Alaska oil policy 'maximum benefit'.

• Author: Keithley, Brad
• Position: OIL & GAS

Article VIII, Section 2 of the Alaska Constitution requires that [t]he legislature shall provide for the utilization, development, and conservation of all natural resources belonging to the State, including land and waters, for the maximum benefit of its people."

As we have often heard during this legislative session, many read this provision as having significant relevance to the current oil tax debate, arguing that the provision requires the state to tax oil production at high rates in order to derive the "maximum benefit" from the oil for the state's citizens.

That argument overlooks an important part of the constitutional provision, however. The provision does not say "for the maximum benefit of its current people." Instead, the provision requires that the state's natural resources be used for the maximum benefit of its people--all of its people--both in this and future generations.

That is a critically important point in the current oil tax debate.

Some argue that the governor's proposed bill fails because it will result in an immediate reduction in state revenues, which may last for a few years. Admittedly, that may adversely affect some of Alaska's current people who benefit from marginal state revenue.

But that is not the relevant point. Instead, the relevant point is whether tax reform will result in a greater benefit to all Alaskans, both in this generation and the next. That is the true constitutional test.

Potential Scenarios

For me, the above graphic from the 2006 phase of the oil tax debate--yes, it has been going on that long--makes the point best.

That graphic shows the potential cumulative effect over time of three different investment scenarios. Starting in 2006, the line to the left (in red) depicts the potential effect of making zero additional investment in the North Slope oil fields. That results in a 15 percent annual decline in production, with production falling roughly to 300,000 barrels per day--a potential shutdown point for the Trans Alaska Pipeline System (TAPS)--within a short timeframe.

The line in the middle (in green) depicts the potential effect of continuing to maintain investment levels at the then current rate, which in 2006 was roughly $1 billion to $1.5 billion per year. Essentially, it is the status quo case. That results in a 6 percent annual decline in production and reaches the same 300,000 barrels per day point several years later, in the late 2020s.

The line to the right (in blue) projects the...