After the Oil Rush

In Alaska, dwindling reserves forecast a statewide identity crisis.

Oil revenues have allowed Alaskans to live a libertarian dream while enjoying the benefits of life in a prosperous welfare state. (Alaska Stock/Corbis)

The culture of Alaska tends toward optimism. If this has something to do with the people who live there—now as ever a conglomeration of migrants, idealists, last-chancers, and get-rich-quick schemers—it also owes much to the state’s modern history. Alaska achieved statehood in 1959 in a kind of noble but dubious experiment: hobbled by geographic isolation, a near-absence of development, and a forbidding climate and landscape, the Last Frontier had no serious economic prospects to speak of. Then, nine years later, geo­logists found the largest known oil reserves in North America on the state’s North Slope, at Prudhoe Bay. By the time the 800-mile TransAlaska Pipeline System was completed, in 1977, connecting the North Slope to the southern port of Valdez, oil prices had spiked beyond all modern precedent. Alaska, only recently removed from its benighted territorial past, had become one of the richest states in the union.

But Alaskan optimism has its limits, and one morning in July, I went looking for them, driving out of downtown Valdez on a two-lane road that hugs the forested coast of Prince William Sound. The view was something out of a cruise-ship brochure: cottony skeins of fog caught on the tops of spruces, bald eagles picking through driftwood on the beach, a grizzly bear nosing around in the tall grass near the road while her cub stood on its hind legs sniffing the wind. Five miles, one background check, and one Secret Service–grade vehicle inspection later, a gate rumbled open and there it was: the end of the TransAlaska pipeline, the place where Alaska now enjoys the unique dis­comfort of watching its good fortune dripping away in real time, barrel by barrel.

The consortium of oil companies operating the drilling rigs off the Arctic coast has pumped some 12 billion barrels of oil from Prudhoe Bay. In 2007, a little more than 4 billion barrels were estimated to remain. Production is now a quarter of what it was in the field’s prime, when the Valdez docks received as many as 88 oil tankers a month; now they’re lucky to get one a day. The holding tanks in Valdez used to contain oil warm enough (it comes out of the earth at a steamy 110 degrees) to melt the 25 feet of snow that fall on their broad roofs each winter. But oil cools more quickly in an emptier pipeline, so in recent years, workers have had to scale the tanks with climbing harnesses and saws to carve off the snow in refrigerator-­size blocks.

“Are we in a desperate position yet?” said Dave Cobb, Valdez’s mayor, when I visited him in his office earlier that morning. “No. But we need to be cognizant of what’s coming.”

Alaska’s post-oil future seemed clearer just four years ago, when then-Governor Sarah Palin brokered an agreement with the energy company TransCanada to plan a natural-gas pipeline from the North Slope to Alberta. The pipeline—expected to be the largest privately funded engineering project in history—was supposed to offer a solution to a decades-old problem: Prudhoe Bay is rich in natural gas as well as in oil, but the gas is stranded miles from where anyone can use it. For 40 years, Alaskans viewed such a pipeline as their best hope of extending the state’s lease on life after the oil runs out. But the North Slope oil producers, who also hold the rights to the gas, were reticent. Gas is a less lucrative and less stable business than oil, and dangling the prospect of pumping it before anxious Alaskan officials gave the companies leverage in negotiations over oil taxes. Only after an epic 2006 corruption scandal in the state legislature sidelined or imprisoned the oil industry’s staunchest defenders did Palin manage, through tenacious and surprisingly bipartisan negotiations, to bring the pipeline as close as it had ever come to reality.

Palin signed off on the state’s support for the TransCanada project on August 27, 2008—then, hours later, flew to Arizona for a meeting with Senator John McCain. It was the beginning of the end of Alaska’s pipeline dreams. As Palin’s national ambitions eclipsed her concern for Alaskan affairs, the state lost the leadership and political momentum it needed to see the deal through.

A technological revolution, meanwhile, was rapidly eroding the pipeline’s raison d’être. In 2008, the United States was inundated with the first wave of gas produced by hydraulic fracturing, a controversial technique that energy companies had recently put to use in the shale formations of Texas, Appalachia, and the Great Plains. Gas prices halved from 2008 to 2009, and they never recovered. This paradigm-shifting boon sparked a giddy sense of possibility throughout the country—­except in Alaska, the obvious loser. In 2010, the North Slope producers dropped their pretense of interest in a pipeline, and the Alaskan government was back where it had started.

The reversal of Alaska’s energy fortunes feels of a piece with a moment when the state, just shy of its 54th birthday, is mired in a kind of midlife crisis. In 2010, Alaska lost two of its most iconic founding fathers: first Wally Hickel, the larger-than-life governor during Alaska’s pre-oil years and again during the 1990s, and then Ted Stevens, the seven-term U.S. senator whose deft maneuvering in Washington provided Alaska with astounding sums of federal money (the state’s largest source of revenue after the oil industry). And Alaskans have yet to forgive Palin, in whom they once invested near-messianic hopes for their state’s future, for her desertion; you can buy Bailin’ Palin T-shirts (She Won’t Quit Until She’s Halfway Thru) at a gift shop on the waterfront in Valdez.

But it is the pipeline’s uncertain future that poses Alaska’s greatest existential dilemma. For a third of a century, the energy industry has underwritten not only Alaska’s finances but also its rugged, individualist self-image. Oil revenues have allowed the state’s residents to live the libertarian dream of Alaska’s past—Alaskans pay no state sales or income taxes—while enjoying all the benefits of life in a prosperous welfare state. As an energy lawyer I met in Anchorage drily observed, Alaskans may talk like Texans, but they live like Norwegians.

A future of declining oil and gas revenues will occasion some difficult choices, and Alaska does not have many options: its private-sector economy has always been restricted to basic resource extraction, and none of the alternatives—timber, mining, fishing—are profitable enough to support the modern society that has taken root in the era of oil money.

Last spring, as gas prices hit a three-decade low, TransCanada finally announced that it would begin looking for alternatives to the pipeline to Alberta. Among the most plausible is building a gas line alongside the TransAlaska pipeline to Valdez, where the fuel would be liquefied and shipped to markets less glutted than the U.S., such as Japan and South Korea. But the Asian market is relatively small, and liable to fill up as rival suppliers, from Australia to the continental United States, ramp up their own exports. This means Alaska must not only figure out how to finally accomplish a feat that has thwarted the state’s most ambitious leaders, but do it sooner rather than later, before Alaskans find themselves in a familiar position: left out in the cold.