Roger LuekenPhD Student, Engineering and Public PolicyCarnegie Mellon University
Attendees of USAEE's first ever North American conference to be held in Alaska were treated to three days of stimulating presentations and great networking opportunities as well as great weather and magnificent scenery. Highlights of the conference included the exceptional plenary sessions that covered a wide range of topics relevant to energy economics, from oil and gas markets to isolated electric power grids. Each session made a point to relate the discussion to issues in Alaska, giving conference-goers a taste of the unique energy challenges facing Alaskans today.
Sunday, July 28
The 32nd USAEE/IAEE North American Conference began on Sunday evening (July 28) with an Opening Reception and a series of Networking Dinners. We returned to the hotel in the bright sunshine of Anchorage’s 20+ hour daylight, which gave everyone plenty of opportunity to explore the city before and after the conference’s daily activities.
Monday, July 29
On Monday morning (July 29), USAEE President Lori Smith Schell oficially opened the conference and introduced Senator Lisa Murkowski, ranking member of the Committee on Energy and Natural Resources, welcomed us to Alaska by pre-recored message from her office in Washington, DC. Senator Murkowski recognized the importance of the field of energy economics and the value of hard working, knowledgeable economists. The Senator focused on the importance of domestic energy production, noting that domestic production has risen 30% in the past 5 years, creating thousands of jobs and revenues for state and local governments. Domestic production has reduced global price volatility, and restrained prices at the pump for U.S. consumers. Senator Murkowski concluded by noting that Federal action is needed to develop many of untapped energy resources of Alaska.
We were next welcomed by Dan Sullivan, the mayor of Anchorage. Mr. Sullivan discussed Anchorage’s approach to energy development: diversification. The areas surrounding Anchorage, including the Cook Inlet, contain a wealth of natural resources, including 4 - 5 good, undeveloped oil and gas resources and world-class coal seam formations. The city is also working to develop nontraditional resources, including a wind farm on nearby Fire Island, geothermal energy from nearby volcanoes, tidal energy in the Cook Inlet, and electricity from municipal solid waste.
After the welcomes by Senator Murkowski and Dan Sullivan, David Newbery, Professor of Economics at University of Cambridge and the president of IAEE, gave some highlights on the organization’s status. IAEE continues to prosper, with membership growing from 3,000 to 4,150 in the past 6 years. Student membership has doubled to 780 members over the same time period. The Energy Journal continues to be highly regarded and widely read, while members feel the new Economic of Energy & Environmental Policy journal fulfills its purpose as a less technical but more widely accessible policy journal.
Opening Plenary – Energy Development in the Arctic
The conference’s first plenary discussed the geopolitics of Arctic energy development and the peculiarities of operating in the region’s extreme conditions. The first speaker was Francis Ann (“Fran”) Ulmer, Chair of the U.S. Arctic Research Commission and formerly, Alaska’s Lieutenant Governor (1994-2002). Ms. Ulmer described the Arctic as an ocean surrounded by countries with a range of policies, laws, and plans for Arctic development. Arctic exploration has recently become a hot topic, as resources have become newly available. This new availability is due to climate change, which has reduced Arctic sea ice extent by 50%, and improved technologies. Ms. Ulmer introduced the United Nations Convention on the Law of the Sea, first established in 1958, an international agreement that sets sovereign rights to a country’s extended continental shelf. Although 160 nations have ratified the Law of the Sea, the U.S. has not, which may put the nation’s Arctic resources at risk.
The next speaker was Admiral Tom Barrett, U.S. Coast Guard (ret.) and President of the Alyeska Pipeline Service Company. Adm Barrett discussed the challenges operating the Trans-Alaskan Pipeline System (TAPS). TAPS extends more than 800 miles, crosses 34 rivers, 4 mountain ranges, and some of the worst weather on the planet. The pipeline, completed in 1977, is still in good overall condition. Production peaked at 2.1 million barrels/day in 1988, and has since dropped to 450,000 barrels. Less production makes the line more challenging to operate, increasing the risk of ice and wax forming on the inside of the pipe. However, operators continue to maintain high reliability and safety standards. (Members had an opportunity to see TAPS in action during Technical Tours to Prudhoe Bay and Valdez before and after the conference, respectively.)
The last speaker was Roland George, member of the Canadian National Energy Board. Mr. George gave the perspective of an Arctic development regulator. The National Energy Board focuses on three areas: safety, protecting the environment, and conserving Arctic energy resources. The board receives 15 exploration applications a year by energy developers, and expects an Arctic deepwater exploration application by Exxon Mobil before 2015.
Monday’s luncheon speaker was John Roderick, a former mayor of Anchorage, has been active in the state’s oil industry for more than four decades. Mr. Roderick gave us a history of Alaskan energy development, as summarized by his book, ‘Crude Dreams’. Oil development began in 1901, when a British consortium drilled a shallow well at Katalla, producing 50 barrels per day. Development was slow until 1957, when oil was discovered on the North Slope. One year later, Alaska received statehood. Two days after Christmas in 1967, North America’s largest oil field was discovered on the North Slope, containing more than 9 billion recoverable barrels. After the discovery, the Trans Aleyeska Pipeline was built over an 8-year period. Since the late 1980’s, oil production on the Slope has decreased. As to the future, Roderick believes that relaxed Federal drilling regulations would allow Alaska’s oil production to again increase rapidly.
- Natural Gas Markets
Unlike oil, natural gas production and trade are fractured into several regional markets. Larry Persily, the Federal coordinator of the Alaska Natural Gas Transportation Projects, began the session by discussing Alaskan gas issues. Alaska has abundant reserves on the North Slope, estimated at 800 tcf. However, this gas currently cannot be moved to where it is needed in South-Central Alaska. Two strategies are being pursued to move North Slope gas: either export to Asian markets via an LNG export terminal, or to Canada and the lower 48 via a pipeline.
Next, Surya Rajan, the Director of Upstream Research and Global Gas at IHS CERA, presented several scenarios of the future of global gas. A key takeaway of their research is that there is a growing resource base with geographic diversity. Gas will continue to gain market share until 2040 when it becomes the largest fuel source. North American exports will remain cost competitive, which will have little effect on global gas prices but will prevent domestic gas prices from dropping further.
The final speaker was Ken Medlock, the Senior Director of the Center for Energy Studies at Rice University’s Baker Institute. Professor Medlock demonstrated that the newly discovered shale resources are much closer to population centers than traditional gas resources. His research shows that although companies advertise their best highest output wells, there is a wide range in well output. He finds that the average break-even cost is over $4/Mcf in the Barnett formation.
- Isolated / Dedicated Power Grids: Making Them Work
This plenary’s speakers discussed the challenges of operating isolated power grids in Alaska. The first speaker was Steve Gilbert of the Alaska Village Electric Cooperative (AVEC). AVEC operates grids in 55 villages that vary in population from 86 – 1,124. Operating these grids poses several challenges, including the logistics of moving fuel and equipment, operating in extreme weather and unstable permafrost, and delivered fuel prices that have more than tripled in the past decade. To face these challenges, AVEC has established a series of goals, which include reducing annual diesel fuel consumption by 25% from 5 million barrels, reducing the number of diesel generators by 50% from 165, and reducing non-fuel costs by 10%. AVEC plans to meet these goals by increasing their use of wind, hydropower, and increasing interconnection between villages.
The session’s other two speakers discussed the technical challenges of operating hybrid diesel-wind microgrids. Marc Mueller-Stoffels of the Alaska Center for Energy and Power discussed research into optimal control of diesel-wind systems. His research shows that although diesel is the prime mover of such systems, with advanced control strategies the systems can reliability achieve 70% wind utilization. Brian Hirsh, from the National Renewable Energy Laboratory (NREL), explained that access to a central grid is available, hybrid diesel-wind systems only make sense if high reliability isnecessary. Mr. Hirsh is working with the Marine Corps Air Station MIRAMAR to design a system that is 50% powered by renewables and more reliable than the central power grid. Mr. Hirsh believes the microgrid industry may be posed for exponential growth.
Tuesday, July 30
- Managing Resource Wealth
How governments manage resource revenues and distribute them among citizens can affect the size and structure of regional economies and change wealth distribution. The session began with Rögnvaldur Hannesson, professor at the Norwegian School of Economics, who discussed the downsides of Norway saving the rents gained from their petroleum resources. Next, Gregg Erickson from the Alaska Budget Report discussed Hartwick’s rule and Alaska’s allocation of petroleum rents. Harwick’s rule is named for Canadian economist John Hartwick, who demonstrated that total utility and aggregate welfare is maximized if authorities collecting rents from exhaustible resources follow a simple rule: “Invest all profits or rents from exhaustible resources in reproducible capital.” Finally, Melville McMillan, professor at the University of Alberta, discussed the history of Alberta’s Heritage Savings Trust Fund.
- Unconventional Oil and Gas Development
The session’s first speaker was Billy Harris, a Senior Petroleum Engineer from Wagner & Brown, Ltd. Mr. Harris introduced the many complexities of extracting unconventional resources. Complexity breaks down into three areas: geologic, engineering, and evaluation. Advanced technologies and analysis tools are being brought to bear to address these complexities. An example of emerging technologies is mud pulse telemetry, which sends signals in real time from the drill bit to the operator on the drill bit’s location and orientation. Next, Gurcan Gülen, an economist from the University of Texas, spoke on natural gas resource assessments. Dr. Gülen and his colleagues have developed an integrated approach to estimate both the size of a resource and its production outlook.
Finally, Benjamin Schlesinger of Benjamin Schlesinger and Associates gave a brief history of the U.S. shale revolution and its implications for the global gas trade. The effect of U.S. shale is still underappreciated by many; were it a country, US shale would be the world’s 3rd largest gas producer. More recently, economics have driven production of tight oil and natural gas liquids to increase as dramatically as shale. Globally, development of shale has been hindered by the domination of long-term foreign gas contracts tied to fuel oil, and less vibrant and innovative energy sectors.
The Tuesday luncheon began with a tribute to Tony Finizza by Arnold Baker, a Principal at ABB Consulting. Among his many professional achievements, Tony was the chief economist of ARCO, and served as USAEE’s first president in 1992. Arnie read quotes from Tony’s many USAEE friends and colleagues, who praised him for his humor, his passion for the field, and the high quality of his work.
Following Arnie’s tribute, the student awards were announced. Andre Barbe from Rice University was awarded best poster for his poster “Fossil Fuel Taxation in the President’s 2013 Budget”. Dale Manning from UC-Davis won for his paper “Migration and Fuel Mix in Rural Mexico”. The team of Michael Davidson, Michael Craig, Daniel Cross-Call, and Ashwini Bharatkumar from MIT won the case competition.
The luncheon speaker was Mark Finley, BP’s General Manager of Global Energy Markets and U.S. Economics, who presented the 2013 BP Statistical Review of World Energy. World energy consumption increased 1.8% in 2012, below historical averages due to the still-weak global economy. Mr. Finley’s presentation highlighted the growing importance of the developing world. Over the past 20 years, developing countries have accounted for 99% of growth in energy consumption, and 98% of energy production. China now accounts for more than 50% of all coal burned on the planet and 25% of global auto sales.
In contrast to the developing world, the U.S. had the largest single reduction in energy intensity of the past 30 years in 2012. U.S. oil consumption dropped by 400,000 barrels per day. Even though U.S. efficiency is improving, domestic production has increased rapidly. In 2012 the U.S. had the single largest increase in oil production of any country, and the largest increase in the nation’s history. The combination of improved efficiency and increased production has dropped U.S. oil import dependence by 1/3 in the past 5 years.
- Petroleum Fiscal Regimes
There are widely different goals and strategies between sovereign jurisdictions for collecting rents from petroleum production, and vastly different ways government take materializes. Marianne Kah, Chief Economist of ConocoPhillips, began by discussing the role governmental fiscal regimes play in the competitiveness of company investments. Governmental characteristics such as transparency and stability encourage investment. Irena Agalliu, Managing Director at IHS CERA, discussed her firm’s work on analyzing the fiscal competitiveness of different national systems. Finally, Matthew Foss of the Alberta Department of Energy discussed Alberta’s policy goals in maintaining a competitive fiscal regime.
- Industrial Energy Use and Efficiency
Industrial energy efficiency is an area with large potentials for improvement both within Alaska and the U.S. as a whole. Skip Laitner from the American Council for an Energy Efficient Economy (ACEEE) kicked off the session with a discussion of the U.S.’s efficiency as a whole. Mr. Latiner’s work has shown that the U.S. economy is less efficient than other developed economies such as France that have strong top-down support for efficiency programs. He highlighted the potential for game-changing technologies like Big Data to unlock efficiencies that have yet to be thought of. An example he gave was the city-wide optimization of streetlight timing, which could substantially improve the efficiency of all vehicles.
Next, Karen Matthias from the Council of Alaska Producers discussed industrial efficiency within Alaskan mining companies. Alaska has several large mines, including gold and coal mines. Due to the high cost of energy in Alaska, the Alaskan mining industry has been a leader in improving operational efficiency. Ms. Matthias concluded by discussing possible hydropower projects that would allow for cost-effective electricity for mines.
Finally, Jeff Rickert from the AFL-CIO discussed the labor movement’s views on energy efficiency. The labor movement has been a leader in encouraging industrial energy efficiency and views it as necessary to sustain U.S. manufacturing. The AFL-CIO has consulted with industrial partners to improve efficiency of industrial facilities. On the finance side, the union has worked to find innovative ways to invest in efficiency through its pension fund.
Wednesday, July 31
- Developments in Electricity Generation and Distribution
The subject of this plenary was new technologies such as smart grids to integrate alternative energy sources into existing power grids. Technology and regulation for isolated electricity systems. Presiding over the session was David Newbery, the President of IAEE and professor at University of Cambridge. Professor Newbery spoke on the European experience of integrating wind into power systems. Also speaking were G. Scott Samuelsen, professor at University of California-Irvine, and Meera Kohler, President and CEO of the Alaska Village Electric Cooperative, who spoke on the logistical and technical challenges of managing small, rural Alaskan microgrids.
- Arctic Transport: Technology and Opportunities
The melting sea ice in the Arctic Ocean increases the potential for marine transportation and resource development. Lawson Brigham, Professor at the University of Alaska Fairbanks, discussed the findings of the Arctic Marine Shipping Assessment (AMSA). AMSA recommended three themes for future Arctic exploration: improvements to marine safety, protection of Arctic people and the environment, and building out of the Arctic marine infrastructure. Next, Alex Iyerusalimskiy from ConocoPhillips discussed the development of Varandey, a large, icebreaking crude oil tanker. Finally, Patricia Cochran, Executive Director of the Alaska Native Science Commission, discussed how climate change might affect the indigenous people of Alaska.
- The Interconnection Between Industry and Government
The concluding plenary discussed the role of government in regulating the energy industry, and the public’s perceptions of energy issues. Branko Terzic, Executive Director, Deloitte Center for Energy Solutions, began by introducing the fundamentals of the regulatory relationship. The first role of government is to establish the national energy policy objectives – efficiency, reliability, environmental stewardship, and maintaining appropriate social subsidies. Mr. Terzic concluded with describing the characteristics of attractive regulation – transparency, timeliness, fairness, mechanisms for future review, and independence from political influence.
Next, Ethan Schutt of Cook Inlet Regional gave a practitioner’s viewpoint of working with regulators to establish an energy project in Alaska. Mr. Schutt described the challenges of establishing the Fire Island wind project, an 18 megawatt wind farm 3 miles from Anchorage that became operational in September 2012. The project had to create an exemption to Alaska regulations that traditionally only allow utilities to produce electricity and banned independent power producers. Mr. Schutt went on to discuss several other regulatory challenges to the project, such as direct governmental involvement in some energy projects leading to market distortions.
Finally, Mike Canes, Distinguished Fellow, Logistics Management Institute (LMI) and incoming president of USAEE gave a presentation on public opinion and energy policy. Overall, the public cares strongly about energy issues. Of all public policy issues, energy ranked 4th, gas prices ranked 5th, and the environment ranked 7th. The public prefers energy efficiency and renewable energy to increased production of oil and gas by a ratio of almost 2 to 1. The public’s favorite energy policies include standards to improve vehicle efficiency, R&D spending on renewable energy, and opening up government lands for oil and gas exploration. The public favors carbon legislature as long as it doesn’t cost too much and if the monies are returned directly to taxpayers. Mr. Canes concluded by noting that policymakers and the public look to economists to inform them of the consequences of policy actions.
Next year – New York
This year’s annual conference was a great opportunity to learn about a wide range of topics in the field of energy economics while developing a network of friends and colleagues from all segments of our professional community: industry, government and academia. In 2014 our annual meeting will be held jointly with the 37th IAEE International Conference in New York on June 15-18. The 2014 conference, wih a theme of “Energy and the Economy”, promises to build on the success of Anchorage as well as attract an even greater number of IAEE members from around the world. We look forward to seeing you there!