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.
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 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?
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.
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.