced Con­gress that Alas­ka had the where­with­al to sup­port itself as the 49th state.

For a long time, the sys­tem worked more or less as many envi­sioned. Oil roy­al­ties, tax­es and fees flowed into the state trea­sury and paid for near­ly all gov­ern­ment oper­a­tions, includ­ing mass-scale mod­ern­iza­tions and ser­vices new to Alas­ka but tak­en for grant­ed in the Low­er 48. Oil devel­op­ment spurred the 1971 Alas­ka Native Claims Set­tle­ment Act, cre­at­ing mon­ey-mak­ing cor­po­ra­tions that lift­ed many Alas­ka Natives out of pover­ty. Oil employ­ment, though always far less impor­tant than state oil rev­enues, was a sig­nif­i­cant part of the pri­vate-sec­tor econ­o­my. In many ways, oil mon­ey built mod­ern Alaska.

But the all-eggs-in-one-bas­ket approach car­ried risks, experts have long warned.

Among the pre­scient observers was Inu­pi­at leader Eben Hop­son, the first may­or of the North Slope Bor­ough, the region­al gov­ern­ment cre­at­ed in 1972. Even before con­struc­tion start­ed on the Trans Alas­ka Pipeline, he warned of the down­sides of oil mon­ey – skewed val­ues and an unhealthy depen­dence, includ­ing among Alaska’s indige­nous peo­ples. The pol­i­tics of the Arc­tic are no longer the pol­i­tics of the peo­ple, but they are the pol­i­tics of oil,” Hop­son said in 1970 speech to a Cana­di­an com­mis­sion con­sid­er­ing Arc­tic off­shore drilling. Oil boom pol­i­tics are addictive.”

Oth­ers, also warn­ing about the tran­si­to­ry nature of oil fields and oil mon­ey, pushed for the state to save some of its new­found boun­ty. Just before the first bar­rel was sent down the Trans Alas­ka Pipeline in 1977, the state cre­at­ed the Alas­ka Per­ma­nent Fund to sequester a quar­ter of roy­al­ties and lease pay­ments for use in a dis­tant post-oil-mon­ey future.

That future may have arrived. Alas­ka, once the top oil-pro­duc­ing U.S. state, had slipped out of the top five by 2018. The Alas­ka Per­ma­nent Fund, famous for its annu­al div­i­dends paid out to all Alaskans, is now the major mon­ey source bankrolling most of state gov­ern­ment oper­a­tions. Oil’s con­tri­bu­tion to total state rev­enues, which sat at 90 per­cent just a few years ago, has plunged as pro­duc­tion declined and North Slope crude prices bot­tomed out below $10 a bar­rel in late April.

It’s gone down to 20 per­cent, and if we’re at $10-a-bar­rel (oil) now, it’s way less than 20 per­cent,” said Pat Pit­ney, a leg­isla­tive bud­get ana­lyst who served as bud­get direc­tor for for­mer Gov. Bill Walker.

The shift from reliance on oil rev­enues to reliance on invest­ment earn­ings actu­al­ly began a few years ago. Alas­ka oil pro­duc­tion was on a decades-long decline, the inevitable real­i­ty for oil fields as they age. But the coro­n­avirus pan­dem­ic, which depressed oil prices and cre­at­ed oth­er oper­a­tional prob­lems for remote work sites like the North Slope oil fields, pushed that long-term decline into a steep plunge. As a Hem­ing­way char­ac­ter put it in response to the ques­tion of how he went bank­rupt, two ways: grad­u­al­ly, then suddenly.”

Com­pa­nies oper­at­ing on the North Slope have slashed oper­a­tions to main­te­nance lev­els, moth­balled drill rigs, halt­ed explo­ration and devel­op­ment pro­grams and issued lay­off notices to sev­er­al hun­dred work­ers. Cono­coPhillips, the state’s top pro­duc­er, announced plans to cut sum­mer pro­duc­tion by 100,000 bar­rels a day. Alas­ka oil pro­duc­tion peaked in 1988 at 2 mil­lion bar­rels per day but has dropped to around 400,000 bar­rels per day.

The cur­rent oil-field shock has cre­at­ed an imme­di­ate fis­cal emer­gency for the state: a $1 bil­lion hole in the state’s $5 bil­lion bud­get, Pit­ney said. How do you make up a bil­lion dol­lars?” she asked. A state income tax would have been a par­tial answer, but Alas­ka in the heady oil-mon­ey days of 1980 abol­ished its income tax.

Are Alaska’s days as a pet­rostate over? Pit­ney believes that Alas­ka will pro­duce oil for years to come, gen­er­at­ing some state rev­enue and employ­ment, but the scope will be noth­ing like it was in the past. Oil’s nev­er going to be the sav­ior that it was for the last 35 years,” she said.

Indus­try rep­re­sen­ta­tives who tes­ti­fied at a May 8 tele­con­fer­ence leg­isla­tive hear­ing echoed pre­dic­tions of a per­ma­nent­ly shrunk­en Alas­ka oil sec­tor. They asked for state gov­ern­ment help, pos­si­bly in the form of tax pol­i­cy or reg­u­la­to­ry relief, to sur­vive a post-pan­dem­ic future that they said might be dom­i­nat­ed by cheap­er ener­gy sources.

We know that this demand sit­u­a­tion and hope­ful­ly the price sit­u­a­tion will not last for­ev­er,” said Kara Mori­ar­ty, exec­u­tive direc­tor of the Alas­ka Oil and Gas Asso­ci­a­tion, told law­mak­ers. As we come out of this, a more com­pet­i­tive land­scape than ever before is expect­ed to emerge.” In short: Alas­ka oil will have a hard­er time get­ting invest­ment or space in the mar­ket unless there is some help from the state government.

Due to its high costs and remote Arc­tic set­ting, Alas­ka was los­ing out to com­peti­tors even before the pan­dem­ic, said Dami­an Bil­bao, a vice pres­i­dent for BP Alas­ka, the com­pa­ny that oper­ates the super­giant Prud­hoe Bay field. The decline in Alas­ka pro­duc­tion dur­ing the ear­ly 2000s seems to have led sev­er­al West Coast refiner­ies to invest in prepa­ra­tion for oth­er sources of oil,” Bil­bao told lawmakers.

BP itself is head­ing for the exit. After 60 years in Alas­ka, the oil giant is sell­ing its assets here to the much small­er, pri­vate­ly held Hilcorp Ener­gy Com­pa­ny. If the deal goes through as planned, Hilcorp will run a dra­mat­i­cal­ly stream­lined Alas­ka oper­a­tion, with hun­dreds few­er employ­ees and oth­er changes. The tall BP office build­ing, a land­mark loom­ing over mid­town Anchor­age, could stand large­ly emp­ty after the sale goes through. Hilcorp, the company’s top Alas­ka exec­u­tive told law­mak­ers in Feb­ru­ary, has no plans to move into it.

Yereth Rosen is a long­time reporter based in Alaska.
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