Alaska's Changing Arctic: Energy Issues and Trends
Alaska in International Affairs
In 1935, Gen. Billy Mitchell said to Congress, “I believe that in the future, whoever holds Alaska will hold the world. I think it is the most important strategic place in the world.”
Alaska’s geographic location and Arctic presence are deeply intertwined with the state’s energy opportunities and challenges. When the U.S. assumed chairmanship of the Arctic Council in 2015, the country was presented with the opportunity to move Alaska from the periphery to the core of national energy and climate policy. President Obama became the first U.S. president to travel north of the Arctic Circle and see the energy needs of rural Arctic communities firsthand. Throughout the chairmanship, the national and state administrations prioritized energy security and smart, renewable microgrid technology to help rural communities mitigate the high costs of energy and transition away from dependency on fossil fuels. Projects such as Clean Energy Solutions for Remote Communities and the Arctic Remote Energy Network Academy are just two of the initiatives developed during the U.S. chairmanship that are still supporting state energy needs today. In less than a decade, the U.S. will again chair the Arctic Council during 2031-2033.
International relations and global trends impact Alaska. As the Bering Strait region develops, energy resources and transportation interests in the Pacific Arctic place the state at an important crossroads with strong potential collaboration and competition opportunities. Discussion of shipping must be realistic. Currently, Alaska does not have a population with enough demand to draw big container ships to a new port, nor does the state produce enough retail goods to fill such ships. However, we do have energy resources that are in demand around the world.
Inuit participation in the International Maritime Organization
The International Maritime Organization is the United Nations specialized agency responsible for the safety and security of shipping and the prevention of associated marine and atmospheric pollution. Recently, the Inuit Circumpolar Council, an international non-governmental organization representing approximately 180,000 Inuit of Alaska, Canada, Greenland and Chukotka (Russia), was granted provisional consultative status to the International Maritime Organization. The council can now participate in deliberations over regulation of Arctic shipping issues like fuel-oil use, pollution, ship noise and marine traffic awareness. The Inuit Circumpolar Council is the first Indigenous organization to get this status, demonstrating the power of ongoing pan-Arctic efforts by the Inuit for recognition as integral decision makers related to the Arctic Ocean and its surrounding waters.
Alaska is a major force in the global energy regime
Shifting global energy demands and supplies, international trade and investment, and geopolitics are shaping Alaska’s economy, including its energy sector.
Alaska produces energy for the nation and many Asian countries. Supply and demand is, in part, a function of international relations, trade policies and conflict. U.S. foreign and energy policy has significant implications for Alaska. The state’s position in national and international energy markets remains dynamic and increasingly important.
Federal government decisions on oil export levels and destinations, energy bans, Chinese investment and the shipping of goods impact Alaska. As Alaska makes policy in relation to energy it must consider U.S. foreign policy. For decades the Arctic Council was held up as a special institution where “back channel” conversations with Russia and other northern countries would help to stabilize international relationships. This has not proven true for the recent conflict.
Russia's invasion of Ukraine
Russia’s 2022 invasion of Ukraine contributed significantly to rising oil prices. As countries boycotted Russian oil and Russia shut off supplies, crude oil prices leapt from about $90 per barrel in late February to $120 in early March. The U.S. boycott of Russian oil, liquefied natural gas and coal shifts our reliance to other energy suppliers. The rising prices illustrate the Polar Paradox. Energy price increases benefit corporations and the state budget but come at a cost to communities, businesses and households, who pay more for transportation, heating and the costs of goods and services.
To satisfy national and international demands, Alaska Sens. Lisa Murkowski and Dan Sullivan and Gov. Mike Dunleavy called for increased exploration and development of Alaska oil. As of April 2021, the state’s oil production made up approximately only 4% of all U.S. oil production.
As Western sanctions continue, Russia is reorienting its energy exports towards Asia, especially India and China.
China-U.S. relations, Alaska impacts
China has played an important role in Alaska in recent years, as part of its global, Arctic and U.S. strategies. However, the dynamic U.S.-China relationship poses economic risks for Alaska.
China is the state’s largest trade partner and receives much of Alaska’s oil exports. In 2020, Alaska exported more than 15 million barrels of crude oil, with 80% going to China and the remainder to South Korea.
To diversify the government’s revenue, Alaska Legislature approved a plan to consider a large liquefied natural gas project in 2014. The project halted when oil prices fell and then partially rebounded. China has at times been considered a key investment partner in the LNG pipeline, since much of the gas would end up in Asian markets.
As Alaska becomes reliant on Chinese trade and investment, it also becomes more vulnerable to changes in U.S. foreign policy. If the federal government isolated China for its increasingly objectionable domestic and foreign policies, Alaska’s economy would take a blow. Similar impacts to Alaska’s seafood and timber industries were seen during President Trump’s trade war with China. With more Chinese investment and exports to China, future conflict could evolve to jeopardize Alaska’s oil sector.
Liquefied natural gas in Alaska
As the West-Russia oil conflict continues, countries have increasingly turned toward liquefied natural gas to satisfy their energy needs. Demand for LNG doubled since the Russian invasion of Ukraine, shifting from about $5 million British thermal units in late February 2022 to about $10 million Btus in late August 2022.
For decades, Alaska provided LNG to Japan, but exports declined as competition from other producers increased. In light of the oil conflict, Japan is once again interested in Alaskan LNG. This energized new LNG project ideas in Alaska, bringing the proposed trans-Alaska pipeline from Point Thomson to Nikiski back into the spotlight. The installation of an LNG terminus is estimated to cost $40–45 billion, making it an investment that requires strategic foresight.
Policy implications of Alaska in international affairs
In response to Russia’s invasion of the Ukraine during Russia’s current chairmanship of the Arctic Council, the other seven member states (including the U.S., which is a member via the state of Alaska) temporarily suspended their participation in and paused the work of the Arctic Council. Shortly before the completion of this report, China issued a statement that it will not recognize the Arctic Council for the duration of this punitive action. This adds to the tension surrounding Alaska’s proximity to Russia and highlights the fact that Alaska’s economy is deeply intertwined with other countries’ domestic decisions. Decisions made by the Alaska Legislature can determine how dependent Alaska’s energy future is on volatile global marketplaces.