Good news bad

News analysis

The bright spot for one of Alaska’s largest industries is that the prices paid to commercial fishermen for salmon look to be headed up this year and could keep trending in that direction.

Unfortunately, what is  good news in the short-term could well prove to be bad news in the long-term.

How can this be?

Simple. Alaska is on the wrong side of shifting means of production. It’s in the typewriter business in a computerizing world.

Nordic Aquafarms announced just days ago that it is prepared to invest $400 million in a land-based, recirculating aquaculture system (RAS) to raise salmon in Humboldt, Calif.

“Nordic has already been working through the permitting process for the first phase of its (similar) $500 million project in Belfast, Maine,” Seafood Source reported.

Nordic Aquafarms is in competition with Atlantic Sapphire, a Norwegian company deep into a massive RAS plant in Florida, and any number of smaller, boutique RAS operations popping up across the U.S.

The handwriting is clearly on the wall.

Alaska is organizing cattle drives while the rest of the world is building feed lots. The cowboys can tell you how this played out. Industrial agriculture is a tank that rolls over the competition and grinds it up in the treads.

Higher prices and positive prospects for growth will only encourage more farming.

See no evil; hear no evil

Commercial fishermen in Alaska hate to read this and dismiss any discussion of the future of one of the state’s largest industries as some sort of attack by non-commercial fishermen – personal-use dipnetters, subsistence fishermen and anglers engaged in some nefarious plot to increase their 1 to 5 percent share of the harvest of the salmon resource.

If only that was true.

Unfortunately, the real issue is about the fate of a significant segment of the state economy. There are some depressing parallels here with Alaska’s natural gas.

Alaska is sitting on an estimated 45 to 200 trillion cubic feet of natural gas on the North Slope. It is one hell of a resource, and it is at the moment worth almost nothing because the costs of getting it to market exceed the revenue it is likely to produce.

Twenty-five years ago, it looked inevitable that Alaska would witness a gas-fueled economic boom in the same way it had experienced an oil boom in the wake of the Arab oil embargo. It seemed only a matter of time.

In 2005, writes Robert Rapier at Forbes, the thinking was that “the U.S. would embark on a long-term natural gas crisis for which the only solution was ‘to pray.’

“(Author Matt) Simmons wasn’t the only one to think that a natural gas crisis was imminent. In fact, it was widely believed that this would be the case, and companies began to plan and build liquefied natural gas (LNG) import facilities to cope with the expected shortfall. Natural gas prices began to spike ever higher during 2005, and the Henry Hub Gulf Coast Natural Gas Spot Price crossed $15 per million British thermal units (MMBtu) by year-end.”

The federal government began planning for a gas pipeline from Alaska’s North Slope to the Midwest. That was the pipeline of which former Alaska Gov. Sarah Palin in 2008 famously said:

“I fought to bring about the largest private-sector infrastructure project in North American history. And when that deal was struck, we began a nearly $40 billion natural gas pipeline to help lead America to energy independence.

“That pipeline, when the last section is laid and its valves are open, will lead America one step farther away from dependence on dangerous foreign powers that do not have our interests at heart.”

Those statements came in Palin’s vice-presidential acceptance speech at the Republican Presidential convention a little over a decade ago.

She would never get close to the White House, except to visit, and there would never be a single shovel of dirt turned to start construction on the pipeline.

Oops

What happened?

Markets are what happened. With gas prices skyrocketing, oil and gas producers had a big incentive to find some way to increase production and make money.

Enter human ingenuity.

Legendary oilman George Mitchell, as Rapier writes, combined an old oilfield production technique – fracking – with a new one – horizontal drilling – to spark a revolution.

Technology changed everything.

Drilling horizontal “laterals…5,000 to 10,000 feet in length, and hydraulically fracturing them enabled economic oil and gas production for the first time from shale formations scattered across the U.S.,” Rapier notes.

“From 2005, U.S. natural gas production rose for 10 straight years. The previous production record set in 1973 was obliterated as production grew 50 percent from 2005 to 2015 to reach 27 Tcf. In the process, the U.S. became the world’s largest natural gas producer.”

With supply going up and demand fixed, gas prices went down. It was simple micro-economics. And plummeting gas prices torpedoed the planned natural gas pipeline from Alaska to the Lower 48.

The Federal Office for Alaska Gas Line Projects was eventually shut down. Major oil producers on the North Slope got together with the state to try to figure out an economical way to get gas to tidewater on Cook Inlet to make profitable the shipment of LNG to Asia.

They faced problems and said they wanted to slow the project until markets improved. Former Gov. Bill Walker, who ran on a campaign of “build the gas pipeline,” jumped in and took over. Walker spent four years and tens of million in state money going nowhere.

The pipeline is no closer to reality now than it was 40 years ago because the market isn’t receptive.

Salmon fisheries are better off. It is much easier to ship salmon than natural gas, and Alaska salmon were established in the market before competition arrived. In fact, there was a time when Alaska basically owned the market.

Thanks to that ownership, Bristol Bay sockeye salmon prices peaked at over $2 per pound in 1988. Adjusted for inflation, that would be $4.26 per pound today. Bristol Bay sockeye last year had a base price of $1.26 per pound. 

Bristol Bay sockeye are among Alaska’s most valuable salmon. Prices are expected to increase slightly this year based on projections of a 26 million fish harvest – down from a near record 62.3 million last year. 

But no one in the fisheries business expects prices to ever again come anywhere near what they were in 1988.

Fish farms

Alaska might have banned fish farms in the state in 1990, thinking it could continue to dominate salmon markets. But all the state really did with that move was create an opportunity for the Norwegians, the Chileans and others.

Farmed “salmon increased almost 1,000 percent between 1990 and 2015, according to United Nations statistics; (and) 75 percent of all the salmon we eat is farm-raised,” according to David Trilling, a journalistic researcher employed by Harvard Kennedy School’s Shorenstein Center and the Carnegie-Knight Initiative.

Salmon farmers did such a great job of raising fish in 2017 that they glutted the market, according to the Food and Agriculture Organization of the United Nations. But despite that down, the projections for salmon markets all point up.

“Aquaculture will be the clearly most important seafood production technology in 2030, and the only reason why seafood continues to be an important source for animal protein,” Norwegian professor Frank Asche warned at a University of Alaska Anchorage conference in October. 

Wild fish, he predicted, will increasingly become a niche product occupying a smaller and smaller niche with its value controlled by the far greater volume of farmed fish.

Alaskans and especially Alaska fishermen have long clung to the notion that the idea “wild is better” will steadily increase the value of the Alaska salmon occupying this niche. Think premium wine versus jug wine.

But this view is debatable and looking increasingly unlikely.

Consider what Noah Fish wrote of Superior Fresh salmon in the Post Bulletin, the Minnesota Newspaper Association’s Daily Newspaper of the Year, back in December:

“You’d be hard-pressed to find an organic, sustainable operation that can match the latitude of Superior Fresh,” an RAS operation in Wisconsin.

“‘We have no chemicals, no antibiotics, no pesticides and are non-GMO – even our fish food is certified organic,’ said Kurt Wagaman, general manager of Superior Fresh. ‘To grow what we have on about two-acres under glass, you’d need about 60-acres of conventional land.'”

Fish went on to effuse on how “Superior Fresh raises about one pound of fish for every 1.1 pounds of food that’s put into the system. According to Brandon Gottsacker, president of Superior Fresh, that’s a very efficient feed conversion ratio.

“‘On top of that, we’re using all that nutrient-rich water that the fish pass on to grow an additional 10-pounds of produce,”‘said Gottsacker. ‘That’s 1 pound of input into the system and 10 pounds of healthy organic food out of the system. So that’s flipping the scales with agriculture inputs versus outputs, and it’s pretty special.'”

Alaska started the all-about-quality/all-about-sustainability confrontation with claims wild is inherently better than farmed. The farmers, a much-bigger player in the market, are now flipping that pitch back on Alaska.

As Nordic Farms Commercial Director Marianne Naess told Seafood Source, part of the company’s strategy has always been “to place our facilities close to the markets.

“‘The Humboldt location will enable us to reach more than 50 million people within a 12-hour drive or less, which reduces the cost and environmental impact of transportation while supplying the market with super-fresh, sustainably raised local fish.'”

Locally grown. Environmentally friendly. Affordable or at least comparatively so. Super fresh.

Naess hit all the hot buttons for today’s supermarket customer. It’s obvious the threat to Alaska’s salmon economy are real. It would be foolish to ignore them.

Gunnar Knapp, the former director of the University of Alaska Anchorage’s Institute on Social and Economic Research (ISER) and an authority on salmon fisheries, warned this summer that Alaska needs to start calculating how to adapt to these changes in global salmon fisheries.

The validity of that warning becomes only more clear by the month from Atlantic Sapphire in Florida to Nordic Farms in California to the Chinese sinking deep water salmon farms offshore in the cooler waters of the Yellow Sea. 

“Aquaculture will be more able to take advantage of technology than wild fisheries,” Knapp warned in a Power Point presentation aptly titled “The Future of the Seafood Industry.’

“We can’t predict – or maybe even imagine – the changes technological innovation may bring. Self-driving smart fishing gear? Integrated algae-based open ocean aquaculture? Fully-automated seafood processing & distribution?”

But nobody has to imagine anything to recognize what the tech innovations have in common: increased efficiency. Alaska commercial fisheries today are largely designed and/or regulated to be inefficient. Inefficiency is seldom a good survival strategy.