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Black Gold


Thursday, September 6, 2012

Like Mr. Brantingham, I have been to Alaska many times, both on business and for pleasure. Barney is correct in characterizing Alaska as a land of fabulous physical beauty, but he is dead wrong in thinking that its resources are declining, that it may no longer be worth the $7.2 million we paid for it in 1867, and that perhaps we should sell it back to the Russians.

It’s true that oil production from the Prudhoe Bay oil field is now lower, but Prudhoe Bay has produced 10.6 billion barrels, at an average oil price of $23 per barrel, for a total revenue of $246 billion – more than 34,000 times the purchase price of the entire state! Much of that money went into royalties and taxes to the federal and state governments. It has also paid for a great many jobs in both Alaska and the Lower 48, for goods and services to develop and produce this largest oil field ever found on the North American continent.

Moreover, the U.S. Geological Survey now estimates there are an additional 72.8 billion barrels of recoverable oil on the Alaskan North Slope and in the adjacent Beaufort Sea – potentially almost 30 times as much revenue for jobs and taxes as Prudhoe Bay has provided (valuing that future oil at $100 per barrel). That’s an additional payout of over one million times the total purchase price.

So why isn’t that immense oil resource potential being realized? Blame the past eight U.S. presidents, from Nixon to Obama, each of whom has pledged U.S. energy independence from the Middle East’s robber barons – but each has also hypocritically maintained barriers preventing North Alaskan oil development.

With that in mind, perhaps it is indeed time to sell Alaska. But let’s not sell all of Alaska, and not to the Russians. Let’s keep the beautiful part south of the Brooks Range, and sell the resource-rich but ugly and largely uninhabitable areas to the north.

Selling to Canada makes a lot of sense, as Canada is much more adept at effectively balancing national economic interests and environmental protection. The sale should include the trans-Alaskan oil pipeline too – worth another $9 billion? – as this would provide a ready means of shipping all that oil to China. (The U.S., with its four-year delay, so far, in permitting construction of the Keystone XL pipeline to ship Canadian oil to U.S. refineries destroys the credibility of the U.S. as a reasonable place to sell Canadian oil. To maximize the sale price of North Alaskan oil resources, we should provide the purchaser with an outlet to other parts of the world.)

Or, perhaps better, sell North Alaska to China! China has a lot of money (mostly our debt) and has demonstrated a willingness to pay top dollar for oil resources any place in the world. China would likely offer the highest sale price – maybe even the full $1.3 trillion those oil resources are nominally worth! That could reduce U.S. debt by almost 10%!

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