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The Future of Northern, Interior and South Central Alaskan
Energy and Development
by Douglas B. Reynolds
University of Alaska Fairbanks, Economics Department
Working paper (https://www.uaf.edu/som/faculty-staff/faculty-directory/doug-reynolds (2016))
Alaska’s economy declined by 4% in 2013, 1.3% in 2014 and 0.5% in 2015. The state needs new
economic development opportunities. This article reviews ways to induce economic growth in the state by
analyzing a potential natural gas pipeline for in-state use that could jump-start development. A comparison of
Alaska in the 21st century to that of the western United States in the late 1800s is used to show parallels between
potential frontier Alaska economic development and previous frontier U.S. development, which used a lot of
federal government support for infrastructure.
In 1849, gold was discovered in California. A gold rush ensued and the state started to develop
economically. However, California and the western United States had more than just gold to enhance economic
development, they also had arable land, cattle grazing land, numerous mineral resources, forests and plenty of
coastal sea shores for ports and fishing. This made the western U.S. ripe for economic development if only
some basic infrastructure could be provided.
The infrastructure came in the form of railroads. However, there was no money available to build such
railroads either from the federal government, or from private enterprises and thus the question was, how was the
U.S. to pay for the infrastructure that was needed to develop the West and add to the economic might of
America? The answer lay in the land. What the U.S. did was to cede a certain amount of land for railroads.
The amount of land was to be ten miles on either side of the railroad for every mile of track. Ten miles on one
side was for the federal government to sell; ten miles on the other side of the track was for the railroad
companies to sell, which would create revenues to pay for the construction of the railroads. This was done by
enacting the Pacific Railroad Act of 1864, also known as, “An act to aid in the construction of a railroad and
telegraph line from the Missouri River to the Pacific Ocean, and to secure to the government the use of the same
for postal, military, and other purposes.”
The amount of money that the federal government gained from these land sales was so high that the
federal government did not need an income tax to pay for government services until 1913, when a U.S. income
tax was finally imposed. Plus the land not only paid for the Central and Union Pacific railroads, but also the
Northern Pacific and the Southern Pacific Railroads and off-shoots of those railroads, which developed one
million square miles of prime U.S land and basically made California into the sixth largest economy in the
world. When you think about all that development in the western U.S. and how it helped to establish America
as the world’s ultimate super power, then it makes sense that land development in and of itself is an important
goal for the federal government.
Figure 1 Comparing the Trans-Continental Railroad regions with Alaska and its single railroad.
Consider, though, how Alaska’s Northern, Interior and South Central frontiers are similar to the Western
U.S. and include about 500,000 square miles, or half the size of the western U.S., that could be developed if
there were appropriate infrastructure. While Alaska did get the Alaska Railroad from the federal government in
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1923, the amount of land that it developed, compared to the amount of land that the Pacific railroad act
developed is much less. See Figure 1.
In addition, the U.S. enacted the “The National Interstate and Defense Highways Act (Public Law 84627),” which helped to build the U.S. Interstate Highway System in the 1950s and 1960s and 1970s and 1980s.
The US federal government built a series of interstate highways designed to help the contiguous U.S. with an
interconnected road system helping U.S. development. The highways were paid by a gasoline tax on all
gasoline and diesel buyers, not just those who would use the interstate system. The rational was that everyone
benefited from the highway not just as a means to travel, but also with reduced shipping and transit costs which
gave everyone cheaper goods and services and helped to create inter-city and inter-regional trade and thus
economic development all around the country.
Notice, by contrast, how Alaska has as much total land as 1/5 the size of the contiguous Lower 48 states
and yet received minimal assistance from the Highway Act on an acre by acre comparison of potential land
development. See Figure 2. Indeed, most of Alaska’s highways did not receive interstate assistance at all.
Figure 2 Comparing the U.S. Interstate Highway System regions with Alaska’s roads.
If the U.S. really wants to develop all 50 states, then it should develop the entire State of Alaska which
is about two and a half times as large as Texas. The U.S. government built the Alaska Railroad, which helped
develop about one fourth of the State of Alaska from Seward to Fairbanks. These areas now enjoy mining,
tourism and industrial development. However, the Alaska Railroad has only helped a small portion of the state
or about one state the size of Texas, but not all of the state, as there are in fact about two regions each the size of
another Texas still to be developed. Also Congress has given Alaska and Native Corporations about 150
million acres of land that can be acquisitioned from federal lands, according to the Statehood Act and Alaska
Native Claims Settlement Act (ANCSA), but again that did not compare to all the railroads and highways that
the Lower 48 received.
Even though Congress has given land to Alaska, one has to ascertain what that land is worth as not all
acres of land are created equal; an acre of land in Alaska does not equal and acre of land in California. The land
in the continental U.S. was arable land. Alaskan land is not arable, so there is little cash crop potential. The
land is mostly useful for mining, but mining plots are often random and isolated. Therefore, the land given in
the Lower 48 was like getting gold; in Alaska, it is like getting manure. To say Congress gave land to the
Lower 48 with the Pacific Land Act and gave land to Alaska with the Native Lands and Statehood Acts is like
saying the Lower 48 gets an ounce of gold per mile of development, while Alaska gets a ton of manure for its
development. Land that is as valuable as gold can be sold right away for high value; land that is as valuable as
manure needs extra money, time and effort in order to gain any economic value. In essence, Congress gives
value to the Lower 48 with the land it has given there, but Congress takes value away from Alaska with the land
it “gives” Alaska. Therefore, there is a need to develop Alaska differently than the way in which the Lower 48
was developed.
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Alaska does not need railroads as there is too much permafrost or active layer frozen ground to lay
railroad track. Alaska does not need four-lane super highways since there are no big factories or cities. Yet,
Alaska is an energy rich state, even though there are energy poor regions. Alaska is like having the state of
Texas next to the state of Nebraska. One has a lot of energy, the other has a lot of land that needs energy. But
you don’t need a highway between the two, just an energy connection. Therefore, the kind of infrastructure
needed for Northern, Interior and South Central Alaska is not the same as that needed for the western United
States. Instead, low cost energy is what would help here, i.e. a natural gas pipeline that could carry some
natural gas liquids in a single, small-bore, 18 inch, high pressure pipe. Such a Trans-Alaska small-bore pipeline
would be the ideal solution to bring low cost energy from the North Slope into the heart of Alaska. It would
spur on more Alaskan multi-million acre regional economic development, by providing peak electric power
needs, industrial processes, space heating and transportation, just like the continental railroads and interstate
highways did for the western Lower 48. .
Figure 3 Comparing Alaska to Missouri, where Alaska has the equivalent area of 10 Missouri’s.
The Alaska Railroad helps three equivalent sized Missouri-like regions, but only a little.
The Haul road helps five equivalent sized Missouri-like regions, but only a little.
In Figure 3, notice how Alaska is the size of 10 equivalent Missouri-like land regions, which could be
developed. A central Trans-Alaskan 18 inch, high pressure, natural gas pipeline, with available feeder-line
laterals, is small enough that can be put in a ditch along, or even under, the Haul Road so that it creates no
environmental problems and can obtain a categorical exclusion (CATEX) from the requirement for an
Environmental Impact Statement (EIS). The central main line can have 112 mile, 5-inch lateral lines to any
given enterprise for a total land development potential of 1000 miles North to South and 250 miles East to
West. This is especially important given the smoke filled winters that Fairbanks and other villages are
encountering with high oil prices, that force people to use wood stoves.
The pipeline links can be brought to location in small sections and then welded above ground into larger
links in a mobile welding truck. The welded pieces will be placed above ground along the ditch where final
welding is done. As the ditch is dug, the ditch excavator will take the over-burden and crush it to the gravel size
needed to bed the small bore pipeline. Then after the ditch is dug, the gravel will be put in first, after which the
pipe will be laid out along the side of the ditch. It will then be rolled into the ditch all in one shot. Then the
pipe will be covered. Since the pipeline is a small bore, it will not pose a safety hazard. The laterals can be laid
using a mobile laying truck in the winter, even without a road, to any location.
Other cost savings are also possible. A mobile welding truck will do work on location, not in advance.
More work done on location will reduce the costs of having man camps. Also welders and other pipe fitters
will be paid to commute longer distances to each work site and the work sites will change location more rapidly.
This longer distance commuting will allow for fewer work camp costs, which will also reduce the costs,
allowing for the entire pipeline from Deadhorse to Homer to cost about $2 billion. The amount of financial risk
in building such a small-bore high pressure line is quite a large undertaking for any firm. The trans-continental
railroad was similarly too large an undertaking for a single firm, and very few private enterprises could afford to
finance such an endeavor. Since much of the benefit will go to economic development, and not to the natural
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gas and NGL well-head lease holders nor to a pipeline builder, it makes sense to have government support for
such a project.
When you think about the great land mass of Alaska, developing that land mass is important. The
original trans-continental railroad including the Union Pacific and the Central Pacific Railroads helped develop
such states as Wyoming, Utah, Nevada and California, then that induced the idea of adding the Southern Pacific
Railroad to help such states as Texas, New Mexico and Arizona and the Northern Pacific Railroad to help such
states as Minnesota, Montana and Washington. However, if instead of looking at this development as creating
state economies, one looked at it as developing frontier land-mass economies, then it is not out of the question
that Alaska’s frontier land-mass should be developed as well, not with railroads or super highways, but with a
cost effective small-bore, high pressure, natural gas and NGL pipeline. Then northern, central and southern
Alaska’s economic development would enjoy the same economic growth as eight average sized Lower 48 state
land-masses.
Figure 4 North Slope Development vs. Alaska Economic Development
Another way to look at Alaska’s development is to consider all federal monies. Almost universally,
America says Alaska is a deadweight loss to the federal government. This is because Alaskans receive the most
federal revenue per person of any state, a net of approximately $15,000 per person (2012). However, that is
actually only a total federal outlay of $30 per acre. A relative large, low population state like North Dakota
receives $200/acre from the federal government. This suggests that the land and infrastructure is what the
federal government needs to develop not just people. At $2 billion cost for a small-bore pipeline that can help
develop 250,000 square miles of land, such development would only cost $15 per potential acre or $1.5 per acre
for the land developed over the course of ten years. It could be paid for with royalties set aside from mining
and land development for the first twenty or thirty years of any given new enterprise on federal land.
Back when the California and Louisiana territories were wilderness, it was thought ludicrous to develop
those lands, but after Theodore Judah came up with the idea that you could build a trans-continental railroad
through the Sierra Nevada Mountains, the idea gained traction and indeed became a catalyst to America
becoming the wealthiest nation on earth. Even many Native American tribes gained in that wealth creation
including mining wealth, economic development and high incomes for a large segments of the Native American
population, although certainly many natives lost out in the rush to develop. But it is critical to note that it was
not all losses for natives, and today the overall economic and military strength of America is what has kept the
peace for the world. So why not continue that trend with Alaska? For example think of the net gain to Alaska
natives that could be achieved with a trans-Alaska small-bore natural gas pipeline.
A loan guarantee based on 112 miles in either direction of a small pipeline, a royalty or a per-acre
formula could pay for the pipeline. The loan guarantee would help establish a small bore pipeline that could
bring natural gas and propane to mining districts up and down the North and Interior of the state, and later finish
the pipeline south. It’s like a railroad for development. And it would help Fairbanks own energy and pollution
problems and give Anchorage more energy stability for the long run.