Resource Development Council for Alaska, Inc.
 
 
The Politics of the Economy

Speech by Marc Langland, Chairman and CEO, Northrim Bank Speech

Given December 8, 2009, as provided to RDC

I spent several weeks last month at investor conferences on the east and west coasts talking about the national economy, Alaska’s economy and Northrim’s value as an investment. I spoke with hundreds of bank executives and directors about the financial crisis, the impact on our national economy, and the direction the U.S. government is taking – which is likely to result in more regulation, higher costs, and higher taxes, not just for my industry but for the entire business community.

I also talked with many bankers whose state economies are in real trouble, with high unemployment, plant shutdowns, massive foreclosures, state and local budget deficits and no sure path to a better future.

It makes me glad to be in Alaska, where we are blessed with abundant natural resources. Oil and gas in particular support one-third of the jobs in our state and almost all of our state government budget. However, I continue to be frustrated that in Alaska, we have the key to economic prosperity in our hands and we’re not using it. The biggest risk to our economic future is a lack of leadership by our elected officials.

Alaska is going to be a resource based economy for many generations. Without oil and gas, we just don’t have the ability to have a vibrant long term economy here. The resource industry is global and Alaska must change its approach to compete. We need to understand that investments in Alaska’s future are not measured in the life of an administration or of a political campaign, but in years and decades.

Alaska is already a high-cost, high-risk place to do business – the climate, lack of infrastructure, high shipping costs, distance from the market and higher labor costs already make it hard for us to compete for capital in a global economy.

We should have state policies that recognize and mitigate the higher costs and risks of doing business in Alaska to ensure that Alaska can compete for capital in the global market. Instead, we had an administration and a legislature that looked at a spike in oil prices and oil company profits, and got greedy. With ACES, Alaska’s government took all of the upside out of the equation for global companies who can risk their capital in other parts of the world for the opportunity to earn a better reward. We’re not going to get our resources to market without huge investment by private industry – we don’t have the skill and we certainly don’t have the political will to take the risks these companies take every day.

It’s in everyone’s interest to get more oil and gas out of the ground and more oil into the pipeline. If we don’t there will soon be nothing to tax, no 12-1/2% royalty share for Alaska, no business investment, no high-paying jobs for Alaskans and no Permanent Fund dividends.

We know there are significant petroleum resources yet to be produced and discovered in Alaska – so why does production continue to decline? It’s because we cannot attract the level of private sector investment we need to produce the heavy oil, drill exploration wells to find more oil and gas on state land, and build a pipeline to take our gas to market.

We are running out of time, considering the long lead time for investment. The investment decisions for projects five and ten years down the road are being made in company boardrooms today.

Those investment decisions are very different for a global oil and gas company than they are for a regulated pipeline operator who gets a guaranteed rate of return. For the regulated pipeline operator, there is less upside potential, but no downside risk. For a global oil and gas company, every dollar invested may result in a dry hole that returns nothing, or another Prudhoe Bay. Oil price swings can cause huge losses in some years and record profits in others. For Alaska’s gas to compete in a global market, we need to encourage these companies to make the shipping commitments that underpin investments in finding and producing gas – and building the most expensive pipeline project in the world.

It’s clear what changes need to be made to AGIA – the companies who will commit gas in the open season, and even the pipeline builder TransCanada, have outlined those changes in testimony to the legislature. The time to make those changes is now, not after a failed open season.

It’s going to take strong leadership that is focused on maximizing private investment in Alaska. Our legislature needs to make changes now to ACES and AGIA that will better align the interests of state government, Alaska’s citizens and private industry. With the current ACES and AGIA framework, state government wins in the short term but Alaska’s citizens lose in the long term when we fail to attract the private investment to support our jobs and our families in the future.

The global and national economy are very different than they were three years ago when ACES and AGIA passed the legislature. Many legislators who voted for ACES and AGIA, some despite serious concerns about their impact, now have the opportunity and the responsibility to change these laws to keep Alaska’s economy strong. Some have said that fiscal stability is more important than having the right policy – but in today’s global economy, we can’t afford to stick with bad policy.

So let’s ask ourselves some questions: As they are written today, do ACES and AGIA meet the test of basic Economics 101? Do those laws encourage private industry investment in Alaska? Will they result in more, or less, oil and gas production going forward?

Do ACES and AGIA encourage Alaska businesses to make investments when the future of our state’s economy is challenged by the actions of our state leaders?

How will each of us take this message to our employees, our co-workers, our state administration and the legislature?

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