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Renewables and Oil & Gas: A One-Two Punch for Alaska’s Energy Sector

Apr 30, 2021Magazine, Oil & Gas

In January, when the Biden administration announced its ban on the future sale of oil and gas leases on federal land, the news understandably ruffled the collective feathers of Alaska’s oil and gas industry. The announcement could be—and has often been—framed as a direct attack on one form of energy development in favor of another.

But a closer look at insights from parties in both the oil and gas and renewable energy sectors reveals that as far as Alaska is concerned, the two energy industries aren’t necessarily at odds. In fact, many industry experts agree that oil, natural gas, solar, hydro, geothermal, and tidal can all be developed in Alaska without one encroaching on the other’s economic importance to the state.

Combined, petroleum and renewables are a positive one-two punch for Alaskans, not ideologically opposed platforms locked in some industrial grudge-match. There are similarities between oil and gas and green energy as well as differences—all of which are necessary for the dynamic relationship to work in the first place.

Different Uses, Different Users

A misconception exists that implies fossil fuels and renewables are like oil and water (no pun intended). While it might be true elsewhere, this isn’t necessarily the case in Alaska. However, as the new presidential administration begins to establish domestic energy policies focused on more investments in green energy and less in federal lands for oil and gas use, the fear of Alaska’s petroleum sector being severely stifled has caused some headaches for industry stakeholders.

But for all the hype surrounding the green energy and fossil fuel debate, both platforms exist in the state to serve different functions; while oil and gas continue to bring in state revenue through royalties and a tax structure (not to mention money for Permanent Fund Dividends), green energy serves to keep more money in individual, utility-paying Alaskans’ pockets via energy efficiency savings. Less use of traditional energy sources like diesel (especially in rural Alaska) and more reliance on platforms like solar and wind mean lower long-term costs for consumers.

It’s important to remember that Alaska as a state does not directly consume the vast majority of oil extracted from the North Slope.

According to the US Energy Information Administration’s (EIA) profile on Alaska, about four-fifths of the oil produced in the state is shipped off to refineries in Washington and California. The other one-fifth of the state’s oil production is refined in Alaska and shipped to Hawaii or exported to international destinations. In other words, Alaska may not necessarily use most of the oil it produces, but the state earns revenue from taxes and royalties.

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Meanwhile, according to leaders from two of Alaska’s most prominent green energy advocates, renewable development in the state focuses on consumer energy savings for Alaskans and Alaska communities. Greener mediums meet microgrid demand, including some of the most rural areas of the state.

“Alaska is different in the sense that we’ve got small grids,” says Curtis Thayer, executive director of the Alaska Energy Authority (AEA). “Some are really, really tiny grids—even the Railbelt being a relatively small grid with some 550,000 people on it. Our transition is going to be different.”

Jobs, Jobs, Jobs

In the discussion of Alaska’s energy future, where does the contention lie between green energy and fossil fuels? In a word: jobs.

A nuance regarding rural Alaska communities is that while renewable energy savings may keep money in users’ pockets, many rural residents still rely on the oil and gas industry to provide households with that money to begin with, particularly through employment opportunities.

In fact, in a March forum hosted by the US Department of the Interior, Alaska Federation of Natives Executive Vice President and General Counsel Nicole Borromeo attested to the fact that while Arctic villages face climate change implications every day, oil and gas has remained a consistent source of income for residents there.

“Alaska Natives do not operate in an either/or space when it comes to the nation’s energy policy,” Borromeo said at the forum. “We favor both traditional and emerging forms because a combination of both best serves our state and our people.”

And since the aforementioned end uses and means of development differ greatly between fossil fuels and renewables, there is reason for Alaska’s oil and gas players to point out what is seen as a consequence of shutting down further exploration and development on federal lands: a net decline in overall Alaska employment.

A remote wilderness lodge near Silver Salmon Creek in Lake Clark National Park uses solar and wind power to provide electricity.

©Lawrence Weslowski Jr | Dreamstime.com

In a January press statement, Alaska Oil and Gas Association President and CEO Kara Moriarty commented on the Biden ban.

“This action will not aid in the administration’s worthy goal of creating more American jobs,” said Moriarty. “We strongly urge the Biden administration to revisit these recent decisions… and instead work with stakeholders in the spirit of cooperation and unity that he shared at the Inaugural Address. The oil and gas industry can be a strong partner with the federal government, Alaska Native communities and corporations, union members, and contractors to strengthen economies, provide for future generations, and create solutions to address the issue of climate change.”

Moriarty’s point about creating jobs is a resonant one, especially considering that between the two platforms the human labor required by oil and gas is far greater than that of renewables. And the oil and gas industry’s status as the lynchpin of Alaska’s economy can hardly be overstated: in the same press statement, AOGA stated that oil production accounts for one-fourth of all jobs in the state and provides more than $2 billion annually in revenue to state and local governments.

Arguments have been made for and against the concept of re-educating petroleum workers to prepare them for jobs in renewables. But Chris Rose, founder and executive director of the Renewable Energy Alaska Project (REAP), points out that the number of jobs needed for renewable projects tends to be far less than the amount of jobs needed to maintain a petroleum project.

“The oil and gas industry can be a strong partner with the federal government, Alaska Native communities and corporations, union members, and contractors to strengthen economies, provide for future generations, and create solutions to address the issue of climate change.”

—Kara Moriarty, President/CEO, Alaska Oil and Gas Association

“There are more resource extraction jobs that are associated with oil and gas and coal than there are with sun and wind because [with renewables] the ‘extraction’ takes place at the point at which you create the energy, rather than digging it up out of the ground and moving it—all the steps you have to get through to get the fuel to market… So it’s hard to compare. It’s like comparing apples to oranges.”

The US Geological Survey also estimates the ANWR coastal plain holds 10.4 billion barrels of crude oil. And Moriarty’s statement on the Biden administration’s moratorium on all federal activities related to oil and natural gas leasing in places like ANWR implies that many jobs would therefore be left on the table.

According to Corri Feige, commissioner of the Alaska Department of Natural Resources, the state is counting on new production from ConocoPhillips’ Willow and Greater Mooses Tooth 2 (GMT-2) projects in the 23 million acre National Petroleum Reserve-Alaska to help keep Alaska production stable at about 500,000 barrels per day. Feige believes that since these projects are already under construction, they appear unaffected by Biden’s order, an observation she expressed at a state legislative briefing in February.

A jack up rig in Katchemak Bay near Homer.

©Michele Cornelius | Dreamstime.com

This is crucial, as keeping oil production up in recent years has already been a major priority for the state and the industry—and that’s without factoring in the effects of the pandemic.

The EIA’s profile of the state says Alaska’s proven crude oil reserves at the beginning of 2020 were the fifth largest of any state. And while Alaska was among the top five oil producing states for many years, it dropped to sixth in 2019 when annual oil production dropped to 466,000 barrels per day, its lowest level since the late ‘70s. Historically low oil prices, an international price war, and operational challenges due to COVID-19 also hammered the oil and gas industry in 2020.

Liquefied natural gas (LNG) development has long been the subject of industrial and political discourse in Alaska. Because of its cleaner consumption properties, LNG is viewed as a transitional form of energy around the globe as the United States and the world shift toward renewables from fossil fuels.

“With the gas component, there’s always been a long-term desire to monetize that [in Alaska],” says Thayer. “And I think worldwide you’re seeing natural gas as a transition from oil to renewables. But as Alaska looks to transition to renewable fuels, it’s not necessarily something we can export. It’s not something that will pay dividends to the state to help support the state’s budget. What renewables will do is lower the cost of energy across Alaska.”

Those definite limitations to the scale of renewable development are why business community members like Moriarty and Borromeo emphasize the notion that Alaska should remain a viable location to petroleum companies for continued investments.

Making It All Work Together

Xuan Yong, CEO of Austin-based energy workforce management firm Workrise, puts it like this: “Biden or no Biden, the energy transition was well underway before he won. At the same time, we can’t abandon oil and gas.”

As a market, Alaska illustrates Yong’s point perfectly. According to the EIA, harsh winters and an oil and gas industry already steeped in energy-intensive operations mean that Alaska’s per capita energy consumption is the fourth highest in the nation after Wyoming, Louisiana, and North Dakota. Furthermore, Alaska ranks eleventh among states with the lowest total petroleum demand, but it has the third-highest per capita petroleum consumption. However, one should not expect renewables to eclipse oil and gas based on market demand.

In essence, while the oil and gas organizations continue to bolster the industry that fills state coffers, renewable capabilities are helping mitigate high in-state energy costs. So when those Permanent Fund Dividends come in each year, Alaskans can keep a little extra disposable income while still reaping the benefits of an oil and gas industry that continues to pursue a healthy future for the state’s economy.

Despite the fact that more energy companies are trending toward the development of renewable programs to compete in green energy markets, Alaska doesn’t possess the type of grid to see those types of substantial corporate investments. Rose points to BP and Shell as energy companies who have branched out into renewables from traditional oil and gas.

However, he is also quick to point out that neither company still has a presence in Alaska. Accordingly, Alaska’s energy economy relies on differently sized business entities making distinct investments; depending on scale, larger corporations can still capitalize on oil and gas in Alaska while locally based initiatives are more appropriate for addressing renewable development.

Rose and Thayer both agree that at least in this state, renewable energy investments will likely be made by smaller, entrepreneurial-minded, and (most importantly) Alaska-based entities. These independent power producers take on the task of producing green energy at the source (wind, solar, hydro, geothermal) and sell that energy to utility companies that serve places like the Railbelt grid.

And work is being done behind the scenes to level the playing field across Railbelt markets, which Rose says will encourage more investments and competition within the state.

“Industry doesn’t like a bunch of different rules. Industry likes certainty and they like to understand what the rules of the game are. So having one set of interconnection standards for up and down the Railbelt will hopefully incentivize more companies to get involved.”

Solar panels are installed and commissioned on a private residence.

©Awargula | Dreamstime.com

That sense of security and industry stability is a sentiment echoed in Alaska’s oil and gas community. Numerous efforts to propose a new tax structure for companies exploring and producing on the North Slope have been consistently met with staunch opposition from a large variety of Alaska businesses. These organizations all agree that a fluctuating fiscal policy from the state makes it increasingly difficult for oil and gas companies to invest in a remote region where development costs are already significant.

In the meantime, Alaska markets far removed from oil and gas development have been able to leverage renewable energy to cut usage costs, which can be helpful as the dialogue surrounding oil development further north continues.

“When you look at the portfolio of where we receive our power now, the state as a whole is around 28 percent renewable,” says Thayer. “And it’s slowly picked up for the last ten years… In that time, you had Kodiak go almost 100 percent renewable. You have Prince of Wales Island with the new hydro project that we helped finance, which is now going to be 100 percent renewable.”

In essence, while oil and gas organizations continue to bolster the industry that fills state coffers, renewable capabilities are helping mitigate high in-state energy costs. So when those Permanent Fund Dividends come rolling in year after year, Alaskans can take solace in a little extra disposable income while still reaping the benefits of an oil and gas industry that continues to pursue a healthy future for the state’s economy.

“With the gas component, there’s always been a long-term desire to monetize that [in Alaska]. And I think worldwide you’re seeing natural gas as a transition from oil to renewables. But as Alaska looks to transition to renewable fuels, it’s not necessarily something we can export. It’s not something that will pay dividends to the state to help support the state’s budget. What renewables will do is lower the cost of energy across Alaska.”

—Curtis Thayer, Executive Director, Alaska Energy Authority

Enjoy this story? Check out other in-depth articles in our May 2021 Digital Edition.

Alaska Business Magazine September 2021 Cover

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