The Weekly Top 3
The Weekly Top 3
The Weekly Top 3 (3.24.2025)
Welcome to The Weekly Top 3 — our look at the top 3 things on our mind here at Alaskans for Sustainable Budgets — for the week of March 24, 2025.
This week, our top 3 issues are these: 1) we explain why the proposal to combine the Permanent Fund corpus and earnings reserve both puts the corpus at risk and undermines significant performance incentives for the Permanent Fund Corporation (2:14); 2) we explain how Rep. DeLena Johnson and other Republicans are ignoring important data to put the interests of the oil companies ahead of those of Alaska families (15:58); and 3) we explain why we aren’t hearing much about Cook Inlet gas in this session (spoiler alert: it’s because the market solved the problem) (28:08).
For your information, following this episode, we are taking a three-week break from the show to go on a tour of Ireland. We will return to our seat and be ready to go again on Tuesday, April 15.
The Weekly Top 3 is a regular weekly segment on The Michael Dukes Show. The Show broadcasts on Facebook and YouTubeLive as well as via streaming audio from the Show’s website weekdays from 6–8am. We join Michael weekly in the first hour of Tuesday’s show, from 6:25–7am, for a discussion between the two of us about our three issues.
Hi, this is Brad Keithley, managing Director of Alaskans for Sustainable Budgets. Welcome to the Weekly Top Three the top three things on our mind here at Alaskans for Sustainable Budgets for the week of March 24th 2025. The Weekly Top Three is a regular segment on the Michael Duke show. The show broadcasts on both Facebook live and YouTube live, as well as via streaming audio from the show's website weekdays from six to 8 am. I joined Michael weekly in the first hour of Tuesday show from six 10 to 7 am For discussion between the two of us about our three issues.
Speaker 1:We post the podcast of our discussion following the show on the Alaskans for Sustainable Budgets Facebook, youtube, soundcloud, spotify and Substack pages. Also on the Alaskans for Sustainable Budgets website, as well as the project page on national blog site mediumcom, you can find past episodes of the weekly top three also at the same locations. Keep in mind that, in addition to these podcasts during the week, you can also follow and participate in the discussion with us of these and other issues affecting Alaska's fiscal and economic condition by following us on the Alaskans for Sustainable Budgets Facebook page and through our posts on Twitter. This week, our top three issues are these First, we explain why the proposal to combine the Permanent Fund, corpus and Earnings Reserve both puts the corpus at risk and undermines important incentives for the Permanent Fund Corporation.
Speaker 1:Second, we explain how Representative Delaina Johnson and other Republicans are ignoring important data to put the interests of the oil companies ahead of fairness to Alaska families. And third, we explained why we aren't hearing much about Cook Inland Gas in this session. Spoiler alert it's because the market solved the problem. For your information, following this episode, we are taking a three-week break from the show to go on a tour of Ireland. We will return to our seat and be ready to go again on Tuesday, april 15th. And now let's join Michael.
Speaker 2:Let's dive into today's topics, Brad. The first and foremost is apparently the Fairbanks Daily Newsminer needs to take a remedial finance course, and that's because they apparently can't figure. Now I'll be honest with you, Brad. I didn't read this whole story because I refuse to give the Newsminer any money and they won't give you a single story for free. They had an opinion piece that was talking about the permanent fund. Give us the full rundown here. What's going on?
Speaker 1:So the headline of it is this is an opinion piece from the Newsminer from over the weekend and the headline is the case for consolidating the permanent fund and we're seeing a big push this session, increasingly this session, for an effort to behind an effort to consolidate the earnings reserve and the permanent fund corpus into a single account and treat that as the permanent fund going forward. What that would do is take away the safeguards that are in the Constitution currently to protect the corpus and allow the legislature only access to the earnings reserve the earnings that are generated by the permanent fund, only access to the earnings reserve the earnings that are generated by the permanent fund. It would eliminate that safeguard that's in the Constitution currently, merge the two together and allow the legislature to start drawing from the corpus down the road when earnings being generated aren't sufficient to cover the POMV draw. This whole thing is being generated. In my opinion, this whole thing is being generated by the fact that in five of the last six years I think it is the permanent fund hasn't earned enough to cover the POMV draw. So between a combination of that and they've continued to take the POMV draw, but between a combination of not earning enough to cover the POMV draw and the $8 billion that we've talked about on previous shows that the legislature took out of the earnings reserve and moved over to the corpus on an ad hoc basis, ostensibly to prepay for inflation proofing. But the permanent fund isn't treating it that way, it's just treating it as their money. Now, as a result of draining the earnings reserve over the last few years, between not earning enough and that $8 billion ad hoc draw, the earnings reserve is getting down to a level that if the permanent fund continues not to earn enough to cover the POMV draw, the earnings reserve won't have enough to cover the POMV draw. So there's a lot of concern about that in the legislature. There's a lot of concern about that constitutional protection against getting at the corpus. So the proposal is to merge the earnings reserve and the corpus together so that when the corpus or when the earnings reserve when the earnings doesn't cover the POMV draw isn't enough to cover the POMV draw, what the legislature will be able to do is to go into the corpus and start drawing down the corpus. Say, for example, as has occurred over the last several years, the permanent fund only earns a 4% return on the principal on the assets under management, the POMV draw is 5%. So if you're only generating a 4% earnings and the POMV is a 5% draw, obviously you've got a percentage shortage there. What the proposal would do would be to merge the two so that when there's a percent shortage that the legislature can then go in and take that percent out of the corpus and continue to generate, continue to take 5% out of the permanent fund on an ongoing basis.
Speaker 1:The news minor goes off on this editorial that says this would be a good thing, consistent with the talking points that the business community and others who want continued POMV draws. The news minor goes off on this tangent and talks about how it would be a good thing, and one of the things they say here is this First, it would protect the fund's principle, ensuring the state's oil wealth continues to generate returns indefinitely. It does the exact opposite of that. It doesn't protect the principle. It enables the legislature to get at the principle to cover any shortfall in the earnings returns. So I think the news minor really has missed the whole boat here. I mean, all they're doing is repeating talking points that we've seen the supporters of this proposal come out with.
Speaker 1:The supporters of this proposal come out with and really is not focusing on what actually is going on from a financial standpoint. There's a couple of other things that really bother me about this One it eliminates the permanent fund corporations incentive to maximize returns. If they don't get five now currently, if they don't get 5%, we start running into problems like this. We start running into the constitutional protection that we currently have that protects the corpus and so the permanent fund. As we wrote in our column last week in the Alaska Landmine, the permanent fund really needs to get its act in shape and really needs to begin to improve its earnings. Consolidating the two accounts together would eliminate that incentive. Permanent fund corporation wouldn't care if they earn 2%, 3%, 4%, 15% in any given year, because it's all going to be covered by the POMV draw. It's all going to be covered by covering the deficiency any deficiency out of the corpus. It also disincentivizes the permanent fund corporation from worrying about costs.
Speaker 1:We've talked on the show about the permanent fund corporation's costs being massive. Right now they're spending $860 million per year in fees and consulting agreements and that sort of stuff to undertake their current program. That reduces earnings. I mean that $860 million comes straight out of earnings cuts the bottom line. So if you are worried about earnings and if you have to focus on earnings, you worry about the cost. You worry about reducing that $860 million so you can increase your returns, so you can meet the POMV draw.
Speaker 1:If you merge the two accounts together and you don't have to worry about covering the POMV draw anymore, at least in the near future, and you don't have to worry about covering the POMV draw anymore, at least in the near future, and you don't have to worry about covering the POMV draw anymore, you forget about, you don't worry about costs, because costs aren't driving. Costs may be driving down your return, but it's not affecting your ability, affecting the legislature's ability to go get 5% out of the permanent fund. So I think the news miner, by just regurgitating the talking points that someone gave them, is really missing the boat. They aren't thinking through the fiscal consequences, the financial consequences of what this proposed merger would do and they're leaving Alaskans at risk of having the corpus reduced every year that we don't have earnings sufficient to cover the POMB draw.
Speaker 2:Well and I mean I think that's blatantly obvious in what you just pointed out that, oh, this will protect the principal. No, this does exactly the opposite. I mean, this has been what we've been warning about this whole time is that if you merge the funds and eliminate the barrier, you then start pecking into the seed corn. That's you know what creates the fund and allows it to earn money, and 1% at a time. If you start cutting into that and again it removes all restrictions on government, because that was part of what the ERA function was was limiting them to whatever was in the earnings reserve. They couldn't go beyond that and they had to live within their means. This is just another method of kicking. Function was was limiting them to whatever was in the earnings reserve. They couldn't go beyond that and they had to live within their means. This is just another method of kicking the can down the road.
Speaker 1:Yeah, it's really a cover your ass.
Speaker 1:It's a cover your ass for the permanent fund corporation when they can't get to 5% returns, either because they aren't following a good strategy in terms of developing reserves or because their costs are way too high and eating their reserves. When they can't get to the earnings that they need to cover the POMB draw, which has been in four of the last six years, when they can't get that, they're still covered. I mean they don't worry about it. From the business community standpoint, what they're seeing is yeah, this is great. I mean we get the 5% POMV draw regardless, so we don't have to worry about taxes if the permanent fund corporation fails to do its job. We just continue taking that 5% out every year, every year, every year, regardless of what the permanent fund corporation is doing. So it's really a cover your ass deal for the Permanent Fund Corporation in covering up the fact that they aren't generating sufficient returns, either as a result of failing to have good investment strategy or as a result of running too high costs. It's really covering up the Permanent Fund corporation's failure.
Speaker 2:Rob just said and this is perfect. I think Rob wins the internet for today it's not set up to protect the fund, it's set up to protect the spend, and that pretty much that pretty much line. That's it in a nutshell right there. It protects the spend. It takes away all the barriers to any future spend, to any kind of, gives them no incentive to live within their means or to right-size government or do anything else. This does nothing more than protect the current spending habits which, as we've talked about in this program, are the reason that we're here right now.
Speaker 1:Yeah, it protects the spend and it protects the permanent fund corporation. It eliminates the incentives that the permanent fund corporation has to do its job. And for those who haven't read it, the landmine column I did last Friday shows the permanent fund corporation isn't doing its job. It's running deficient on returns. It's not pursuing a return strategy. It's pursuing this is what they're doing. It's pursuing a return strategy that justifies paying $860 million in fees to their friends and neighbors to help them manage the fund. This proposal would do is just is protect them from that ever being, ever coming, ever being exposed or ever, ever affecting uh, uh, the amount of uh, pomv draw that the the legislature can take and of course you do, randy.
Speaker 2:I think we should combine the two funds, because that's the way other states and nations do it with their giant sovereign wealth funds. Did you? Did you just miss all the pitfalls of what we're talking about, Randy? I mean, I'm just throwing that out there. I guess we should reward bad behavior, Brad. That was Randy's argument many years ago is that we should just give them as much money until they learn spending discipline. Give them all the money they want and eventually they'll learn spending discipline. That was essentially his commentary many years ago, but that's where we're at right now. That's what this would do. This would prevent them from having to do any kind of self-analysis on their spending habits.
Speaker 1:Well, it's really sort of bizarre, michael. We have this great protection. Hammond and others that founded the Permanent fund built this great protection in by saying you can't spend any more than you earn. That's essentially what it does. The earnings reserve gathers in what's earned from the permanent fund and that's the pot of money that can be spent. You can't spend any more than you earn. You can't invade the corpus. The corpus continues to grow. The corpus continues to generate returns. You can't spend any more than you earn. That's the system we've set up. That's the constitutional protection we have. And now people want to take that away. They want to say that oh, of course you can. Of course you can spend more than you earn. You can go into the corpus. For all that, you need to cover this 5% draw, because we wouldn't want to short anybody. The 5% draw, the genius I mean. What Randy and others would propose doing is take away the genius of the Alaska system, the protection of the Alaska system, by saying you can't spend any more than you earn. And Randy may want to do away with that, but it's not a good strategy.
Speaker 1:I wrote a column, probably over a year ago, that traced out if we continue to have 4% returns and we spent 5% of the 5% of the corpus, or 5% as a POMB draw, and we only earned 4%. How long the permanent fund would last? And it's not, it's like 25 years. It fades out fairly rapidly and the numbers the POMV draw keeps dropping down, down, down down as the corpus goes down. But by gosh, they keep taking that 5% out as they go. Yeah, it's just, it's a simple. It's a simple protection. You can't spend any more than you earn. Yeah, which?
Speaker 2:would, uh, which I thought. Thought randy would be in favor of not spending any more than we earn. But uh, apparently it's. Uh, it's all good. Brad keithley, alaskans for sustainable budgets number two of the weekly top three uh, we just finished up talking about the permanent fund and the metrics of that. And then the second one is Delaina Johnson and I would argue and company are choosing the oil companies over Alaska families. What do you mean by that?
Speaker 1:So Delaina wrote an op-ed that was in the ADN this weekend, the title of which is Now is not the time for Alaska to raise oil taxes not the time for Alaska to raise oil taxes. And that follows on the typical Joe Shearhorn Jim Jansen op-ed of earlier in the week. That said that had the title stable oil and gas taxes in Alaska have helped spur a North Slope boom. Let's not jeopardize that. Well, here's the deal. And, Michael, if you have that chart, let's throw it up. And there we go. So this chart and we've had it on the show before, but it makes the point to me dramatically this chart shows, over the next 10 years starting in FY24, over the next 10 years, projected production volumes. Those are on top. Total production volumes are in blue. Projected state production volumes from state lands are in red and it shows projected revenues from that production in terms of royalty and in terms of production taxes, severance taxes. On the bottom, in the dotted lines, the red is royalty, which comes from state lands we don't get royalty from federal lands and the blue dotted line is production taxes from total, from both state and federal lands. We get production taxes from both and what it shows is that, while royalties are staying fairly steady over the next 10 years, production taxes and this is the state, this is the Department of Revenue's projection. It's not mine, it's not Bill Wilkowski's, it's not something that somebody made up, it is the state's forecast of production tax revenues over the next 10 years. It shows that those production taxes are declining substantially from nearly a billion dollars in FY24 all the way down to less than $270 million in FY31, before they start coming back up a little bit to $430 million by FY34. In other words, a cut of nearly three quarters before they start working their way up back to about half of what they were in FY24. That's what the current tax code is doing to production taxes. It's driving them down and down and down so that Alaskans, even though production's going up by a huge percentage over the next decade, the share that's going to Alaskans of that production through royalty and production taxes is going down dramatically over the next decade. So when Delaina and others say what's her headline when she says now is not the time for Alaska to raise oil taxes, what she's essentially saying is now is the time for Alaska to suffer a huge hit in the oil taxes it's receiving over the course of the next decade and we know spending isn't going to follow that. We know spending isn't going to go down at the same rate as production taxes. So who's going to take the hit? Alaska families in one way or another. It's going to be in the form of additional PFD cuts, it's going to be in the form of taxes of some sort on Alaska families. But Alaska families are going to be the ones to take the hit out of trying to fill that gap that's being created by the way in which SB21 operates over the next decade.
Speaker 1:And so Delaina and others are looking at it from the oil company's perspective. They're saying oh, we've got a tax code that says X percent and Y percent and G percent and this exclusion and that exclusion and this exclusion. We want to keep that. We want to keep those numbers all in place. But look at what the impact is. My point is look at what the impact is. The impact is that it's driving production taxes down.
Speaker 1:I don't think there is anybody who's arguing for raising oil taxes above the levels that we've experienced over the last decade.
Speaker 1:But now we've got through the production tax code, we've got this driving drop in production taxes. What it's time for is to adjust the tax code so that Alaskans continue to get a share of rising production. What it's time is for Alaskans to continue to receive about the same level of revenues that they've received throughout as a share of gross revenues, as a share of production. What Delaina and others are arguing is it's essentially is it's time for Alaskans to take less in oil taxes, take less over the next decade, suffer drops in oil taxes over the next decade so the oil companies can make more, the consequence of which is Alaskans individually will have to pay more, either through PFD cuts or personal taxes on them to cover the difference. She's just looking at it from the state again, like the Fairbanks Newsminer, they're just adopting talking points from those who want to be able to raid the corpus. Delaina's just adopting talking points from the oil companies. She's not looking at the impact on Alaskans and on Alaska families of what that tax code's doing over the next decade.
Speaker 2:Right, and of course, she's not offering any guarantee that, well, we will live within our means and we will do no. No, I mean, the costing and the budgets of the state are going to continue to increase. It's I mean, it's a no-brainer at this point, and she's not. Brian asks can Johnson back their argument with data, ie charts, or are they arguing from fields that they get from lobbyists with spring in their collective ears? I think it's obviously the second one.
Speaker 2:The oil companies are coming down there because they don't want to lose, they don't want to have to pay more. That's I mean, and that's they shouldn't. You know that should be their position, because they're a private industry. But we are the owners and these people in the legislature are supposed to be our representatives as owners and they should be getting the maximum yield possible, and instead they're saying well, no, no. They said that they'll take their ball in their bat and they'll go home if we increase the oil taxes. That's not going to happen. That's not with the investments that they've got in there and everything else. And we're not talking about gouging them, as Brad said. We're talking about bringing it back to the equitable position. It was the last 10 years.
Speaker 1:Yeah, here's the deal. Michael. I mean, shearhorn and Jensen have a sentence in their argument that says something about after five years, we'll start seeing the benefits of what we've done with production taxes. And what they're really excuse me, what they're really talking about is that increase in production, increase in the blue line, you see well, at about 2028, the jump from the 400s up to the 500s and then the continued jump up to the 600s by 2035. That's what they're really talking about.
Speaker 1:They're saying there will be a benefit and it'll be a benefit in terms of increased production, but the problem is the tax code isn't tied to production. The tax code's tied to a bunch of other things that in 2013, made sense. But once we get to this environment, the second decade, once we get to this environment, no longer make that much sense. And what happens in 2028 is production taxes keep going down, even though production volumes are going up. Production taxes are going down and they make the leap from. Well, production volumes go up. Everybody's going to benefit in that. No, they're not Right. Look at the numbers. Look at the Department of Revenue numbers.
Speaker 2:They scream and say look, we're going to increase our production by 25 or 30%, yes, but our take on it is going to be 60%, less than what we're making today. It's going to go up 25 to 30%, but our take is going from almost a billion dollars down to $27, 270 million. I mean, that's a huge, huge hit. And they just like oh, and it's not about velocity, we're not a grocery store where we sell more, we'll make more. We sell more gas, but if we don't have the right tax structure, we're taking 70 percent less than what we would have been.
Speaker 1:They're leveraging up on this assumption that the oil companies and some legislators have always made that as long as production goes up, alaskans will benefit. Alaskans will see the benefits, will see the payback on what they've done in terms of oil taxes once production starts rising. And that's been the general mantra that the oil companies and others have pitched and they're still pitching. But when you look at the actual numbers, delaina, when you look at the actual numbers, you're seeing the production taxes are going down. So if you really want to live up to your title of your piece, now is not the time for Alaskans to raise oil taxes of your piece. Now is not the time for Alaskans to raise oil taxes. Well, it's also not the time for Alaskans to reduce oil taxes, which is what's going on under SB21. With the provisions of SB21, over the next decade, let's just keep the share that Alaskans have of production revenues at the same level that we've had over the last decade, as opposed to seeing this sort of collapse in those revenues over the next decade.
Speaker 2:One of the big problems here, of course, is that a lot of this new production is going to be coming off of federal land versus state land, right, so it's kind of a different critter in that regard.
Speaker 1:Well, it's not going to bump.
Speaker 1:So, yeah, the federal land is the difference between on the top, the difference between the red line on the top and the blue line on the top.
Speaker 1:The red line state lands and the blue line is total. So the difference between those two is federal lands and what you can see is that's not bumping royalties because we don't get royalties out of federal lands and so royalties are staying relatively flat, consistent with what the red line on the top is doing. But we do get production taxes out of production, off of federal lands, and what you're seeing is, even though that production is going up, even though federal production, federal lands production is going up, revenues are going down. Revenues from that production are going down, and it's because of the way SB21 operates. What we need to do is go back in, look under the hood, fix SB21 to provide the same share of revenues to Alaskans out of production that we had in the last decade, that we had when SB21 is set up. We've just had some things go wrong with the way SB21 is operating. So if you want Alaskans to continue to benefit from increased production, then we need to go fix those things that have gone wrong in SB21.
Speaker 2:This chart kind of says it all right here. I mean it really does. It just kind of lays it all out. This is the problem. I agree with you. Uh, brian. Brian said uh, can johnson backer argument with data charts or no, it's all about the fields or what the lobbyists are telling her at this point, because that chart right there was enough to tell you everything you needed to know about what was going on with uh alaska, uh oil and the revenues and where we're going on in the future. It's astonishing.
Speaker 2:We are coming back to Brad Keithley Alaskans for Sustainable Budgets, the weekly top three. We're on to number three, although I was just going to make a comment on Anthony's comment in the chat room. He said the most frustrating part is that everyone can clearly see we're on a sinking ship fiscally and the crew is telling everyone to remain calm but the captain refuses to return to land and instead of doing the same thing, it lets hubris kill us all. I mean that's kind of where we're at right now. Um, I wouldn't disagree with that, brad. I mean kind of that's. That's kind of par for the course at this point no, it is michael.
Speaker 1:Everybody's, everybody's out for themselves. Uh, in the? In the case of the last segment that we talked about, the Permanent Fund Corporation is out to protect its ass by being able to continue to pay all those fees to its consultants and eliminate any incentives to have higher earnings. The business community is out to save its ass by having the continued POMB draw, regardless of what earnings are. Everybody's trying to save themselves. Unfortunately, it's Alaska. Families are getting screwed in the process.
Speaker 2:Number three in the weekly top three. Notice how you haven't heard a lot about Cook-Henley Gas. All of a sudden it just seemed like that disappeared right off the table. It was a big topic, it was a big talking point, there was articles all over the place and now it's like, hmm, got super quiet, brad.
Speaker 1:Yeah. So, michael, we had at the beginning of the year and all throughout the session last year, we had all these various proposals to give rebates on royalty in order to encourage production in the Cook Inlet and all sorts of other things A lot of drive at one point for phase one of the AKLNG line that would bring gas down to South Central and save us all. And then, and over the course of and you and I argued throughout that that let's just let the market work. The market will bring products to the Cook Inlet. That will solve the problem if we just let the market work, if we don't interfere with it, if we don't try to subsidize our way to a solution. And over the past month or so, I noticed that the cook inlet hadn't made any of the top threes. It hadn't been the topic that people were talking about or people were writing about, or that legislation was progressing on that just suddenly had gone, or for a period of time, and had gone quiet. And I thought, and I think, and I thought it was useful to think it's useful, uh, to recognize why that is. It's because the markets worked.
Speaker 1:There's an op-ed piece in the AMN from this past week that was written by Arthur Miller and Mark Wiggin of Chugach Electric Association and it says what we're doing. The title of it is what we're doing to secure a natural gas supply for South Central Alaska. The title of it is what we're Doing to Secure a Natural Gas Supply for South Central Alaska. And it goes on to talk about the deal that they're working with Marathon Petroleum Corporation, who owns the Kenai refinery, certainly, but also owns the Kenai LNG plant that sits next to the refinery, that Chugach is working with Marathon and with Hillcorp, who proposes to buy that LNG facility and turn it into an import facility to bring imported LNG into imported gas into the South Central to solve our problem and the progress they're making on it. And they're making a lot of progress and they're making progress on it in the frame that Chugach needs that gas to avoid the gap.
Speaker 1:I've got to commend, frankly, chugach Electric Association for the transparency with which they've approached this problem. They've been transparent from the beginning not always timely, but transparent from the beginning about the problem as they see it and about the various steps they're taking to deal with the solution. And this latest op-ed from Wiggin and from Miller is another example of that, another step in the transparency. But basically what they're saying is we got this, guys. We got this. We've got to deal with Marathon. We've got an existing Kenai LNG plant that we can utilize. We can turn it around. It's already FERC approved to be turned around to become an import plant. Marathon and Hillcorp have worked out a sales arrangement between the two. We're working out arrangements with them for using that plant to bring in gas to meet our needs. And we got this. We don't need any government bailout, we don't need any government subsidies, we don't need any input from ADA or we don't need any royalty relief from the legislature. We got this. That's our job. That's what we're supposed to do. We're supposed to cover our gas supply. We got it. We're doing it. Nstar is doing it in a different way. I'm not sure their way is going to turn out to be as successful. But fortunately the Kenai LNG plant is scalable. You can add to it, add to its capacity as we go on, if others find it useful to do that. So I think what we found is the market works and all of the hand-waving and all of the legislation that people introduced and all of the concern people had about Cook Inlet going gasless or having outages just didn't work out to be the case. Once you let the market as you let the market solve it. I think that's a lesson both for this situation and for other situations down the road.
Speaker 1:There's one other article on this that I think is useful. It's in the Peninsula Eclarium. Headline is Michecki reports back on South Central Mayor's Energy Coalition and it's when the crisis started, when people started being concerned about running out of gas in south central. The south central mayors formed this coalition. Anchorage wasilla, uh, palmer, kenai and others formed this coalition to look at the issue and to look at uh, to look at solutions to it, and maceChickey has had a report back to in some forum recently to talk about it and basically it was the same thing.
Speaker 1:Basically, we got it, the market got it.
Speaker 1:We're solving it through short-term hopefully short-term LNG imports, but they're being done in a way that if they need to be long-term, they can be, because we're using an existing facility that's scalable. We're not going to have to bring trucks over the Alaska Highway, we're not going to have to do outrageous things. We've got it and over time it may be that we find that that co-content supplies can be developed at reasonable costs and can fit into the into the supply mix. Over time we may find that the AKLNG line is built for its bigger purpose of exporting gas and it can fit into the mix. But in the meantime excuse me, in the meantime we've got this. In the meantime, the market has found the solution. So I find that encouraging excuse me that we let the market find the solution in this state and that the market did find the solution in the states.
Speaker 1:It's not the perfect solution. It's not the solution everybody wants. It's not Alaska gas in the main, but it is better than having blackouts and going dark. It's better than huge state subsidies paid either to cook inlet producers or paid to build a phase one of the AKL and G-Line, especially given the fiscal problems we're facing in this state. Well-developed solution that we're coming to, and one that I think we ought to applaud at least people who believe in market solutions ought to applaud as showing that the market can work if you just let it have the opportunity to do so.
Speaker 2:No, I mean I agree. I think this is good and even some of the things that was in this report from the Peninsula Clarion. It talks about the economics. I mean, while it's Peninsula Clarion, it talks about the economics. I mean, while it's technically recoverable the gas on the North Slope it's not economically recoverable at this point. And they acknowledged that the importation, even if it was just on a short-term basis, was the only way to stymie and to stave off this shortfall of gas. And it looks like I mean big, big kudos to Chugach and everybody else outside of this.
Speaker 2:Again, enstar is kind of still doing their own thing. I don't know exactly what they're doing. They're still talking about a gas line and everything else. But again, even Machicky in this report said that the projections of having gas by 2031 might be rosy. Might be rosy. Come on, I mean that's six years away. There's no way they're going to have first gas deliverables on a gas pipeline that you haven't even permitted or broken ground on in six years, not in this day and age. I know they built taps in three or four years, but it's a whole different world than it was back in the 70s. At this point I mean it's just not going to happen.
Speaker 1:Yeah, NSTAR is off doing a deal with Glenfarn. That is the way the explanation of it is sort of evolving. Is it's phase zero of the is sort of evolving. It's phase zero of the AK LNG project. What they're talking about is building an LNG import facility at the site of where the AK LNG facility would export gas, Build an import facility to import gas for NSTAR for a period of time and then turn that back over into an export facility once the big line was built. I'm not sure if that's tied to the big line, if the big line never goes, whether that facility ever gets built. What Shoe Gatch has done is gone out to something that's solid, a facility that sits there, a facility that exists, and made a deal with Marathon and with Hillcorp to use that sits there, a facility that exists, and made a deal with Marathon and with Hillcorp to use that existing facility something we talked about from the beginning of this whole issue.
Speaker 2:Right, right and again, not looking for any bailouts or monies from the state or from the federal government or anything else. They're doing it all with private money and they're doing it on their own. So again, the free market wins, as we have advocated for in this show for a long time their own. So again, the free market wins, as we have advocated for in this show for a long time. The free market wins, and as it should. I know this has been floating around.
Speaker 2:Rick was like Taiwan signed on. You know, taiwan just signed a gas purchase agreement, not a. They didn't sign on for the pipe, they didn't sign on to build any line. They just raised their hand and said, sure, we'd love to buy gas from the pipeline when it's there. But this is the same kind of thing we've seen since the Walker administration. Right, brad? I mean he had contracts in hand from Japan and other places. Well, sure, if you build it, we'll buy gas from you. But I mean that's an easy sell because they'll sure I'll sign it. When are you going to build it? There's no idea. It's a kudos and it's a feather in their cap to say we signed the deal, but are they ever going to be held to it because the gas line doesn't exist.
Speaker 1:We signed a letter of intent with Taiwan. We're probably going to sign a letter of intent with Korea. It's the same thing Walker did with China back during his period. The problem is, you sign a letter of intent. The letter of intent is we will study getting into this project and taking gas from this project. Once you get into this project, once you start studying the project, you understand the economics are horrible. The economics of building that line, the economics of making the commitment to buy, the economics of of of building that line, the economics of of of making making the commitment to buy the chunk of gas you have to buy for the period you have to buy it to pay that line off, uh, are horrible, is horrible. There are much better deals elsewhere in the world.
Speaker 1:So what's really going on, in my opinion, is they're signing these letters of intent so they can tell Trump yes, we're trying, we're looking at it, we're studying it. Don't take it out on us. We're trying to be good neighbors, we're trying to be good customers and we're digging into it. But you know we can't do anything. That's not in our economic interest. So we need to study it and just like Walker's deals with China and the others did. Over time they'll fade out. We'll barely notice when they expire because it will become obvious that it's not economic. So I take, I take these letters of intent that they've entered into with a grain of salt and say, yep, I understand why they're doing that, I understand the political nature of it, but I'm going to wait till you show me the dollars. Show me the actual dollars that you're spending on this stuff, the actual 40 billion or 60 billion or whatever it might be, by the time you do the evaluation again. Show me those dollars and then I'll get excited about it, but up until then it's just Walker, phase two.
Speaker 2:Well, because again, I mean I think Rick asked a good question how do they recover their cost invested? I mean, even if they did pledge billions of dollars to do it, how do they? A sovereign nation? How do they recover their costs in that? I mean, is it free gas? How is their cost recovery work? I mean, it seems very amorphous to me.
Speaker 1:Well, what it is is they invest in the line. I mean, the theory is they invest in the line, they get tolls, payments for the usage. As an investor, they'll receive a portion of the revenues or a portion of the profits from the operation of the line. So it's an investment by them, just like it would be an investment by a private company, and they would enter into contracts to buy gas at competitive prices, and so they get a gas supply and they get a return on their investment through the tolls from the pipeline.
Speaker 1:But the problem is the tolls from the pipeline are going to be pretty low. I mean, the receipts from the pipeline are going to be pretty low. The gas, after you take into account the pipeline costs, are going to be pretty high. And so at the end of it you figure out that, okay, I've got to commit for like 25 years to buy this high-priced gas and the only thing I'm going to get back from it are these tolls from the investment in the pipeline that are going to be low. Just not a good deal. So I mean, we've been down this road before. We were down this road with Walker when he had all of these letters of intent. We know where this road goes.
Speaker 2:Yeah, yeah, no. So I saw the headlines and it was, you know. I think people were like, oh, yay, uh, it's, it was. You know. I think people were like oh, yay, yay. And I'm like wait, we've been here, we've been here, we've done this, and uh, it is, uh, it's an interesting thing. And yes, go ahead.
Speaker 1:Well, the only thing different this time that the people will say oh, it's Trump. Trump's going to force them to do it, or else he'll tear up the amount of existence. You'll do something. The problem is, what you're asking them to do is enter into 25-year commitments based upon a four-year presidential term. If we've seen anything in this nation, it is that we can change policies on a dime. So you enter into this 25-year contract, make this 25-year commitment and you're only worried about the four-year segment of Trump commitment, and you're only worried about the four-year segment of Trump. And then, let's say, some Democrat comes in or some moderate Republican comes in at the end of that four years and all of a sudden, everything's changed and all of the benefits you thought you were going to get in terms of favored tariff nation or favored tariff status or something, go away. But you've got this 25-year commitment, financial commitment that you've made in the meantime, that's I mean at the end of the day, that's what's going to hit home with these concerns.
Speaker 2:And there's, of course, the military aspect. Brian brings that up From the Taiwanese perspective. They need and want more military aid, and this purchase agreement buys favors with the administration and the Congress critters. Yeah, I mean, it's exactly what they want. They want protection from china in their backyard, and so they're hoping that they'll do everything they can to uh, to make it uh, you know, to make it look more attractive, to help them but once again, it's a 25 year commercial commitment to take this gas compared to a four-year time frame.
Speaker 1:yeah, this presidential term, and it's just you have a tough time making those numbers work.
Speaker 2:Yeah, no, I agree. All right, brad. Well, it sounds like you got a bit of a cold from your flight or whatever, so you need to take some Theraflu or whatever. I'm sure there's some kind of Scottish remedy there that you could take.
Speaker 2:There is Michael and I may go take some of that remedy here after the show hot toddy and go lay down for a little bit, so you're all vented and ready to go. Uh, brad, thanks so much for coming on board and we look forward to your, uh, to your report on your tour when you come back. Okay.
Speaker 1:Michael, thanks for having me and I look forward to seeing you again in a couple of weeks all All right.
Speaker 2:Thanks, my friend. Appreciate it, enjoy. Have a good time. Thanks for coming on.
Speaker 1:Well, that's a wrap for another week's edition of the Weekly Top Three from Alaskans for Sustainable Budgets. Thank you again for joining us. Remember that you can find past episodes on our YouTube, soundcloud, spotify and Substack pages, and keep track of us during the week on Facebook and Twitter. This has been Brad Keithley, managing Director of Alaskans for Sustainable Budgets. We look forward to you joining us again in three weeks for the next edition of the Weekly Top Three. Thank you.
