The Weekly Top 3
The Weekly Top 3
The Weekly Top 3 (9.15.2025)
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 September 15, 2025.
This week, our top 3 issues are these: 1) we explain why a recent op-ed by Senator Cathy Giessel proposes to make Alaska’s fiscal situation even worse than it already is (2:22); 2) we review recent data from the Department of Revenue that is telling us production taxes remain broken even well beyond the current 10-year revenue forecast (19:54); and 3) while the recent headlines are interesting, we explain what information we and other industry observers are really waiting for about the AKLNG project (37:29).
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 September 15, 2025. The weekly top three is a regular segment on the Michael Dukes Show. The show broadcasts on both Facebook Live and YouTube Live as well as via streaming audio from the show's website. Weekdays from 6 to 8 am.
Speaker 1:I join Michael weekly in the first hour of Tuesday's show from 610 to 7 am for a discussion between the two of us about our three issues. We post the podcasts 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 projects 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.
Speaker 1:This week, our top three issues are these First, we explain why a recent op-ed by Senator Kathy Giesel proposes to make Alaska's fiscal situation even worse than it already is. Second, we review recent data from the Department of Revenue that is telling us production taxes remain broken, even well beyond the current 10-year revenue forecast. And third, while the recent headlines are interesting, we explain what information we and other industry observers are really waiting for before deciding about the viability of the Alaska LNG project. And now let's join Michael.
Speaker 2:Well, let's get started here, brad, because you've got a lot to cover today. We're going to start off with item number one, which is uh, kathy geisel is just making it worse. Right, I mean it could be, I mean she could be doing. She's just making it worse.
Speaker 1:Hit me with it so let's set the stage a little bit for Giesel had an editorial in the ADN, an op-ed in the ADN, this past week that just you know, it was like fingernails on a chalkboard to me. But let's set the stage a little bit for it. Over the course of the next 10 years, alaska is projected to run a current law deficit. That means the PFD paid according to the statute, because there is no other statute right now. I mean it means we follow the law. Over the next 10 years Alaska is projected to run $18 billion cumulative over the 10-year period, $18 billion in deficits. And that assumes it assumes the spring revenue forecast. But it also assumes that we hold spending, overall spending to inflation from the FY billion, $1.8 billion on average a year every year for the next 10 years. That's the fiscal outlook for the state.
Speaker 1:If I were a leader in the legislature, if I were governor but if I were a leader in the legislature, I'd be going. This is issue number one. We can't do anything else. We can't be spending on anything else. We can't be worrying about anything else until we resolve our fiscal outlook. Some want to do it through PFD cuts, deep PFD cuts. Some want to do it through other revenues. Some want to do it in different. Some want to do it through deep spending cuts, some want to. People want to do it in different ways, but we can't do anything else. If you were a leader, you would say looking at this outlook, you would say we can't do anything else until we get this resolved.
Speaker 1:Kathy Giesel is Senate Majority Leader, writes an op-ed in the ADN this past week and it doesn't mention that issue, the fundamental issue, the fiscal issue, the issue that's going to drive the state's budget over the next 10 years. Doesn't mention it at all. Instead, the op-ed is entitled Alaska students deserve more investment in our classrooms and the entire op-ed is focused on how we spend more, how we make the deficits deeper given the same revenues. How we spend more. How we make the deficits deeper. Two paragraphs there are two simple measures, according to Giesel, that we can take to limit class sizes and recruit and retrain more qualified and excited educators in Alaska. First, restore a pension for public employees. Second, we need to pay teachers a competitive salary that reflects their impact on our communities. Spend more, increase the BSA more over the next 10 years. Nothing in there about how you're going to pay for the $1.8 to $18 billion deficit that you're looking at over the next 10 years. Nothing in there about how you're going to deal even with that, and certainly nothing in here about how you're going to deal with any increases.
Speaker 1:If you want a poster, if you want a synopsis, a time capture of how Alaska has gotten into the situation it's gotten into, all you need to do is look at the budget forecast and then look at this op-ed. They're just ignoring legislative leadership, is just ignoring the state that Alaska is in, the fiscal situation that Alaska is facing. They're just ignoring their responsibility to resolve an outlook that, for any state, would be disastrous $1.8 billion per year. They're just ignoring that and, in fact, what they're doing is writing op-eds that make it even worse. So it's a failure, absolute, undisputable failure on the part of the legislative and Senate leadership, in particular because of Giesel undisputable failure that that they are sending Alaska on a crash and burn course with respect to with looking at its budget outlook. Crash and burn course, not even whispering a second about how to resolve that and then adding on and spend and spending more on top of it. It is, it is malpractice, it is an undoing of your duties. You're ignoring your duties. It's a horrible fiscal situation to be putting the state in.
Speaker 2:I got to say as I was reading this article to me it was just more of the bait and switch argument that we see, specifically in this case in regards to education. Again, the I. To me it was just more of the bait and switch argument that we see, specifically in this case in regards to education. Again, the headline reads Alaska students deserve more investment in our classroom. So it's for the kids, right, but in the long run, what does it end up being about? It ends up being about public employee pensions and teacher pay.
Speaker 2:So it's not money going directly into the classroom, it's not, you know, bolstering policies or new programs or things that they're going to do to try and fix the educational system. So we've got two things. We've got the fact that they're completely ignoring the 8 million pound gorilla in the room, which is $1.8 billion a year in deficits, and on top of that, they're not even acknowledging things that would fix the educational problem. To begin with, I mean there may be some argument if you could say this money that we're going to spend is directly going to impact the outcomes Damn the cost. But no, they use the platitudes in the headline and then everything is about spending more in the state it's. I mean at this point, brad, it's a sickness.
Speaker 1:It is a sickness, michael. And I don't think we legitimately can get to the second issue about what we ought to be doing in the classrooms, where we ought to be directing more money into the classrooms, how we ought to be fixing this. I don't think we can legitimately get to that issue to the extent it involves dollars. I don't think we can legitimately get to that issue to the extent it involves dollars. I don't think we can legitimately get to that issue until we fix the underlying baseline of where the state's fiscal situation is going. It's irresponsible to be talking about spending more money, even if it's spent well, in good ways. It's irresponsible to be talking about spending more money until you've solved the underlying fiscal issue. Because what are we leaving? I mean, yeah, okay, we're going to educate the kids, but what are we leaving these kids after we educate them? We're leaving them deficits that go out to eternity. We're leaving them with a CBR that's been drained so that their generation, the kids we're training, their generation, doesn't have the same fiscal generation this generation just used up in the last 10 years. We're leaving them with an empty cookie jar. We're leaving them with an economy where we are punishing the economy by taxing, doing the very thing from a fiscal policy standpoint cutting PFDs that has the largest adverse impact on the economy, that takes the most from middle and lower income 80% of Alaska families. We are leaving the next generation in a horrible fiscal situation.
Speaker 1:While we're talking about I mean it is rearranging boats or rearranging deck chairs on the Titanic. We're talking about, oh, we're going to make your education a little bit better. We're going to leave you a trash economy. We're going to leave you a trash fiscal situation. We're going to leave you with an empty cookie jar in terms of the CBR. When you run into the same fiscal situation that every other generation's run into, we're going to leave you with nothing in the cookie jar to deal with it. But you're going to have a marginally better education experience because we're going to according to Giesel, because we're going to pay teachers more and we're going to have a pension for them. It is fundamentally irresponsible to be worrying about any spending items good, bad and different. It's fundamentally irresponsible to be worrying about any additional spending until we've solved the fundamental problem that we have in this state from a fiscal standpoint.
Speaker 2:Well, it's not just leaving them with an empty cookie jar, brad. It's like addictive, compulsive gamblers who basically leave their kids $200,000 in debt as they pass away, and that's their legacy, because that's what we'll end up with. We'll end up with kids who are going to be inheriting not just no money in the bank, but that they were going to have to figure out how to pay for all this stuff at a billion plus dollars a year in deficits moving forward, because we've had all this nice to have stuff. That's that's. Come on here.
Speaker 1:And that's, and that's just, that's just an inflation rate of 2.5%, exactly. So if you've, if you spent, if you just kick that up to 3%, that number goes above 2 billion. I mean, that's, that's how, that's how much, that's how much at the margin we're operating.
Speaker 2:And of course, that may not even be the true amount of inflation, because I was looking at some numbers that somebody sent to me the other day and the true numbers for inflation in Alaska, based on everything that's going on nationwide and tariffs and everything else, I mean it could be upwards of 4%, 3.5%, 4%. So then I mean, what's the number due then? Two, two and a half, 2.6, right Billion dollars a year.
Speaker 1:That may be a column. That may be a column to calculate it at different assumptions about spending growth rates, to sort of focus on how big those numbers get very quickly If you just make minor tinkerings in the percent of growth.
Speaker 2:Well, and I don't think it can be emphasized enough what you just said, and maybe people out there missed it Again the $1.8 billion deficit per year for 10 years, or $18 billion over 10 years, assumes the government doesn't increase the budget at all. It's just baseline spending of what we have right now with the automatic. You know whatever the automatic increase is every year for COLA, inflation, you know whatever contracting, you know deals, that's assuming that they flatline the budget. $1.8 billion, I don't think it could be emphasized enough. That is the rosiest assumption that we've ever. You know that we could ever see Not a 2% increase, not a 4% increase, not a 1% increase, flatline, based on what we have. It's $1.8 billion a year. I mean, this is a crisis.
Speaker 1:One other fact people don't focus on. I mean they focus on oh, we're going to hold spending at inflation. We need to adjust spending for inflation. Our revenue isn't adjusting for inflation. Our revenue, driven by the drop in production taxes, which we'll talk about in just a moment, our revenue is dropping as an absolute. It's not even keeping zero. It's certainly not adjusting for inflation like spending, like some assume spending should. It's not even keeping up with that. It's not even keeping up with that. It's not even keeping up with zero. It's dropping over the next 10 years. And so when you say about, when you talk about, oh, we'll just keep spending at inflation, that'll do. It Doesn't do it. But if you tick spending up to 2.75, to 3, to 3.25, to 3, to 3.5, it just widens that gap that's growing over the next 10 years and it's irresponsible. I mean to get back to Giesel it is absolutely irresponsible to be talking about any spending good, bad and different, to be talking about any spending increases until you first fix that fundamental problem.
Speaker 2:Right, could be the best program in the world to benefit the most people. But if we can't pay for it and it puts us further behind the caboose here, it's irresponsible and I couldn't agree more with that. Willie says my favorite day of the week and good morning, good morning Willie, good to see you. Brian says that's in twenty twenty five dollars. Right, yeah, because it could get worse if we start looking down the road and inflation, oh yeah, it could be worse. Terry says give me a break, we don't have any money. And then Rick says they're killing the state in the name of education. I mean education is just the biggest culprit. But I mean, brad, this is really it, right. I mean they are killing the state in the name of spending. That's what it's all about.
Speaker 1:Yeah, exactly right. I mean, Giesel's pension plan doesn't apply just to education. The pension plan applies to all government employees. And sometimes people say, oh well, we need an increase in the construction budget, we need more infrastructure, the university needs more money, we're going to need more money for corrections, we're going to need more money for that or more money for this. It isn't just education. Education is the most flagrant example because it's the one that gets the most op-eds about people driving for additional education, but it's across the board. I mean you cannot.
Speaker 1:I was reading over the weekend the legislative priorities from the Fairbanks, north Star Borough and from the Mat-Su Borough and from various other boroughs. And it's all about spending. Spend more in this area, spend more, do more, build more buildings, do this, do that and all that spending is more than the rate of inflation. And do all that and that will make our life better. Well, it's making our. It may make some people's lives better, but it's making it better at the expense of the overall, at driving that deficit number higher and higher and higher.
Speaker 1:We need to go back to basics. We need to solve where this money, this alleged money, is coming from. We need to balance truly balance the budget, as opposed to these claims that legislators make at the end of the session. Oh, we balance the budget. You balance the budget through taxes. You balance the budget by pulling from the PFD through taxes on middle and lower income Alaska families. Be honest about it, they aren't. But we need to solve where this situation is going. Some people say, well, we'll just continue PFD cuts. That's how we'll get through this. If you adjust that two and a half to 3%, you wipe out PFDs and you're still and you're and you're running a deficit. So it's not it. You can't do anything else. You can't do anything else. You can't address construction, you can't address infrastructure, you can't address the university, you can't address anything else until you get your fiscal house in order.
Speaker 2:No, I mean, if you, you know, if you took all of the PFD that was remaining I mean it's only $667 million You've got a $1.8 billion deficit at a 2.5% inflation rate, which I said earlier. I mean, I'm reading some things that says it could be upwards of 3.5% to 4% in inflation, but even at the rosiest assumption, $1.8 billion it doesn't even cover half of the deficit, half of the deficit. That's insane.
Speaker 1:Yeah Well, I mean, we've got to stop this focus on spending, have got to act, have got to become responsible and ask themselves where is the money coming from? Before we get any more of these op-eds on, particularly from leadership, I mean, it'd be, you know, you see Zach Fields write this stuff every once in a while. Okay, it's Zach Fields, you know, a backbencher, sort of a backbencher in the House. This is the majority leader of the Senate who's doing this, the responsible body, the body that is looking out for the long-term, looking out for the overall. This is the majority leader of the Senate that's doing this. And there's not a breath, there's not a single breath of where's the money going to come from for all this, where's the money going to come from to pay for the base deficit that we've got as opposed, and not to mention, where's the money going to come from for this additional spending. There's not a breadth of that in her entire op-ed.
Speaker 2:No, and I'm reminded of the press conference, the presser, that they had last year, where they had Stedman and Giesel and, I think, annie Josephson and some other people up there they were talking about. You know, well, next year is going to be tough. Next year is going to be tough, and then Stedman's like but I don't want to focus on that. Well, wait a second. This is the most critical thing for the state of Alaska moving forward. You don't want to focus on it? I mean, come on, we would just need to focus on right now. That's how we got here, because we just focused on the now and we didn't focus on the future.
Speaker 2:We're continuing the weekly top three. Brad Keithley, of course, alaskans for Sustainable Budgets. You can find him at ak4sbcom or you can go argue with him over on X or Facebook or wherever you want to argue with the bat. Uh, this week's uh, number two, number two, all right, all I want to say is. All I want to say is uh, I'm under on number two. All I want to say is welcome to the party, pal. Uh, we've been talking about this for months and now, all of a sudden, everybody's finding religion all of a sudden. Well, dermot cole was the first person to talk about this kind of thing and I'm like he talked about it 10 days ago. Brad keithley's been talking about it on this program for months, and that is, of course, 10 years is only the beginning of the problem. When we're talking now about, uh, oil production, brad, um, I guess you're you're, you're, you're the, you're the copernicus or galileo of our time, where they wanted to stone you, and now, all of a sudden, everybody's found religion well, yeah, maybe.
Speaker 1:um, so the the lead-in to this. We talked a lot last week about the new study on pika and what it's telling us about production taxes, and it it's telling us that production taxes won't start from PICA a major field won't start from PICA until five years. No zero production taxes from PICA until for five years down the road, or seven years down the road and then another five years where PICA stays on minimums, years down the road and then another five years where PICA stays on minimums. And it helps explain why, over the next 10 years, when you look at the revenue forecast, you see this dive in production taxes over the next 10 years and you can see that from PICA, which, with the delay in production tax, startup and then continuation on minimums. There's something else from these studies. There's the study of PICA that we focused on last week and then there's also a study about Willow that the department Conoco's Willow field, that the Department of Revenue released, and there's something else from these studies that is as significant, if not more significant, particularly when you're looking around the long-term. You'll recall that when you had Will Stapp on the show, the last time you had Will Stapp on the show, you were asking him about production taxes toward the end of the interview and Stapp stumbled along something about yeah, yeah, yeah, there's a problem for the next 10 years. It's on minimums and all that sort of stuff. But wait till we get to the 2035 and wait till we get to the next decade. It's all gonna get better, because all that stuff's gonna be gone. All the problem over the next 10 years is gonna be gone. All of a sudden, we're gonna have this spike in production taxes. You asked the appropriate question, which is well, how do we get through the next 10 years with the $1.8 billion in deficit? But setting that aside, the staff essentially tried to argue that everything's going to be fine.
Speaker 1:Beyond that, the studies that have been done by PICA and for Willow are telling us something very interesting and if you can flip up that chart real quick, I want to talk through this quickly. I'll put it in the Friday column also, but I want to talk about this real quickly. There's been four studies done of Willow one in February 23, one of April 23, one of February 24, and now the most recent in August 25. Two studies of PICA these are studies by the Department of Revenue about various revenue sources. This is focusing on production taxes. This chart focuses on production taxes, two studies of PICA, one in March of 24 and one of August of 25. And what these numbers are is they are the average annual production tax to be paid from each of these fields. And so you look at Willow, you look at the studies up until the latest and they vary between negative $266 million a year from Willow's startup at 29 to 33, to Willow then going at $268 million in the February study, from 33 to 43, annually from 33 to 43, and then $112 million as Willow is on decline. The Willow field's on decline from 43 to 53. The study covers essentially 30 years. So that's the study that was in February 23.
Speaker 1:And if you look at the study, the numbers focus on the numbers for 33 to 43. In the middle column for Willow February 23,. $268 million a year. April 23,. The study $218 million a year. April 23,. The study $218 million a year. February 25, $211 million a year. Those are the numbers that Will Staff has in mind when he was talking. He's saying look, yeah, it's going to be bad for the next 10 years. Looking at Willow, for 29 to 33, you know very low numbers, negative numbers some years, but when we get to 33 to 43, the next decade, it's going to get better. And I'm assuming he had in mind those numbers from the previous studies, the latest Willow study.
Speaker 1:Look at the latest Willow study, which is August 25. And it shows $30 million a year from 29 to 33. Willow starts up in 29. Year from 29 to 33. Willow starts up in 29. So it shows $30 million, $27 million from a year from 29 to 33.
Speaker 1:Look at what goes on in FY 33 to 43. This is the Department of Revenue's study. This is just taking their calculations and turning them into an annual average. Look at what happens in 33 to 43. The projection is dropping, drops through every study. But from the February 24 to the August 25 study it drops from $211 million that Willow is supposedly going to contribute in production taxes to the state budget to $53 million, a drop of $160 million plus or minus. And then look at 43 through 53. Instead of $90 million it drops down to less than $20 million.
Speaker 1:Pica does the same thing. When you look at the FY33 to 43 average the middle column and look at the PICA numbers, the March 24 study said PICA was going to contribute over $100 million in production taxes. Now the new study shows it's $50 million, less than half. That what's going on is as we get closer to field startup and we're seeing the cost of the field come in, the actual cost of the field come in. What we're seeing is it's driving down those total costs which are a deduction from production taxes. Those costs are starting to drive down the production tax. That's going to be realized significantly. Drive down the production tax. That's going to be realized not only in the initial startup years FY29 to 33 in the case of Willow, or FY27 to 33 in the case of PICA not only in those startup years, but also in to say don't go away the next 10 years.
Speaker 1:Yes, they're bad the next 10 years, but they go away. They don't go away In the decade beyond that. They stay bad and the revenues being produced by production taxes stay bad. These may be the August 20, the August 25. Numbers may even be high. The reason they may be high is because both both Conoco now with Willow, and Santos with PICA, are talking about additional developments and Santos, with PICA, are talking about additional developments and what those additional developments will do is create additional credits, additional deductions that will drive even these numbers the August 25 numbers, down lower by creating additional credits to go against production tax liability.
Speaker 1:In those decades SB21 is broken and it's not only broken for the next decade.
Speaker 1:We've seen that in the last several revenue forecasts.
Speaker 1:As you've looked at the decade ahead and you've looked at the drop in production tax revenues over the next decade ahead, sb21 is not only broken over the next decade, it's broken over the field life of these new fields coming on.
Speaker 1:And the new fields are important. Not only are they adding production, but they're also replacing existing production that's been paying full production taxes. So when you take those into account, you're having a continued depression, depressive effect on production taxes over not only the next decade but the decade beyond that. When legislators try to blow smoke at you anymore and say oh yeah, there's a problem over the next 10 years and somehow they dance around how the hell we're supposed to get through the next 10 years. But not only is there a problem in the next 10 years, there's a problem beyond that as well, and the problem is that SB21 just doesn't generate Alaska's fair share of the revenues being generated by these projects is just not generating it. It is SB21 and the environment we've gone into is tilted much more in favor of the companies than it is in favor of the state. There's not a balance anymore. It's just tilting in favor of the companies.
Speaker 2:The worst part about this whole thing is that even in this article, in the beacon from James Brooks, it mentions, in fact, that it doesn't even include the per barrel tax credits. The value of those credits are not included in the new estimate. So I mean it's even worse than what you're portraying here, because, again, it doesn't account for everything. But regardless, that was the one question that I had for Will how do we make it through the next 10 years?
Speaker 1:Well, now the question is much broader than that the per barrel tax credits. What's going on with PICA? Or what's going on with Willow? Is that Willow according to the DOR analysis, willow is staying on minimums throughout the entire field life. Now it never gets off minimums and the per barrel tax credits only come into play once you get off minimums. If you have a tax obligation above the minimum, it starts beating that tax obligation, starts reducing that tax obligation.
Speaker 1:We never get to the per barrel credits with the willow field the way that DOR has analyzed it, to the per barrel credits with the willow field the way that, the way the DOR has analyzed it, we barely at the tail end of the PICA. We barely get above minimums, so we're barely getting into the area where the per barrel tax credits apply. So, yes, it's worse, because when you get out into that next decade, the per barrel tax credits are at least applying to most of Hill Corp's production from Prudhoe, but it's not applying to any of this stuff. This stuff is going down just because of the way SB21 is operating. Before you get to the per braille credits.
Speaker 2:You know I give Brad a hard time about the whole beat down and everything else, but we got to laugh about it because no, I mean, otherwise we'll cry. I mean nobody's. Nobody seems to be talking about this and the average person is not really paying attention to it. The listeners are, but the politicians, the people who we elect to pay attention to these things, are not even you know, are not even talking about, they're not even mentioning it. They want you to ignore. Let's not focus on that right now. Let's not focus on that right now. Oh, we'll wait 10 years, it'll be fine.
Speaker 2:That answer from Will Stapp was just to me. It was just astonishing. How do we get over the next 10 years? Well, you know, and that's all these things, all these Republicans, every time we talk to a Republican. Well, you know, resource development, that. So how do we make it between now and then? Even if that were true, even if resource development was the way out, how do you make it between now and then? That's like saying I'm going to get that bonus in 10 years. I just got to figure out how to not live on the street for the next 10 years before I get the bonus.
Speaker 1:Well, and what this number? What these numbers are telling you, michael, is you're not going to get the bonus in 10 years. I mean somebody's holding that out and saying, oh, 10 years, 10 years, just make it 10 years. We don't have savings anymore. The only way we made it through the last 10 years was by draining savings. We don't have savings anymore to make it through the next 10 years. But those who are holding out and saying just wait 10 years, it'll be fine, the numbers are now telling you it's not going to be fine in 10 years. The numbers are telling you that it's going to be as bad in 10 years. These are not inflation adjusted numbers. So when you say that, yes, but production revenues are going to go up per year on Willow, for example, are going to go from 27 million through 33 to 53 million. They're going to double from $33 to $43. Well, spending has more than doubled over that period of time. It's not keeping up with where we're heading.
Speaker 1:This state it's a combination of two things. I mean Giesel highlights the problem in one by not talking about it. The problem is on the spending side. The problem's also on the revenue side. Sb 21 was supposed to increase production. It's done that and supposed to increase production taxes, supposed to increase revenues for the state as production went up. Well, production's going up, something like projected to go up something like 50% over the next decade. Production taxes are projected to decline by 43% over the next decade and now we're finding out that even in the decade beyond that, production taxes are going to continue to be on the floor. So we've got to address both and we've got to have legislators and administrations that step up to it and say look, this is a problem that we've got, that we've got to solve. This is a fundamental problem that we've got to solve.
Speaker 2:Yeah, well, and that's the thing. If you can't even admit it, if you can't even talk about it, there is no solving it. And that's where we're at. I mean, we just we can't. You know, you've been, you know, I know that Harold is in the chat room talking for years about oil taxes, and you've, we've been talking about how the oil taxes are, are busted and need to be fixed and need to be addressed, and how the spending also needs to come down. And so now you've got both sides of the aisle, you know, climbering and clawing at you because we can't possibly cut. And boy, we need that stability that we can't, we can't touch that oil tax because the I mean, you know, the church of oil is like we can't do that. And so you've got both sides who are looking at you aghast. But if nobody acknowledges that there's a problem and addresses it, wow, what's it going to look like when the yogurt hits the rotor? You know what I mean? That's, that's going to be a problem.
Speaker 1:Yeah, it's um, I mean, you cannot. You cannot legitimately look at these numbers and say we're going to be fine. You just can't. You can't, you can't see these numbers and say, yes, we're going to grow our way out of this through increased oil development or increased resource development. The numbers are telling you that, yeah, revenues go up, producer revenues go up, but state revenues aren't. State revenues are going down over the next 10 years and they aren't recovering in the 10 years beyond that. So what's the state supposed to do while this is going on?
Speaker 2:Yeah, alex makes a valid point. Seems like mining taxes need to be revised too. Alex, I would agree. I've talked about that for years that the severance tax and that the minimum tax that they're getting right now on their net profit schemes. But we can't even address the elephant in the room which is oil. If we can't get at the biggest part of the problem, how in the hell are we going to get them to address the mineral taxes? I mean, I'm in agreement with you. You know we should not be pulling these minerals out of the ground and getting the pittance that the state is. But hey, you know no big deal, we just pay no attention to the man behind the curtain. You know what we need. We needed to find benefits program that would help the state. That would help the state.
Speaker 1:Yeah, that'll that'll help the state sink it. I mean that'll that'll run us into the iceberg even harder all right.
Speaker 2:Uh, number three of the weekly top three, brad keithley alaskans for sustainable budgets is our guest. Ak4sbcom is where you find him. Um number three, brad. Um. Is there really progress on ak lng? We keep hearing about it. We keep hearing a lot of people talking about it. Keep all those, all those Republicans who are all about resource development. Oh, it's going to, it's going to be. It's getting better, it's getting good, it's getting better. You know what this reminds me of? This reminds me of the victory lap that Bill Walker took when he signed it with Japan and China and all these other people. You know. Oh, it's just around the corner. Just around the corner. We've got more on the AK LNG under Glenn Farn. Give it to us.
Speaker 1:Well, we had a couple of headlines this past week coming out of the worldwide. There's a conference every year called Gas Tech. It's a global gas conference. The LNG industry plays a role in that and is playing a larger role in it as it goes along. There were a couple of agreements, a lot of agreements signed during GASTEC, a couple of agreements related to Alaska. One was an agreement between Glen Farn and Jura, a Japanese electric company, japanese electric company. The headline, james Brooks wrote, was Japanese electric company signs, tentative agreement for gas from Trans-Alaska pipeline project, the gas project. The second was a headline developer proposed Trans-Alaska gas pipeline signs deal with South Korean steel company, both big headlines and both about, you know, deals being signed at gas tech One, the one with Jera, was for the sale of LNG.
Speaker 1:The one with the Korean Steel Company, south Korean Steel Company, was both for potential purchases of pipe for the LNG line and the sale of LNG to the project. Big headlines and they made a lot of buzz at Gastek. I had friends who texted me or who direct messaged me and said, oh, things must be going on in Alaska. The combined, all of the deals the deal with the Thailand oil company, the Taiwanese company, the Taiwanese LNG purchase, the Japanese purchase, the Korean purchase, all these combined aren't half yet of the total capacity of the LNG line. And for the LNG line to make economic sense it needs to be full, not just half full, not just 75% full, not 80% full. It needs to be full to drive the unit costs down and make it competitive. So these are headlines that indicate some progress on the sales side, on selling potential sales of LNG. All of them, all of the deals that have been announced thus far, none of them are firm. All of them are contingent on a wide variety of things. None of them are firm. All of them are contingent on a wide variety of things. Most qualify as letters of interest, which means, yeah, if this happens and that happens and the other thing happens, maybe we'll negotiate a firm deal at some point. Or barely over half of the capacity of the LNG line. So they aren't filling up the line Yet. There may be more to come, but here's the deal and here's what all of those deals are waiting on and here's what you know, real, those who are following this line from gas tech and from elsewhere, this is what they're really waiting on. They're really waiting on the updated cost estimate.
Speaker 1:To be competitive, alaska LNG has to enter the market at a competitive price, and the extent to which it's at a competitive price is determined by its costs. We can have all the volume in the world, but if the costs are substantially high, that per unit cost is going to be too much and it's not going to be marketable in the world market. Costs are determined by two things the cost of the pipeline and the cost of the gas supply. The pipeline the project doesn't have any gas supply yet. The pipeline the project doesn't have any gas supply yet but everybody assumes it'll enter into the gas supply at some point and the gas supply will be about a buck, which is the general assumption in most of the economics. It may not be, but the cost of the pipeline is going to be a substantial part of determining whether it's competitive.
Speaker 1:All of the analyses that we see being done thus far are still predicated on the old, now decade-old, projection of a $44 billion cost to build the pipeline, all of the components that are necessary to get the pipeline up to the volumes that it needs to be able to be competitive internationally, to deliver the volumes it needs to deliver internationally. But that $44 billion estimate is a decade old, and so everybody sitting there, everybody who follows this stuff, is sitting there going all right, there needs to be a new cost estimate. You can't go to FID, you're not going to get financing, you're not going to get people to sign firm contracts based on a decade-old cost estimate. When are we going to get the new cost estimate?
Speaker 1:Some of the messages I got from GASTEC, with all of these headlines about the signing of the deals, was has there been a new cost estimate? Are these based on the new cost estimate? Are these actually live deals? Do people know what they're doing? And the answer is no. We haven't seen a new cost estimate. There hasn't been a new cost estimate made public. There's no reference to new cost estimates in either of the press releases that Blenfart issued around these deals, and so we haven't seen the new cost estimate.
Speaker 1:And until we see the new cost estimate a qualifying cost estimate that meets the standards of going to FID until we see a new cost estimate, all of this stuff is just pie in the sky. Most of it I mean most of the comments are well okay. So they're trying to satisfy Trump. They're trying to make it appear that we're making progress on the Alaska LNG project without actually committing to anything, so that in the tariff negotiations that are going on, that the companies or the countries can say, yes, we're working on this, but everybody's sitting around waiting on the new cost estimate. And that's going to be the headline, that's going to be the important headline, that's the one that's going to tell us whether any of this stuff really makes sense and whether we're actually making progress.
Speaker 2:And we haven't seen it. And I'll remind you again that that original cost estimate of $44 billion is 10 years old. Tell me what hasn't gone up in price with steel and everything, with the tariffs and all the other things, covid and everything. Tell me one thing that hasn't gone up at least 15 to 20 percent in price in the last 10 years? Right, I mean it's. You just can't say that this is not. It would not be a surprise if this was a 60 billion dollar project, or more.
Speaker 1:I mean, usually when you've got old cost estimates you can say well, productivity gains, there's been productivity gains, we're doing things smarter and better since that last cost estimate and so we know and so those are going to offset the cost of inflation that productivity will get more bang for the buck out of the dollars we're spending. But that's not the case with the LNG pipeline, because most of the cost is in kit, is in pipe, is in steel, is in tangible things that have gone up significantly in price over the last 10 years and there's really been no great productivity gains that have occurred in the LNG industry. Nobody's figured out how to make LNG cheaper, how to limit the amount of kit you need in the liquefaction plant. No one's figured out how to make the kit that's needed to extract CO2 up on the slope from the Prudhoe supply. Nobody's figured out a new process that makes that cheaper. So there's no.
Speaker 1:There's the usual offset you have in old cost projections when you update them is you know, yes, everything's going up, but productivity gains have decreased the cost. We don't see any of that here. We don't see any of the productivity gains. So all of the pressure on the cost is pushing it up. And until we get a cost estimate and legislators are going out saying, oh yeah, we're close, we're close, we get all these deals. Until you see a cost estimate, you can't say that. And some people say, well, it's financing and the government's going to finance it. Well, yeah, but they're financing the cost, the real cost. And unless the federal government is prepared to just, you know, write off a bunch of money in financing this pipeline and then not charging for all of the costs, it really doesn't matter that you're getting financing. What matters is the cost, the cost itself. And until we see an updated cost study, we're not going to be anywhere down the road on this.
Speaker 2:Do you think it's coming? I mean, do you think it's going to be the next year? Are we going to see a cost? I mean, who knows what's going to happen here? A couple things that stuck out at me real quick, brad, on this First and foremost, when they were talking about Japan and the Japanese deal. I love this little quote at the very end. This week the news service reuters reported that japan was hiring energy consulting firm woods mckenzie to assess the feasibility of the pipeline project. Wood mckenzie worked for the state on previous iterations. This is the same wood mckenzie that came up with a report that said in the rosiest application of an 80 uh subsidy, we'd still be delivering at gas at three dollars over market value. Right, I mean. Right, I mean that's not a good thing.
Speaker 1:And that would. Mckinsey's study was based on the $44 billion cost to the pipeline as well. So you know you ask a very good question when are we going to see a cost study? When's this piece of the jigsaw puzzle, the largest piece of the jigsaw puzzle, going to be done? There's a picture in the Alaska Beacon article on the announcement of the deal with Jera.
Speaker 1:And the picture is of the guy from Rex Cannon, who's co-star or co-star co-president of H-Star Alaska LLC, which is the owner of the project. There's a picture of Rex standing in front of a projection screen that's headlined targeted milestones in the next five months, talking about all the things that are going to fall in place in the next five months Top 10 things that are going to fall in place in the next five months. None of them is the cost projection Right.
Speaker 2:I'm so glad you brought it up because I looked at that and I went no cost projection and the one thing that's glaringly otherwise missing from this is finding investors right, finding a way to pay for it. Those two things are not on the projections for the next five months.
Speaker 1:Well, number eight is complete phase one financing, so you can say that they've at least got some financing on there. But none of this, none of this talks about the cost projection. And without the cost projection, I mean when I talked to my friends at GasTech and they said, oh, we got all these announcements. You guys must have a new cost projection, you must be really making progress. We don't have a cost projection and we don't have an updated cost projection. And the response was well, how could they be announcing these deals if you don't have an updated cost projection? And the answer is well, you can announce deals all day long if they're not firm and binding and they're intended for the PR room at the White House. That's your audience. You can announce them all day long, but for them to be realistic, there has to be a cost projection. And until there's a cost projection and an analysis of how that cost translates into the market, then you know we're just, we're twiddling our thumbs, we're enjoying the show, but we don't have the substance behind the show.
Speaker 2:Well, and you know what, If you look at that chart and I'll post a link up so folks can go read this article and they can see the picture that he's talking about because number one on that picture, I think, really tells the tale Number one on the targeted milestone over the next five months is to expand the Alaska team. So again, we got a group of people who are all the special people, who are all part of this. We need to expand the Alaska team, so we're going to spend more money on the theater that LNG has become and you know, you know, millions of dollars will be spent on setting the team up and these people will be paid for however long this charade continues. And then they'll come out and say, well, it's just not cost effective, but don't worry, we got three years worth of employment out of it for all these folks who are part of the special team. I mean, that's what it feels like.
Speaker 1:Alaska's study industry. We've promoted Alaska's study industry. Yes, the Alaska study industry approves of this message. There's another piece of this, michael, that's going to be interesting. There are things you went back to the old Wood Mackenzie study tax rates that are embedded in those economics and are going to be, I would guess, embedded in any economics, but they don't have state approval for the discounted production tax rates. So you can sort of see a situation in which they're trying to create this impression of a lot of progress and, oh, we're ready to go to FID. We don't have a cost projection yet, but we're ready to go to FID. But the state needs to give concessions on these things like property tax rates, needs to give concessions on these things in order to make it work. And and I can just see sort of this flood of of press and this flood of discussion, this flood of built up excitement all of a sudden hitting the legislature next session with a package that says we need all this stuff out of you in order to make this work.
Speaker 2:Right, which again makes that 10 year forecast and things that we talked about earlier even less rosy than what we have right now, because that's not even factored into those things. Yeah, brad, I just feel like this is performative theater. At this point, that's what I feel like. I feel like this is all just performative. Somebody saw an opportunity. They're going to glom money from the state millions of dollars and they may be trying their best, but in the long run, it doesn't hurt them because, well, we got paid, and if that project doesn't work out, we'll move on to something else. Well, we got paid, and if that project doesn't work out, we'll move on to something else. Meanwhile, alaska has built their hopes and dreams around it, right, and all the politicians are oh, it's going to be great and it's. There's no realism in these things.
Speaker 1:Yeah, and next week we may be talking about oh, they finally released a cost projection and the cost projection is going to be competitive and so all this stuff makes sense. But until you have that cost projection, don't get your hopes up. Don't start betting on this thing being delivered until you have that cost projection.
Speaker 2:And that's where we sit right now. All right, brad, final thoughts here. We've got about 45 seconds.
Speaker 1:Our leadership is leaving a lot to be desired. I mean, you go from Giesel's op-ed that talks about we need to spend more, but without talking about how we pay for even what we've already got on the books much less spending more. Then you go to the second segment and talk about where we are with production taxes and that production taxes are going down, even though we have legislators saying, oh, just get us through the next 10 years, It'll all be fine. Now we're finding out it's not going. Production taxes and that production taxes are going down, even though we have legislators saying, oh, just get us through the next 10 years, It'll all be fine. Now we're finding out it's not going to be fine, even after the next 10 years. And now we're in and now talking about LNG without, without having a cost projection out there. Our leadership is not serving us well, Michael, and it's going to be a heck of a governor's race when we talk about a new leader.
Speaker 2:Brad Keithley.
Speaker 1:Thank you my friend Appreciate it. Thank you for coming on board, as always. Thanks for having me. 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 next week on the Weekly Top Three. Thank you.
