As the August ballot referendum to repeal Alaska's recent oil tax reforms, known as SB21, inches closer, recent developments in world oil markets, as well as events here in Alaska, are rapidly making it a moot point and "no-brainer" to vote NO.
Let's start with oil prices. What the critics of oil tax reform always seem to forget is that the new production tax regime actually favors the state and works against the oil companies when oil prices drop. And oil prices are in fact dropping. This is a game changer.
Spot market prices for Alaska oil began to soften last summer from their peak of $111 per barrel in July to $101 in November, a drop of $10 per barrel. They continue to hover around that level, for now, and are likely to trend downward from here.
The reason are two-fold: First, as the U.S. Federal Reserve slows its aggressive bond-buying program (QE3), there will be gradually less cash sloshing around world financial markets with which to inflate oil prices and other liquid assets.
Second, crude oil supplies are surging in the Lower 48 due to shale "fracking" technology, so much so that the U.S. is on its way to becoming energy self-sufficient. That means even more downward pressure on crude prices over the next few years.
The Alaska Department of Revenue is recognizing these trends. Its Fall 2013 revenue outlook revised expected prices downward from the previous spring's forecast by several dollars per barrel. The upcoming March edition is likely to project even lower prices.
As prices drop and production expenses rise, the simplified, flat 35 percent base tax rate under the new tax system is raising more revenue than the steeply progressive, highly complex monstrosity that was the old system, known as "ACES." The difference is small this fiscal year -- 35 percent under the new tax versus 34.9 percent under ACES -- but becomes more significant next year -- 35 percent versus 32.6 percent, according to the Alaska Department of Revenue.
As if turning the whole revenue question on its head isn't enough, an even larger game-changer is afoot: The new tax system is clearly stimulating forward progress on a natural gas pipeline project. As it turns out, a healthy oil industry is a prerequisite underpinning to an Alaska natural gas export project, so passage of oil tax reform last spring immediately improved our prospects.
It is no coincidence that just months after signing oil tax reform, Gov. Sean Parnell inked a "Heads of Agreement" with the major North Slope producers setting out a framework for a gas export project. Shortly thereafter, he signed a Memorandum of Understanding with TransCanada, the pipeline company, that advances the project even further. Finally, the governor introduced a bill last month that will allow the state of Alaska to become a partner in the project.
Never in Alaska's history has so much tangible progress been made in such a short period of time toward our long-held dream of exporting liquefied natural gas. We are finally seeing meaningful agreements rather than wishful rhetoric. None of that would have happened without last year's oil tax reforms.
Oh, and I almost forgot to mention, investment in new oil production on Alaska's North Slope is surging. Oil tax reform is working exactly as its supporters said it would -- in fact, even more quickly and in even more ways.
In the face of all this, advocates of repealing Alaska's successful oil tax reforms continue to blow their horns gamely at daily "press availabilities." One wonders when they will realize that history has overtaken them and no one is listening any more.
Scott Hawkins is President and CEO of Advanced Supply Chain International, an oilfield services company headquartered in Alaska. He has also served as a bank economist and the founding president of the Anchorage Economic Development Corporation. He currently chairs ProsperityAlaska.org.
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch, which welcomes a broad range of viewpoints. To submit a piece for consideration, e-mail commentary(at)alaskadispatch.com.