Exxon Valdez Oil Spill
Oil had been flowing through Alaska'a modern history long before the tanks of the Exxon Valdez ripped open and poured 11 million gallons of grief into Prince William Sound in March 1989. The social and economic history of the young state has been alternately steered and altered by oil development since the discovery and development of the Kenai and Cook Inlet oil and gas fields in the 1950s and '60s.
The idea of a place called Alaska from far Southeast to the Arctic and west deep into the North Pacific -- is an invention of mapmakers, European governments, and the mind of America. Through the middle of the 20th century, this vast area was made up of regions that were defined by language, geography, culture, economics and politics. Native cultures were very distinct from each other; the arrival of Europeans and Americans did not change this pattern much. Alaska's cities tended to grow up around specific economic interests -- Anchorage and the Alaska Railroad; Nome, Fairbanks and Juneau around gold mines or districts. Through the 1950s, the only area of the territory where Americans had developed a more or less integrated economy was the Southeast panhandle. Political life of the territory was centered there as well.
Even after the war and during the subsequent boom in military construction around Anchorage and Fairbanks, the areas outside of Southeast were, economically speaking, really only appendages of various federal government programs and operations: the Alaska Railroad, the Federal Aviation Administration, the Army Signal Corps, the regular Army and Air Force. The retail and service industries (especially construction) were directly and firmly tied to the federal presence. Mining and fishing were seasonal, and any year-round economic activity was limited because of that.
Southeast, of course, had its own federal economic dependencies and seasonal fluctuations, but its fishing and logging industries provided the base for communities that were more like permanent, year-round towns of the Pacific Northwest, and less like the work-camp outposts of South-central and the so-called "westward" area of Alaska -- i.e., everything west of the Panhandle.
Oil and gas development on the Kenai Peninsula and in the Cook Inlet changed this balance significantly. Throughout the 20th century there had been bursts of mining activity in Alaska: gold in the Interior, copper at Kennecott, coal at various locations. There had even been some limited drilling for oil early in the century near the natural seeps at Katalla, to the east and south of Cordova. But the discovery and development of the Swanson River oil field near Kenai, and subsequent development of gas and oil fields on, and offshore, sparked the first serious, non-government economic activity in Alaska outside of Southeast since World War II.
After statehood, in 1959, oil development also bailed the young state government out of early financial trouble. In 1962 the new, three-year-old State of Alaska had been depending for support largely on transition funds from Washington, D.C. It was not clear where the state would get the funds it needed to provide even basic state services; the population base and gross economic product were simply not large enough to produce significant revenue through usual methods of taxation.
Then, in 1963, the state Department of Natural Resources offered Cook Inlet offshore tracts for oil and gas leasing. The state expected to receive a modest amount in bids, perhaps $15 million; instead, the high bidders put up nearly three times that amount. The high bids were a minor windfall and solved a short-term fiscal crisis.
The emphasis is on "short-term," however. In 1964, the largest earthquake in North American history turned South-central Alaska upside down, causing massive geological change, and presenting Alaska with the daunting and expensive prospect of rebuilding virtually all its public infrastructure. Congress eventually authorized more than $350 million in disaster relief, loans, construction funding, and other programs to Alaska.
Ironically, the event that literally tore much of the state apart set the stage for the next major flurry of economic activity in Alaska. The federal infusion of cash was massive -- almost a billion dollars at 1990 values -- and it was spread around in varying ways: $51 million to rebuild schools and other public buildings, $25 million in urban renewal projects, $5 million in 23 highway reconstruction projects, and $92 million in disaster and small business loans. The federal government also purchased or otherwise financed more than $15 million in bonds that the state had already issued, or planned to issue, to finance previously planned public construction projects. Obviously, much of that wealth and many of the jobs wound up going to Outside concerns. But it is safe to say that in raw economic terms, disaster reconstruction money carried many state government programs, allowed the government to redistribute its own money to other needs, and helped the state generate income from taxation it might not have normally raised.
But like military construction or statehood transition funds, this federally sponsored economic shot in the arm would not sustain state programs and the private economy for very long. "Something else" would have to come along.
The "something else" came along in 1967, when Atlantic Richfield, again, made its first major oil strikes at Prudhoe Bay. This would lead to more than $900 million (about $1.5-$1.8 billion in 1990 dollars) in state lease sale revenues in 1969, authorization and construction of the pipeline in the 1970s, and waves of population and economic growth in the 1980s.
But while the actual effects and benefits of North Slope oil discoveries couldn't be foretold exactly in 1967, it was no accident that the State of Alaska would be a major participant in whatever occurred.
The fear that Alaska would be broke (or nearly so) without federal help was one of the minor themes running through the debate about statehood for Alaska during the 1950s.
Opponents of statehood suggested that Alaska would become little more than a drain on federal resources; proponents of statehood countered that the territory could never achieve real economic growth while under management by "absentee" owners in Washington. Often these arguments were smoke-screens for other larger (frequently unspoken) political or economic concerns, but the prospect of a cash-poor state of Alaska was real enough that at statehood, Alaska's land grant was unlike that given to any other Western state. The realization that Alaska would have to support itself from its natural resources and lands was the driving force for this new federal policy.
Alaska not only received the right to select 104 million acres from the public domain, but the state could make its selections in large blocks. Other Western states had usually been granted the right to pick (or to have chosen for them) small blocks of land within larger federal holdings; Alaska, on the other hand, could put together hundreds or thousands of acres in a contiguous block. Instead of choosing a small parcel for a small and particular purpose (eventual sale as a homesite, for example), Alaska could choose massive parcels for large-scale purposes (lease as a mineral development, for example). Alaska also, unlike other states, received title to tideland and submerged lands up to three miles offshore.
This seemingly arcane bit of land management strategy set the stage for a new way of managing public lands in America. Other states had used land disposals as a way to finance government projects. But generally that involved the outright sale of public domain parcels for homes or farms, with the money generated being earmarked to finance the schools (or other public needs) demanded by families moving to the new homes and farms. Ultimate disposal of public domain lands was not just a consequence of this type of policy, it was the goal.
That would not be the case in Alaska. Land in most of Alaska -- without roads, without suitable agricultural or grazing conditions -- was, in modern economic terms, worth little on its own. The resources on and under the land held potentially more value over time -- much more value, in fact, than could be realized by a one-time sale that sent the resources and the land into private hands.
This led to a land selection strategy by the state government that concentrated on finding resource-rich lands that could be leased for development, with the state receiving royalties based on production over time. And this, in turn, led the new state planners directly to the North Slope of Alaska. There would be no farms or New England town sites on the tundra, but there might be lucrative resource development -- particularly oil development.
Everyone -- from local villagers to the U.S. Defense Department to the oil industry to the new state managers -- everyone knew that there was oil, in some amount, under the North Slope. There were numerous natural seeps, and even as far back as the 1920s there was a fair amount of technical geological data suggesting large reservoirs of oil. A massive area in the central and western Arctic had been designated a national strategic petroleum reserve three decades before Alaska became a state.
Alaska's land selections would be to the east, in and around Prudhoe Bay, the Sagavanirktok River, Oliktok -- essentially, almost everything in between the National Petroleum Reserve-Alaska to the west and the Arctic National Wildlife Refuge to the east.
The 1968 announcement of a large discovery at Prudhoe Bay by Atlantic Richfield confirmed what many people had suspected all along: The North Slope reserves were potentially huge, perhaps 10 billion recoverable barrels, the largest find ever in North America. In June of 1969, the core of what later became a larger consortium of oil companies operating at Prudhoe Bay applied for federal permits to build a pipeline from the North Slope. That fall, Alaska's fourth Prudhoe Bay oil and gas lease sale brought in more than $900 million in high bids to the state. This represented more than seven times the state's budget at the time.
The pipeline was still a long way off. At the federal level, the Nixon Administration supported the project and took several administrative actions to ease the path of the right of way permit. In Alaska, Governor Bill Egan's administration also supported the project.
However, there was substantial opposition to such a project outside Alaska, and some within the state as well. The U.S. Congress moved carefully on various pieces of pipeline legislation. Several lands and right of way issues wound up in federal court. The passage of the landmark National Environmental Policy Act in 1969 raised other, more complicated issues. Alaska Natives pointed out that their historical claims to much of Alaska had not been resolved through the treaties and laws that had dealt with Native American land claims in the Lower 48; they wanted some control, compensation -- or both -- regarding pipeline construction. A tangle of claims, lawsuits, statutes and proposals from Congress and the state legislature, oil industry negotiations and plans, proposals for Alaskan or Canadian routes -- all these combined to form a tightly-woven barrier to construction of the pipeline.
That barrier was unraveled by a combination of events, politics, settlements, and laws: Native claims were settled in the landmark Alaska Native Claims Settlement Act; Congress exempted much of the pipeline construction and planning from some of the major federal environmental requirements; Alaska negotiated taxation and some regulatory issues directly with the industry; the all-Alaska route was selected. On July 17, 1973, the Trans-Alaska Pipeline Act was approved in the U.S. Senate by a single vote -- that of Vice President Spiro T. Agnew, who used his constitutional power to break a 50-50 tie.
Construction started in 1974 and lasted until 1977. On June 20, 1977, the first barrels of oil flooded the pipeline and started downstream to Valdez.
Ultimately, the pipeline project offered its support among Alaska's elected leaders and much of the relatively small population (about 300,000 at the time) because oil development held the promise of jobs, increased prosperity, and revenue to support programs and facilities that could raise the state's standard of living.
At the national level, the pipeline was supposed to lessen the nation's dependence on foreign oil. The control of world oil markets and pricing -- by the Organization of Petroleum Exporting Countries (OPEC) was beginning to squeeze oil-dependent industrial economies in Japan, Europe, and the United States. Here at home, the nation was beginning a decade-long economic slump, exacerbated in part by OPEC's embargoes and the cartel's ability to raise the price of oil to unheard-of levels. An Alaska pipeline was supposed to help protect or strengthen the U.S. economy to some degree. It was also considered in many respects a national security issue -- an issue so strong, in fact, that the Congress exempted the pipeline project from many of the emerging environmental requirements in federal law. The first OPEC embargo against the United States had come for political reasons, not market reasons: America's support of Israel in its wars with neighboring Arab states cost the nation its access to Middle East oil.
The promises of Alaska North Slope oil and the pipeline have largely come true. Alaska oil did not solve all the state's problems, but oil revenues, state spending, and associated activity certainly did help raise Alaska's standard of living. Alaskans wisely decided in 1976 to put aside at least a quarter of all oil income in a constitutionally protected savings account; the Alaska Permanent Fund in 1992 contains about $14 billion, and holds the promise of stable government support for programs after the oil runs out. The state has used its oil revenue to improve water and sewer systems, pay for construction and operation of public schools even in the smallest communities, protect and improve its fisheries, build senior citizen centers and community halls, upgrade other public services and amenities -- all while its citizens enjoy the lowest rates of overall taxation anywhere in America.
Right now, for good or for ill, Alaska's economy and government are substantially dependent on the revenue generated by oil development at Prudhoe Bay. And at the national level, Alaska oil is critical to America's energy supply, at least at current levels of consumption. Unfortunately, Alaska oil did not cause America to kick its foreign oil habit; imports as a total percentage of U.S. consumption have continued to rise. However, Alaska oil makes up nearly a quarter of all oil produced in the United States, and the products refined from North Slope crude oil fuel -- literally -- the automobiles and the giant economy of California and much of the American West: The bulk of the West Coast refining capacity is filled by oil that travels down the Trans-Alaska Pipeline System to Valdez. Many geologists believe there are other untapped oil fields in the Alaska Arctic.
Without Alaska oil, the American economy would not look exactly the same. That is why, in part, there is continuing interest and debate about where, when, how -- and if -- there will more oil exploration and development in Alaska. Many people have argued that Alaska's valuable oil has come at a dear price to America, not only by changes in the land, but by stalling or allowing America to avoid dealing with long-term questions about conservation and use of alternative fuels. Others contend Alaska oil has helped keep the U.S. economy strong, and that the nation should continue its search for oil in Alaska's frontier areas.
Yet regardless how one feels about Alaska oil development, people from all sides of the debate felt together the shock and anger and initial despair when the news came on March 24, 1989, that a supertanker had run hard aground in Prince William Sound. While the promises of North Slope oil development had come true, so had the major threat. (The EVOS Final Report, State of Alaska; ADEC)