I wrote some articles about the trip to Alaska for Whiskey & Gunpowder and Outstanding Investments and there are more in progress. But even the first couple of articles prompted some reader mail. So this is a sampling of your letters, as well as some answers.

From John in New York:

“You did not discuss the wildlife of Alaska very much. What has been the impact of oil development on the wildlife of Alaska?”

Byron’s Reply:

I make no claim to be an expert on Alaska’s wildlife. There are many dedicated scientists and other professionals who have made great careers in evaluating and monitoring the wildlife of Alaska, and on all technical matters I properly defer to them.

However, I was up there, and I can tell you what I saw, and what I was told by knowledgeable people such as park rangers and others who have worked in the field.

Anecdotally, our group saw quite a bit of Alaskan wildlife. In the south, during a trip to observe the lava flows and pillow basalts of Resurrection Bay, we saw a variety of sea life, including otters, gray whales, killer whales, seals, and dolphins. The Sitka spruce covered the hillsides, growing in the soils right down to the waterline. The bird life was rich and varied, and in places I was reminded of scenes from the Discovery Channel.

Inland, we saw quite a bit of Alaskan wildlife, as well. This ranged from Dall Sheep and mountain goats to red and arctic foxes, gray wolves, moose, caribou, arctic hares, and many other smaller rodents. Again, bird life was rich (as were the bugs, in many places with calm winds). Of interest, we saw three arctic foxes, still in white coats, in and around the oil workings at Prudhoe Bay, and there were geese and ducks paddling and nesting literally right next to the gravel pads of the oil wells.

I mentioned in one article the Haul Road, which is a 20-foot-wide gravel road about 494 miles in length from Fairbanks to Deadhorse. It was upon this road that the equipment and materials were hauled in the 1970s to construct the Alaska Pipeline. Of interest, many forms of wildlife actually use the Alaska Pipeline and adjacent Haul Road as an assistance to living. Generally, the gravel beds under the Pipeline and Haul Road are built up to just a few feet above the nearby elevations. So moose and caribou walk on the elevated tracks to catch some breezes and keep the bugs away. Also, the open nature of the road, with almost no trees or ground cover, means that birds hunt for small game nearby. And dust from the Haul Road blows over nearby snow, which causes that snow to melt first in the spring. The availability of open water near the Haul Road tends to attract waterfowl, so the Haul Road has created something of a bird breeding corridor.

One interesting way of viewing the condition of wildlife in Alaska is to compare what is happening near the industrial development of the North Slope with an absolutely protected and essentially pristine area such as Denali National Park. Denali covers about 6.2 million acres, which makes the place larger than, for example, the Commonwealth of Massachusetts. (Of those 6.2 million acres, about 1 million acres are covered with glaciers or permanent snow pack.) Yet Denali has all of 15 miles of paved road and about 40 miles of gravel road, of which half are off limits to all but official traffic. So imagine what it would be like to try to “see” Massachusetts if the place had only about 35 miles of paved and gravel roads for ingress.

Yet for all of its vastness and isolation, according to one park guide, Denali is home to fewer than 40 wolves. This is simply a function of the large territory that a wolf requires for its feeding and breeding ground, and the harsh climate for most of the year. There are far more wolves in the zoos of Massachusetts than there are in Denali, which is a larger and utterly undeveloped area. This says something about the general state of nature in Alaska, and the fragility of the Arctic environment, as well.

From Richard in Illinois:

“You seem to view the industrial development of Alaska as a good thing, and further development as a foregone conclusion. Do we have to develop everything? Can’t we just leave some places alone?”

Byron’s Reply:

Actually, Richard, I try to play these issues down the middle. ARCO and its geologists discovered the Prudhoe Bay oil field in 1967, when I was in middle school. The development consortium, acting under legislation passed by the U.S. Congress, built the Alaska Pipeline in the 1970s, when I was in college. I had nothing to do with it. And now, as the so-called “Peak Oil correspondent” for Agora Financial, I am merely describing where we are and forecasting where the ominous trends seem to be taking us. As Bill Bonner once mentioned to me, “I wouldn’t send somebody to cover a baseball game who does not understand the game of baseball.” And if during the past 30 years or so you have driven a car, or flown in an airplane, or heated your house, or eaten food grown on and transported from a farm, you have benefited directly or indirectly from the oil of Prudhoe Bay and the Pipeline. After 15 billion barrels of oil production, it’s a little late in the game to be complaining about industrial development in Alaska. So spare me the preaching and scolding, OK?

But you raise a good point, Richard. “Do we have to develop everything?” Yes, damn good question. Do we? That oil and gas of the North Slope has been there for millions of years of geologic time, and it will stay there for millions more years if it is left alone. (Now, if it were in China, I am inclined to think that the drilling rigs would be turning and burning. It’s a cultural thing.) What are you prepared to give up if, say, “we” decide not to build a Northern Pipeline to transport natural gas from the Arctic through Canada and to the Lower 48? You, for example, live in Illinois. And I read somewhere that it gets cold in Illinois in the winter. What’s your plan?

I mentioned in one article that the Alaska Pipeline and Haul Road are rather difficult to spot from the air. At the end of the trip to Prudhoe Bay, we flew down to Fairbanks in Caribou aircraft, and I was sitting in the co-pilot seat with a God’s-eye view of the Brooks Range. I knew what I was looking for, and I knew exactly where to look, and from 9,000 feet I could barely spot the Pipeline and Haul Road. So that aspect of development is visually insignificant in the grand scheme. As for the roads and drilling pads of Prudhoe Bay, they are all just a few feet of gravel. When the oil is pumped out, sometime in the far distant future, I suspect that people will just plug the wells and dig out the gravel and give the land back to Mother Nature and her permafrost. It is not as if anybody is building housing developments up on the North Slope. Really, do you want to live up there? It’s just plain cold and harsh, plus dark for months of the year.

I also mentioned in an article how clean the Haul Road was, and I am still astonished at that fact. It got to where we were all looking for litter, and just not finding it. OK, there might be a piece of plastic, or an aluminum can somewhere along the 420-mile stretch, but I sure did not see it. Today, the Haul Road is an industrial service road for access to the Pipeline, and for goods going to and from the oil fields of Prudhoe Bay. But why is it so clean? And I mean country club clean, dear readers. Actually, there was more litter at Oakmont during the U.S. Open than there was on the Haul Road in Alaska.

On reflection, the Haul Road is used by just a few hundred truck drivers at most, and everybody seems to know everybody else. There is something of an honor code among the drivers to keep the stretch clean. The Haul Road is, to be specific, a public highway, but you really have to have a good reason to trek up north. It is just not a road for a Sunday drive, by any means. According to one knowledgeable individual, no more than 4,000 tourists per year visit Deadhorse, and about half of those are with one particular cruise-ship line that arranges overnight tours to the area. The other 2,000 or so tend to be scientific or “adventure” explorers, such as our group of 22 geologists.

Really, most people do not have the slightest clue about how far away, how vast, how isolated, how harsh, how just plain alone is the territory of the Brooks Range and North Slope. It is an area far larger than the size of California, with a total population less than that of a typical American shopping mall on a busy Saturday afternoon.

In terms of numbers, the North Slope of Alaska is home to about 10,000 or so industrial workers who commute up there for a few weeks at a time. They live in temporary housing constructed on gravel pads. The oil wells and pipelines all sit on gravel pads. And it is all connected to the south by a 20-foot-wide gravel Haul Road. The place appears to be very clean, and the end result is currently 775,000 barrels of oil per day to keep the U.S. economy running. Looked at in this light, I think that we have quite a remarkable trade-off going here. People are, of course, free to differ in that assessment.

Until we meet again…
Byron W. King

June 28. 2007

Letters to the Editor: Alaska was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

I’m looking at one critical component of the nation’s energy resource base, as well as the utterly spectacular wilderness of this vast and complex land.

There are few more complex geologic terrains anywhere on Earth.

Western North America in general, and Alaska in particular, is a complex mosaic of many different ages and types of rocks, called "terranes," all formed at different periods of geologic time…

The Anchorage area, and Kenai Peninsula alone, is comprised of at least eight different types of rock terranes, all formed over the past half billion years or so…

Then, you have granite plutons, formed at depth within the Earth, almost right next to active volcanoes erupting the melted sediments that were subducted, millions of years ago, beneath the Aleutian Trench…

I could go on and on, but my point is not to overwhelm you with geological concepts or jargon. My point is to introduce the notion that Alaska holds a treasure trove of resources, but the exploration and production process is difficult.

Take the difficult-to-decipher geology, and then couple that with the remoteness of Alaska and the need to transport equipment and supplies literally thousands of miles over the North Pacific Ocean and through the adjacent seas. Then, you have to land your goods and transport them, often as not to some site in the mountainous interior. Add in the utterly hellacious weather that strikes this land for much of the year. And if you find something, now you have to extract it and haul it out. So Alaska holds great wealth, but only for the hardy, the patient and often for the lucky, if not the good.

To Build? Or, Not to Build?

When I arrived here in Anchorage, the lead business story in the Anchorage Daily News concerned the proposed "Arctic Gas Line" that people have desired for decades to build from the North Slope, down through Canada’s Mackenzie Valley and into the U.S. The headline in the newspaper states, "Exxon Frets Over Arctic Gas Line Cost."

You have surely heard of the vast oil resources of the North Slope. To date, more than 13 billion barrels of oil have been pumped from beneath the frozen tundra of Prudhoe Bay and environs, with more to come.

But there is also an immense resource of natural gas in the rocks below. In fact, moving west from Prudhoe Bay, the reservoir rocks dip downward and are buried deeper and deeper. Many exploration geologists believe that any hydrocarbons that will be found are probably in the form of natural gas, not oil. So the next big play in the northern Alaska region will likely be natural gas drilling. But as with much else that occurs in Alaska, progress is measured in glacial increments.

The newspaper story described the concern of ExxonMobil over the spiraling costs to build the proposed line. At the annual Exxon shareholders’ meeting, Exxon CEO Rex Tillerson described how the cost estimates for just the Alaskan portion of the gas line had more than doubled in recent years, to $15 billion. He may recall the original Trans-Alaska Pipeline, and the initial cost estimate of $800 million that ballooned in the mid-1970s to near $8 billion. And cost estimates for the entire Arctic Gas Line, if it is ever built to a proposed terminus in the U.S., range up to $30 billion, making it the largest single private capital project in history.

"At that cost, it is not viable to build the pipeline," said Tillerson. "It involves lots of steel, lots of compressors, lots of valves," said the Exxon CEO, referring to the skyrocketing prices of most basic industrial products and commodities. In addition, the cost of labor is rising, and there is a critical scarcity of personnel who have the necessary technical skills to manage such immense capital projects.

That is, any gas pipeline in the Arctic is competing for labor, steel and equipment with shipbuilders in Korea and skyscraper constructors in China, as well as with comparable oil and gas projects ranging from the Gulf of Mexico to offshore Brazil and the Middle East. We live in a world of vast marketplaces…

"Shed Our Shackles to Exxon"

The day after the Anchorage Daily News article, in an editorial piece published in the same newspaper, longtime Alaska oilman Jack Roderick, author of Crude Dreams: A Personal History of Oil in Alaska , stated that it was "time to shed our shackles to Exxon." Roderick came up to Alaska in 1954 and has been involved with Alaskan resource development since before the place was even a state. He is a former mayor of Anchorage, a former member of the state natural resource commission and currently a member of the federal Arctic Research Commission.

I took the occasion to look up Mr. Roderick, and we had a very cordial and informative discussion. In Roderick’s view, the massive 1968 oil strike at Prudhoe Bay drew essentially all attention and exploration emphasis on oil toward the North Slope, where major oil companies were looking for giant oil fields.

Hydrocarbon exploration languished elsewhere in Alaska, particularly near the Cook Inlet area, where the first major oil strike in Alaska had occurred in 1957. This 1957 oil strike, at the Swanson River on the Kenai Peninsula, was actually quite instrumental in propelling Alaska to statehood, because it demonstrated that Alaska would have the economic means to support itself, and not become a net drain on the federal Treasury. But about 10 years later, the North Slope bonanza drew the focus of the oil world away from the many other prospective basins of Alaska.

According to Roderick, "For 30 years, we have contentedly collected our oil taxes and royalties from the North Slope. Exxon, BP and ConocoPhillips are responsible for keeping this largesse flowing to Juneau, and we should thank them for it. However, these same three giants now want to control our natural gas."

Roderick points out that Exxon and BP are not making any major effort to explore for gas, while ConocoPhillips is, to its credit, investing in such an effort. Roderick asks, "Does it make sense to put the two companies that will not be exploring for natural gas on the North Slope in charge of the pipeline that is to carry that gas to market?"

Roderick believes that the North Slope of Alaska and the regions to the west in the National Petroleum Reserve will be exploration and production plays "for the next 50 years." He told me that he anticipates development activities in the far north "comparable to what you see today in the Gulf of Mexico after 50 years of development down there."

According to Roderick, the north of Alaska should be, and currently is, opening up to more exploration by more companies. If Exxon does not want to invest in Alaska, then "the best solution is for Exxon to leave Alaska."

Well, we all know that Exxon will probably not leave Alaska. But sometimes an editorial writer simply overstates a point to be sure that the point gets made.

For us investors, the idea to keep in mind is that there are immense opportunities within the U.S., and particularly in Alaska, for the companies that understand what they are doing in this complex, distant, rugged and often harsh locale.

Until we meet again…
Byron W. King

June 12, 2007

There’s Money to Be Made in Alaska’s Resources was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.