Blog Post

Alaska Oil, Gas Play Large, Indirect Role in Kenai Public Finances

Jun 19, 2015 | Daniel Raimi

Alaska’s Kenai Peninsula, a three-hour drive south from the state capitol of Anchorage, boasts rugged mountains, icy blue rivers and abundant wildlife such as moose, caribou and grizzly bears. It also has a long history of oil and natural gas production and, like most other communities in Alaska, public finances are strongly affected by changes in their prices and production levels.

Oil production from Alaska’s Cook Inlet and North Slope regions.

While most of the state’s current oil production comes from the North Slope region, home to massive fields like Prudhoe Bay, the Kenai Peninsula was the first Alaskan region to boast substantial oil production. This oil (and natural gas) came primarily from offshore wells in the Cook Inlet, which was the center of oil production in Alaska until the mid-1970s, when production from the North Slope easily eclipsed it.

Today, the effects of the oil and gas industry on local public finances are primarily felt indirectly through several sources.

First, many residents of the region commute to the North Slope, often working in one- or two-week shifts before returning home. These residents support local finances by paying property taxes on their homes and sales taxes on purchases, collected by the Kenai Peninsula Borough and several local cities (the state of Alaska does not have a sales tax).

Second, a number of residents work on offshore natural gas production platforms, along with the United States’ first liquefied natural gas (LNG) export facility, which was built in the 1950s and has exported natural gas to Japan for decades. This LNG export terminal, located in Nikiski, recently received approval from the U.S. Department of Energy to resume exporting LNG to Japan and other Asian nations with which the United States does not have a free trade agreement.

ConocoPhillips’ Kenai LNG export terminal

There is considerable interest in constructing a new LNG terminal near the Nikiski site, which would export natural gas transported south from the North Slope through a new pipeline. This project, if it goes forward, would result in tens of billions of dollars in new investment and a major uptick in oil- and gas-related activity on the Kenai Peninsula.

In recent years, local government officials have seen little in the way of new costs associated with the industry such as increased heavy vehicle traffic or rapid population growth. However, if the new LNG project moves forward, every local official we met expected large-scale impacts from a spike in population and industrial activity in this largely rural region.

This research was carried out at the Duke University Energy Initiative with support from the Alfred P. Sloan Foundation.