It’s the economy

alaska rank

Alaska Department of Labor graphic

Economists are forecasting Alaska could finally break out of its recession next year or may already have done so, but that doesn’t mean the economic future for the 49th state looks all that rosy.

There are fundamental problems stalking the north.

This being an election year, one might expect the state nearly denied statehood because of fears it could never raise enough tax revenue to support itself would be entertaining a lively discussion about its economic future.

But what talk there is of economics has centered on Alaskans maintaining the maximum payout from their Permanent Fund Dividends (PFDs), which pump a big pile of money into the state economy for a brief time but cannot support an economy.

Some of this behavior is easy to understand. People don’t want to lose what they believe they are owed, and crime appears to have crept upward as crime sometimes does during recessions.

Crime is an easier issue for politicians; it’s simpler than economics, and everyone is against it.

But Alaskans ought to least be thinking about a few future realities.

The world changes

Oil is far and away the state’s most valuable commodity, and though production is now starting to creep back up, any drop in demand could lead to a drop in oil prices that would tend to offset the increase in revenue a jump in production would otherwise bring the state.

And the potential for bad news doesn’t end there.

Fish are Alaska’s third most valuable commodity – behind people in the form of tourists – and the first wave of salmon farming long ago played havoc with the state fishing business. Alaska salmon prices peaked in 1988 when Bristol Bay sockeyes were worth about $2 per pound. That translates into about $4.26 per pound in today’s dollars,  according to the Bureau of Labor Statistics inflation calculator. 

Bristol Bay salmon this summer were bringing in about $1.25 a pound, according to KDLG News in Dillingham. That’s about 30 percent of the 1988 price, and it’s unlikely this trend will change in a market now owned by farmers.

The second-wave of farmed salmon is coming with the French joining the Japanese, the Norwegians in Florida, and Midwestern Americans farming salmon in clean, filtered, recirculated water.

Approximately 70 percent of the salmon eaten in the world today is already farmed, and the old image of farmed fish as bad for the environment and not-so-healthy for people is fast fading. Seafood Watch, an organization once helping lead an assault on farmed salmon, now recommends a variety of farmed fish as “Best Choice,” a ranking given to no Alaska wild salmon.

Alaska tourism is the state’s bright spot, and markets for liquified natural gas (LNG) look good.

And meanwhile, the Russians – already major exporters of LNG – and the Chinese – major importers of LNG and the hoped-for buyers of Alaska gas – continue to make deals. Russia is already shipping LNG via “the Northern Sea Route, which China is calling the Polar Silk Road, in just 19 days, compared to the 35 days that it would normally take to navigate the traditional eastern route via the Suez Canal,” Donald Gasper noted in the South China Post last week.

The Chinese are invested in Russia gas producer Novatek, which has now outgrown Gazprom, and they are about to connect to a Russian natural gas pipeline, while still pursuing LNG shipments by sea.

With an eye to the Arctic, the Chinese this summer also started moving forward on construction of a nuclear-powered icebreaker that could augment Russia’s fleet of similar ships already breaking the ice in the Arctic.

In concert with the Russians, they are talking about year-round shipping via Russia’s Northern Sea route. 

Talk, talk, talk

Over the past decade, there has been a lot of talk about U.S. Arctic development in Alaska, but aside from the oil that started flowing from Prudhoe Bay in 1975 nothing has happened. Royal Dutch Shell once had big plans for oil development in the Chukchi Sea, but in part because of objections from environmentalists and U.S. regulatory restraints, Shell has come and gone.

A year ago, Adam Millsap, a public policy advocate at the Mercatus Center at George Mason University, warned the Legislature that Alaska’s future looked shrunken. Not much has been done to shift that outlook since.

“In the long run, the economic reasons for living in Alaska will likely diminish,” Millsap later wrote at Forbes. “Because of its geographic isolation and unique climate, it is difficult to foresee Alaska as a place that thrives in the modern knowledge economy. This doesn’t mean that some people won’t live there—it remains an exceptionally beautiful place that is unlike anywhere else in America, and there will always be people attracted to what the state offers. But it does mean a smaller population and a smaller economy overall.”

Maybe that’s what a majority of Alaskans want, given indications of what they don’t want, starting with mining.  State polls have found a majority of the state opposed to almost any of it, and the “Stand for Salmon” initiative on the ballot this year would stifle, if not kill, almost any mining as well as other development projects if opponents of the initiative are to be believed.

Alaska became attractive to mining companies because of projections that the demand for copper will increase ninefold in the next 10 years as the globe transitions from a hydrocarbon economy to an electric economy.

Alaska was a major copper producer at the Kennecott Mines in the Wrangell Mountains from 1911 until the mine was abandoned in 1938. That mine is now the biggest tourist attraction in Wrangell-St. Elias National Park and Preserve and off-limits to mining.

But Alaska is home to a number of other large copper deposits. All of them are situated near anadromous waters because almost all of the water in Alaska is home to some sort of salmonid.

In Alaska’s past, salmon were sometimes traded away for mining. Though most of the mining impaired areas later recovered – Resurrection Creek in the community of Hope across Turnagain Arm from the state’s largest city being one of them – the Stand for Salmon initiative seeks to end any future such trades.

That could foreclose on opportunities for the state to play a role as a major material supplier in the big, global shift to electric economies that Norway-based DNV GL, a global risk management firm, is predicting.

DNV foresees a dramatic shift to electrification over the course of only a years, though the company recognizes hydrocarbons will play “an important if reduced role in our energy future with its share of the energy mix set to drop from around 80 percent today to 50 percent by the middle of the century, with the other half provided by renewables.

“Natural gas will become the single largest source in 2026 and it will meet 25 percent of the world’s energy needs by 2050,” the DNV forecast says. ” Oil will peak in 2023 and coal has already peaked.  Solar PV (16 percent of world energy supply) and wind (12 percent) will grow to become the most significant players amongst the renewable sources with both set to meet the majority of new electricity demand.”

Oil will still have a place

Where high power-to-weight ratios are required for machinery, as with airplanes and snowmachines, there remains no substitute for the internal combustion engine. A thousand-pound battery using today’s technology holds only one-fourteenth the energy of 1,000 pounds of jet fuel, Eric Adams writes at Wired.

Ever-improving battery technology is expected to level the playing field by 2045, but liquid fuels are likely to maintain a cost advantage for years after that date.

All of which is good news for Alaska. Prudhoe Bay, the state’s golden goose, should continue to lay eggs for decades even if the eggs get smaller and smaller.

Outside of that?

Alaskan Kerry Williams has come up with a novel plan to use “pumped-hydro” to create something of a natural “Eklutna Battery” in the Chugach Mountains to help the Anchorage Metropolitan Area, home to about 60 percent of the state’s population, connect to what appears to be the oncoming wave of electrification.

Though the project would cost a fraction of the more than $5 billion the state once contemplated spending on the Susitna Hydro-electric project, Williams’ scheme has garnered little real support.

And if it did, the water diversions required to make it work might well run into problems with the Stand for Salmon Initiative, if it passes.

Alaskans have had big business ideas over the years – computer server farms on the North Slope, production of Metrol, a clean-burning liquid fuel that can be made from natural gas, an Alaska petrochemical industry, DC power lines to move electricity from North Slope power plants to Western Canada and the Pacific Northwest and more – but Alaskans have proven better at talking about innovation than innovating.

As for the economy, it’s largely been left to run wild. Eight years ago, gubernatorial Republican candidate Ralph Samuels, a former state House Majority leader, ran for office on a platform that called for economic diversification and development.

He finished third in what was basically a three-man race. His prediction the economy was headed for the rocks came true about five years later. Samuels had by then given up on politics and was happily ensconced as a vice-president at Holland America Group, which controls a big chunk of the profitable Alaska tourism business.

Political consultant James Carville is widely credited with helping Bill Clinton win the 1996 Presidential race by coining the phrase which eventually came to be the campaign’s slogan: “the economy, stupid.”

The phrase resonated in a country struggling through an economic slowdown, but the phrase might work better in the southern continental states than in Alaska. Alaska has a reputation for people solving their economic problems the old-fashioned way: they leave for better opportunities elsewhere.

People have now been leaving by the thousands ever year. The fourth highest birth rate in the nation – only the Dakotas and Utah are higher – has helped mask the decline in population overall. But unless the state somehow strengthens its economy, a lot of those children are destined to grow up and leave or settle into the life of welfare-supported poverty that already plagues parts of the state.

Just prior to the official, 2015 start of the recession, the U.S. Census reported that Alaska, on a per capita basis, led the nation in the number of residents on welfare. “The large seasonal tourism and fishing workforce, combined with more than 140 villages that are exempt from public assistance time limits because of few job opportunities, both contribute to the outsize rate,” the Anchorage Daily News reported at the time.

The job opportunities in rural, village Alaska remain few.

CORRECTION: An earlier version of this story misstated the date of Adam Millsap’s testimony to the Alaska Legislature.









42 replies »

    • yes, that’s an interesting counterpoint, Burt. a similar argument was made years back about laptop computers. they were never going to out sell desk tops; too expensive and not powerful enough.

      power went up. cost came down. tablets (an even cheaper version of the laptop) entered the market. and today the combined sales of laptops and tablets is about 3 1/2 times the sales of desktops.

      i’d expect a similar development with electric cars, which are at the moment simply too expensive and not powerful enough. those with decent power and reasonable range just don’t pencil out. you can still get a much better deal on a comparable machine driven by an internal combustion engine even after factoring in the higher cost of fuel.

      but i would expect that to change. and i’d guess e-bikes, the sales of which are already zooming in Europe, might lead the transition.

      when i spent a year working in D.C. in the mid-70s, a motorcycle was the best way to get around, and i’d guess an e-bike would be even better now. cheap to operate. no parking problems. better able to get around traffic jams. etc.

  1. Thanks to Craig I’m more aware of how bad Alaska’s economy ranks ! Wow ! That said perhaps the next governor can start research to see what makes other states strong and then implement improve and capitalize on it . Alaskans designed pretty good fat bikes ! That’s a start . They also have apu university that skiers come to Alaska for . many states university obviously top that . We could use some investment into getting a quality medical school up here . Fairbanks has good university but they have been making tough cuts . Craig sure makes it look like Alaska has a big hole to climb out of . What politicians are going to support private industry?

    • i have a better idea than a med school. how about we offer any Alaskan who wants to go to med school a deal where we’ll pay for the education, but they have to practice in Alaska for X-number of years after graduation to pay us back?

      we’re a small enough state that if we could significantly increase the number of doctors here, we could create a little competition in the marketplace and drive down medical costs. i can’t imagine we’ll get doctors to work for as cheap as mountain guides.

      but then again, it always amazed me that people were willing to put their lives in the hands of such low-paid people….

      • Craig,
        These are all good ideas, yet I feel until there is a switch from the “Allopathic” form of Medicine (Which Medicates, Radiates and Removes Organs) to the Naturopathic Way of Detoxification and Rejuvenation……we will not prevent diseases in people.
        Most of the high cost of Medicare and Medicaid funding is the constant stream of prescribed medications (driven by pharmaceutical corporation)….many of which have harmful side effects and are toxic to the body (like chemotherapy)….or addictive like Opiates.
        We could have 2 Allopathic Doctors for every Alaskan and still watch them die (like over a million Americans do each year) in the hands of MD’s and DO’s.
        Another part of the chronic illness in America is the diet.
        Too many dead grains and dead animal flesh…this is not as healthy as we are led to believe.
        The constant digestion of animal proteins on a day in, day out cycle leaves the body in a state of constant Acidosis and leads us to chronic inflammation and diseases such as Cancer, Arthritis, Alzheimer’s, Dementia, and Heart Disease. (Except for our stomach acid, the body is Alkaline)
        Hippocrates the father of western medicine once said “Let food be your medicine”…
        By this he recorded a diet of mostly fruits and vegetables (eaten raw, uncooked)…since raw foods contain way more vitamins and minerals as well as very important enzymes which aid in digestion and help break down the “free radicals” which lead to disease.
        Remember the ancient Greeks soaking in hot baths and eating grapes…well they had it figured out pretty good back then.
        The Eastern Cultures use techniques such as fasting to cleanse the body and reset our state of Homeostasis.
        Many Americans faced with serious diseases still are unwilling to change their stressful lifestyles or make changes in their diet or exercise on a regular basis….this is the real high cost of our “medical” system.
        There is a saying in Medicine: “Common sense is, in medicine, the master workman”

      • Steve-O…
        I do not think (nor have I insinuated) that the ancient Greeks only ate grapes, but they did eat a fair shair of them for cleansing.
        I do know the Alaskan Inuits have one of the shortest average life spans on Earth…around 50 years.
        Many N.D.’s attribute this to their lack of fruits and vegetables in daily diet along with constant animal proteins sometimes 3 times a day all year.
        Digestion of animal protein causes Acidosis.
        This is scientifically proven and is fundamental to chemistry.
        The only “science” that Allopathic and Naturopathic Doctors agree on.

      • Many folks today still follow a diet that stems from
        Greece, Croatia, and Italy.
        “Eating primarily plant-based foods, such as fruits and vegetables,whole grains, legumes and nuts. Replacing butter with healthy fats such as olive oil and canola oil. Using herbs and spices instead of salt to flavor foods. Limiting red meat to no more than a few times a month.”

      • Steve,

        Not sure why you think I said that you think (or insinuated) that the Ancient Greeks ate only grapes…maybe Bill Yankee wore off on you and you are reading things that just aren’t there? Speaking of Bill, I wonder where he is, hopefully doing some studying.

        Looks like 25-28 was the average life expectancy of the Ancient Greeks. Follow up question, do you know what the average life expectancy of a modern meat eating American is?

      • Ok Steve-O….
        Maybe Bill Yankee wore off on all the “handles” here at camp Medred.
        That aside, the average life of folks in Ancient Greece has many variables that make it not too pertinent in this discussion…
        One main source of early death back then was the Peloponnesian War which lasted almost 30 years (431 -404 B.C.)…then when Spartarns attacked Athens, nearly 100,000 died from the following plague….so, just eat your meat and be happy we are not “under siege ” at this time.
        As for Bill, maybe he is out moose hunting?

      • “the average life of folks in Ancient Greece has many variables that make it not too pertinent in this discussion…”

        I’m not sure why you brought it up either.

      • Steve-O, I’ve just returned from harvesting a nice moose and am still cutting it up. This is in the spirit of eating large quantities of dead animal flesh (interspersed with fish and berries for variety.

  2. Craig once again you fill in the blanks with awesome info ! Your mention of Norwegian forecast is good one . They have proven able to think ahead ! Their fund similar to pfd is outstanding! They are innovative on fish farming. They are right about electrical being functional in near future and oil dropping off . One major item you didn’t mention is the Chinese and perhaps other countries are working at mining undersea crystalline natural gas I believe called ice . There are absolutely enormous quantities I read . Obviously natural gas is a much greener fuel than standard oil . So with its green potential and massive quantities it will be a player for a long time . Alaska needs some innovators in our political system. Beyond walkers concept of take from one person give to another.

  3. The Healy2 power plant just completed 30 days of energy production burning Healy coal without blowing up. Only cost $500 million and 23 years to get the 50mw plant running.
    So that should help reduce energy costs… 🙂

    • Burning the cheap coal available in Healy may increase our energy output, but it will also continue to increase the release of harmful greenhouse gases such as Methane into our atmosphere.
      When the new coal fired plant was built on the UAF campus a few years ago, it was and still is the last coal fired plant to begin construction in America in the last 10 years….what we see is AK is way behind the national curve in adding renewable energy sources to the power grid.
      Luckily, we are finally seeing the first commercial “solar panel system” go online in AK.
      I hope the Willow project can show investors a profit, so more switches to renewables occur in the near future.

      • Actually AK has been leading the nation in renewables for years, it’s the rest of the nation that is catching up to us.

    • Craig,
      good point.
      Walker never brings up the Russians delivering LNG to China, even though they have been using large tankers over the North West Passage for a few years now, as well as are finishing a major pipeline to Asia. ($55 Billion Dollar investment)

      • Correction….
        The Russians are using the Northern Sea Route…
        “The Northern Sea Route is a shipping route officially defined by Russian legislation as lying east of Novaya Zemlya and specifically running along the Russian Arctic coast from the Kara Sea, along Siberia, to theBering Strait. The entire route lies in Arcticwaters and within Russia’s Exclusive Economic Zone (EEZ). Parts are free of ice for only two months per year.”

  4. The Dunleavy Administration will do wonders for the state economy. The Peak Oil argument has been around for 50 years, always pushing their alleged date of doom into the future because the amount of oil pumped and used keeps increasing. I think the same people who thought up the “global warming scam” are the ones in charge of the Peak Oil nonsense.

    • yes, but the old “peak oil” argument was about supply. this one is about demand. the high price of oil started some serious investigations into developing technologies which have come a long, long way in a matter of years.
      own any new cordless tools? battery improvements have been nothing short of astounding.
      got any LED lights in your house? the Euros estimated that LEDs there have already cut electric consumption by a third from 1997 levels.
      the U.S. Department of Energy estimates that by 2027 the increasing use of LEDs here “could save about 348 TWh (compared to no LED use) of electricity: This is the equivalent annual electrical output of 44 large electric power plants (1000 megawatts each).”
      we are in the midst of a transformation. i now know people with electric lawnmowers, electric weed whackers and electric chainsaws, tools i thought just a joke only a few years ago.

      • Oil consumption will not decline unless the world economy declines. Products are moved by ships, trains, trucks and airplanes. None of those can be run on cordless tool batteries or any other means except maybe nuclear. Electric cars will never be able to compete with gasoline or diesel when it comes to power, speed, distance and the ability to move an entire family to grandmas 500 miles to grandma’s or Disney Land.

      • Craig,

        I have to hand it to you, you are the first person I’ve read say that peak oil is now about demand rather than supply. About a year and a half or two years ago was the last time I saw any of the kooks talking about peak oil (supply), all while world wide proven reserves were climbing by billions of barrels seemingly on a daily basis. But this new demand peak oil argument is one that actually makes some kind of sense. However electrical demand and oil demand do not go hand in hand. There aren’t very many oil fired power plants in the US, the major players are in no particular order coal, nuclear, natural gas, hydro, solar, wind, geothermal…we don’t really burn bunker oil or even diesel for power generation. So having said that, saving electricity doesn’t necessarily equate saving oil.

        As more people use more devices with batteries they need more electricity to charge said devices, this is the coming electric age. Instead of vehicles using gasoline and diesel they will instead plug into an outlet and use electricity generated in part by solar and wind power plants, but mainly by natural gas, coal, hydro, and nuclear power plants.

        One also need take population growth into account in all of this. We as a species are showing no sign of slowing down our rate of reproduction, even if a handful of the most well to do countries in the world are not keeping up with the rest of the developing world. As the rest of the world grows and develops they will want the cheapest and most readily available fuel sources to grow, for now that is oil, natural gas, and coal. Peak oil demand is an interesting topic of discussion, but years away from happening.

      • not my conclusion, Steve-O. the norwegians get the credit or the blame. their analysis is worth a read.

        their conclusion is not as whacky as it sounds. renewable are exceeding expectations, but gas will play a big role. and what’s “cheapest and most readily available” is changing fast. significant amounts of electric demand are being offset by steadily approving efficiency of appliances and especially lights.

        the DNV GL analysis is interesting. i’m not sure i agree with them energy demand peaking in 2035, but they make an interesting case. and your wrong about population growth. it’s slowing in most places:

        “Slower world population growth due to lower fertility rates

        “In recent years, fertility has declined in nearly all regions of the world. Even in Africa, where fertility levels are the highest of any region, total fertility has fallen from 5.1 births per woman in 2000-2005 to 4.7 in 2010-2015.

        “Europe has been an exception to this trend in recent years, with total fertility increasing from 1.4 births per woman in 2000-2005 to 1.6 in 2010-2015.

        “More and more countries now have fertility rates below the level required for the replacement of successive generations (roughly 2.1 births per woman), and some have been in this situation for several decades. During 2010-2015, fertility was below the replacement level in 83 countries comprising 46 % of the world’s population. The ten most populous countries in this group are China, the United States of America, Brazil, the Russian Federation, Japan, Viet Nam, Germany, the Islamic Republic of Iran, Thailand, and the United Kingdom (in order of population size).”

      • Craig,
        I stand corrected on the fertility rate decline. However 9.8 billion people by 2050 and 11.2 billion people by 2100 is a lot of people. A lot of people from developing countries wanting cheap power. Peak oil demand and supply are both coming, the question is when. I will look into that Norwegian study some more, sure is an interesting subject.

      • None of those examples are that impressive when you consider mass moved over distance. I’m sure the electric aircraft will be highly sensitive to weight and air temperature to safely travel a few people with a few bags over a relatively short distance as compared to say a 757. A passenger ship is not a container ship, or breakbulk ship. LNG is still a hydrocarbon, and it brings significant fire and explosion risk. While a passenger vessel can be fueled by this, it increases costs and requires more frequent refueling of a volatile liquified gas requiring special infrastructure that doesn’t exist in most ports and would be extremely costly to install worldwide. Even with batteries increasing in efficiency they are quantum leaps behind being feasible for worldwide cargo trade or long distance travel. There’s a reason medium chain hydrocarbon fuels are used for serious applications, short of nuclear there is nothing that gives even close to the btu per whatever unit of measure you wish to use.

    • Paul . You are spreading nonsense. Tesla model s sedan style goes from 0-60 in aprx 2.3 seconds ranked number two . I believe lamburguini sports car goes 0-60 in 2.2 seconds . Ranked first but not a technical passenger car. I believe one of the electrical car makers are about to come out with a car 0-60 in 1.5 seconds. That’s enough power/speed to start trip to grandmas . Obviously this is just the beginning of the green revolution. Paul Feel free to breath more hydrocarbon fumes perhaps your posts will be more enlightening at predicting the future.

      • I’m sure there are other more accurate stats on 0-60 but my statement paints close enough picture. Green energy will just become more effective.

      • So the Tesla can go 60 for about 200 miles during favorable temperature conditions carrying a small amount of weight. Then you gotta stop and recharge which under the best of circumstances takes almost 2 hours. Meanwhile I’ve already travelled more than twice that distance with 5x the cargo weight and stop for 5 minuntes to refuel, piss and get a cup of coffee. In 5 years the Tesla will need a new battery pack costing upwards of $15,000.

      • Yes Paul if you compare right now you win as to long distance and the fact America is set up for oil consumption . The discussion was about the future but you knew that . While you are driving along polluting the landscape you love and fumigating the people you love enjoy the coffe you bought on your 5 minute stop . Hopefully you enjoy the hydro carbon polluted air that’s getting into your body . Don’t feel bad . Everyone else does it too ! While you do that just think about the planes that fly around the world not using any hydrocarbons beyond their original manufacturing. Currently a primitive solar powered plane flew around the world. Some non stop legs of 4,000 miles with two passengers. No stops no fumes . That’s pretty good compared to a super cub .

      • Battery powered vehicles have been around for 100 years. You can’t get past the science of how much energy can be stored in a cell. Even scientist in the field admit this and say hydrogen fuel cells are likely the future……….and those have inherent limitations. Also, what the hell do you think all those people recharging their batteries in a few hours are using? The answer, electricity generated by hydrocarbons, coal, and nuclear. And when those battery cells reach the end of their life I won’t even get into the hazardous waste disposal costs.

  5. With hindsight, I can see that in 2010 Ralph had the best vision for a gas line. He was pushing for a small in-state line that we could have afforded. Sure wish we had that now. Walker busted our gasoline and now we’re out of options.

    • Lance,
      you are right about Walker busting our gas line, but our option is Renewables…
      in a way it is good the line never got built, so now we can focus on cleaner sources of energy…the problem is getting our state government to stop wasting hundreds of millions of dollars on “planning” a gas line that was never built.
      put the money to smaller scale “community” based hydo and solar and wind projects that add to our grid, but decentralize the energy production.
      this is safer for the air we breath as well as safer for our security.

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