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Nolan Willis: One right step at a time to secure our natural gas supply

By NOLAN WILLIS

Having lived in Alaska most of my life, I have observed over many years that most of our problems are easily solvable, but we can't seem to get out of our own troubles. A classic example is the looming gas shortage in Cook Inlet.

According to a July 12, 2011, United States Geological Society report on undiscovered oil and gas reserves, Cook Inlet contains an estimated 19 trillion cubic feet of undiscovered (untapped) natural gas—enough to last about 270 years at current consumption rates (70 billion cubic feet per year).

If only proven reserves are considered, a 2022 Cook Inlet Gas Forecast from the Department of Natural Resources suggests that an estimated 820 billion cubic feet is relatively easy to reach – enough to last about a decade. We just need to drill holes in the right places to reach it. Some producers, like Furie Alaska, have enough gas to meet our needs for the next few years, but they lack the capital to reach it.

Why can't we produce more gas? First, our royalty rates have not been consistent over the past few decades. In one particularly egregious case, the state initially granted tax credits to encourage development in Cook Inlet, only to revoke them when development was well underway because the state needed (or wanted) more revenue.

This bait and switch tactic, combined with some land, lease and resource boundary disputes, led to a bankruptcy (Buccaneer) and severe financial stress for producers, hampered drilling efforts, and signaled to all potential producers that Alaska is not good for business. In addition, misguided environmental targets and ESG (environmental, social, governance) influences have limited bank lending to oil and gas producers out of concern for the environment.

In addition, the state of Alaska has its own plans to build a multi-billion dollar pipeline from the North Slope to South Central Alaska. If this project were to go ahead, most of the investments in Cook Inlet would be nearly worthless in the long run.

All of the above and many other problems have created a climate of business uncertainty and excessive risk, where no one is willing to commit the capital needed to start more drilling. The safest bet for producers is to do nothing until things get really bad, because then they can charge more for producing less gas with minimal risk to their own interests.

If we want to have secure access to Cook Inlet's gas resources, our state must fully support gas production and not push our industries around based on “whatever is convenient or popular.” The need for reliable support is even greater when supplies are limited and investment capital is constrained by ESG policies. Without consistent support, local supplies will fail, and that's not good for Alaskans. Producers will move elsewhere and consumers will be stuck in the situation we created, and no one can blame us but everyone else.

I know that many today oppose oil and gas development on principle or out of concern for climate change. However, if reducing emissions is the main goal for some, neglecting Cook Inlet so that its production dries up will do more harm than good. For the foreseeable future, every urban resident in Alaska will see their carbon footprint increase, as will their heating and electricity bills, as foreign gas must be imported from Mexico or Canada to make up for the supply deficit.

Importing LPG from other countries uses more energy and carbon and is more expensive than locally produced gas. Alaska is going down this path because we are not being strategic. Not only will we consumers be paying more for our energy supply to line the pockets of people out of state instead of supporting local jobs, but we will also be emitting more carbon dioxide and methane into the atmosphere in the process.

In other words, the impending supply shortage and the economic hardships that come with it will not bring any environmental benefits, no matter how some people feel about oil and gas production. It's like going on a strict diet that makes you hungry and grumpy, and then doing an intense, exhausting exercise program that only leads to weight gain – a miserable and pointless endeavor.

Here's a suggestion for the next path – an idea for consideration. We should bypass the ESG-tied banking cartel and allocate about $5 billion from the Permanent Fund or another government money source to a Cook Inlet Resource Development Fund. Then we solicit development proposals from private companies that compete on the basis of gas production from Cook Inlet. Then we provide the money as capital to get gas production activities underway. Instead of requiring loan repayment in fixed installments with interest, we treat this as an investment in which Alaskans are permanent shareholders. Have each MCF of Cook Inlet natural gas produced contribute a dollar value (e.g., $3/MCF, adjusted annually for inflation) back to the Development Fund, and eliminate all other royalties that gas producers would normally have to pay when producing gas from Cook Inlet.

The existing statutory royalties and taxes are worthless to Alaskans if the gas cannot be produced at all. We must be forward-thinking enough to understand this, as well as the fact that energy insecurity and high costs threaten the economic well-being and prospects of all Alaskans – including those living outside the rail belt. If a successful gas production costs $2 billion from the proposed fund, the payback period would be about a decade, and after that a fund full of money would be available for future production when gas wells run dry or when significant investments must be made to prevent something bad from happening. Under current circumstances, revenues from production will dry up, and after that there will be nothing left but pain and suffering.

Obviously, I'm presenting a simplified and potentially controversial idea here, and there are still many details to be worked out. The point is that there are solutions to our problems if we simply take some responsibility. None of us want to see our suffering economy wither and die, but that is the most likely outcome given our current trajectory, which is the result of passivity and short-sighted decisions.

In the long term, we need to think seriously about nuclear energy to reduce our emissions and ensure long-term energy security. Europe and the rest of the developed world rely heavily on nuclear energy, so I am a big supporter of it. But reality demands that we solve the problem in front of us first, because that is the solvable problem that is within our reach.

A wise person once told me: If you don't know what to do, just take the next right step. That's what I tell my kids when they're overwhelmed with decision-making. We need to take the next right, incremental step, and for us Alaskans, that means securing our gas supply to keep our existing heat and power infrastructure running while we develop a long-term plan for cleaner energy.

Next, we can get that alternative energy supply done, but we're not going to get a chance to do that if we're struggling to power our businesses, our homes, our families while a lot of people and businesses are leaving this great state.

Nolan Willis is a native Alaskan, commercial fisherman in Bristol Bay, electrical engineer by training, and current chair of the Institute of Electrical and Electronics Engineering, Alaska Section. His professional experience spans the utilities, energy, communications, and nuclear marine propulsion sectors.

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