It was a tumultuous year in politics, state government, oil, mining and most of the other major things Alaskans seem to talk and think about.
2008 a tumultuous year in politics, finance and oil 122408 NEWS 2 Morris News Service, Alaska It was a tumultuous year in politics, state government, oil, mining and most of the other major things Alaskans seem to talk and think about.

Katie Spielberger Photo

Alaska Gov. Sarah Palin, shown during the Dec. 9 open house with her daughter, Willow, husband, Todd, and son, Trigg, bounded into the national spotlight after being selected as the Republican vice presidential candidate.

Wednesday, December 24, 2008

Story last updated at 12/24/2008 - 10:51 am

2008 a tumultuous year in politics, finance and oil
State's biggest news was Palin's leap into the national spotlight

It was a tumultuous year in politics, state government, oil, mining and most of the other major things Alaskans seem to talk and think about.

The biggest news: Gov. Sarah Palin was selected as John McCain's Republican vice presidential running mate, and blazed to national fame. After a glorious few weeks, Palin is back home facing the nitty gritty of plunging oil prices and state finances.

Alaska's senior senator, Ted Stevens, long an icon in Alaska politics and a one-man industry in bringing home federal dollars, was convicted of felony financial disclosure violations and was narrowly defeated in his bid for re-election by Anchorage Mayor Mark Begich.

Oil revenues soared as crude oil prices neared $150 per barrel and then plummeted to the mid-$30 a barrel range in a matter of weeks. Alaskans started the year with the prospect of huge budget surpluses and will end the year with the possibility of huge deficits.

On the North Slope, more drill rigs fired up with high crude prices and employment in the oil industry reached record levels. As the year ends, there are plans for rigs going into storage and a reduction in industry jobs.

It was the same for mining. Base metals prices soared, then plummeted. Gold prices have held on, the only good news for Alaska in metals markets.

Confidence within the mining industry was restored after voters handily defeated a 2008 ballot proposition that would have imposed draconian environmental standards on mines, resulting in the eventual closures of most operating mines.

Alaskans are used to boom and bust, but as 2008 ends, the state seems to have reached a new level of uncertainty.

The real wonder: this has yet to touch most Alaskans. The state's economy, still fueled mostly with oil and federal dollars, still perks along. Alaska banks still

have money to lend; real estate markets still seem firm; and consumer confidence, buoyed by a big payout of permanent fund dividends and state energy rebate money, seems strong.

Though the permanent fund's earnings will shrink in 2009, there will still be an ample dividend, thanks to the practice of basing the dividend on an average of earnings over several previous years, not the current year.

As for those state budget deficits, the state has big cash reserves to draw on, not including the permanent fund. If the slump in oil prices doesn't last more than a year or two, the state has enough in liquid reserves to sustain the state budget without drastic cuts, which could cause real harm to the economy.

As the year ended, the biggest questions about the future seem to revolve around politics. State policies have huge impacts on the regional economy, and times of uncertainty require firm and clear leadership in state government. There are questions about how focused Gov. Palin will be on the nuts-and-bolts of running state government, or whether she will be distracted by thoughts of being on the national political stage again in 2012.

Questions arise too whether agencies within Palin's administration, such as the Department of Natural Resources, will be able to provide a stable environment for important resource industries, like oil and minerals, that now face huge economic challenges because of world market conditions. The department has been engaged in a ferocious dispute with four of the state's most important oil producers - BP, Chevron, ConocoPhillips and ExxonMobil - over a dispute on past work obligations in the Point Thomson gas field east of Prudhoe Bay.

The industry also worries that the state's new oil production tax, passed by the Legislature in late 2007 and signed into law by Palin a year ago this month, is discouraging new oil projects instead of encouraging new development, which it was intended to do.

The vacuum in the state's congressional delegation left by the departure of Sen. Ted Stevens will only partly be filled by the incoming senator, Mark Begich. Begich is considered a skillful politician and being a Democrat in a Congress controlled by Democrats is helpful, but it will take years for him to accumulate enough seniority to rival Stevens' clout.

Stevens' loss will be felt most in safeguarding the prominence of the military in Alaska's economy. There will likely always be a strong military presence in Alaska thanks to the state's geographic position and ample space for ground and air training, but Stevens' influence was felt by the senator working to ensure that important units were posted to Alaska.

Stevens was also a pillar of support for the state's fishing industry, and his loss will begin a gradual erosion of Alaska influence in key federal fisheries management decisions and with a Democratic White House and a Democratic Congress, an increase of the influence of national environmental groups in fisheries decisions.

A real bright spot for Alaska in 2008 was the emergence of two groups pursuing natural gas pipeline projects. TransCanada Corp., a Canadian pipeline company, was chosen as the state's champion by the governor and state Legislature after the company agreed to a set of conditions asked for by the state.

Armed with a 50 percent state subsidy, TransCanada has now started work to prepare for an open season in 2010, a period in which commitments for shipping gas will be solicited.

Because of efforts by Palin and legislators to get a serious pipeline bid launched, however, North Slope producers BP and ConocoPhillips launched their own pipeline effort, forming a joint venture company, Denali. The producer-led effort is also aimed at an open season in 2010.

Of the two initiatives most Alaskans believe the Denali consortium will ultimately prevail because its owner companies own much of the gas needed for the pipeline, but TransCanada is also known to be a competent pipeline company that will produce a credible proposal at the open season.

A new worry, however, is that if a global economic recession extends into 2010 neither pipeline proposal will be able to secure the $100 billion-plus in pipeline capacity commitments needed to finance construction.