Alaska’s history in perspective: Things looked bright for Alaska in 1970 with pipeline starting construction, then door slammed shut

In 1970, things looked bright for Alaskans. The state had almost a billion dollars of oil money from the 1969 North Slope lease sale, Native claims were headed for a settlement, and contractors were firing up to build the Trans Alaska Pipeline System.

Creation of the Alaska Permanent Fund, and eventually the Permanent Fund Dividend, was still in the future. The Fund was created in 1976 by the Legislature and ratified by voters as a constitutional amendment in 1976. Oil production hadn’t yet happened on the North Slope, That came in 1977.

The startup of the Trans Alaska Pipeline System But in 1970 he first construction on the pipeline started, as a road from Livengood to the Yukon River, the first part of what is now the Dalton Highway to the North Slope. Construction companies moved and pre-positioned equipment north of the Yukon so they could continue the roadbuilding.

The pipeline owners ordered steel pipe from Japan and stored it at Valdez and Prudhoe Bay. Businesses in Fairbanks and Anchorage planned and financed expansions, gearing up for the huge construction effort. Then the door slammed shut. National conservation groups has filed lawsuits to block permits for the pipeline until it had cleared a review under the brand-new National Environmental Policy Act.

NEPA had just become law and it was untested. Years of litigation were in store for the pipeline. Environmental protection was a new national priority and the Alaska pipeline was to be the first test of the new National Environmental Protection Act, enacted in 1969. The halt of pipeline work was a disaster for Alaska, however.

State officials had laid out an orderly plan to expand long-delayed public services using money from the 1969 lease sale. They anticipated completion of the pipeline and start of oil production, and new oil revenues in 1972 or 1973. This was not to happen.

As the lawsuits dragged on, a panic atmosphere set in. “Local businessmen, expecting work on the pipeline to begin no later than 1971, had borrowed heavily and could no longer meet their financial obligations. Bankruptcies grew in number,” said historian Jack Roderick, in his book Crude Dreams, a history of the Alaska oil industry.

State officials and legislators were worried. They knew it would take at least three years to build the pipeline. Lease sale money in the treasury would be depleted by 1975. Gov. Bill Egan had another worry. The price of oil was low and Egan knew that state revenues, based on the “netback” value of oil on the North Slope, might be lower than hoped, recalls Eric Wohlforth, state revenue commissioner at the time.

“Egan was seriously concerned that he had made a wrong decision in allowing state land selections on the slope in the mid-1960s,” Wohlforth said.

He was worried that the state would be giving the oil away. Egan’s concern played into his proposal in 1973 that the state build and own the oil pipeline, although the newly-formed Alyeska Pipeline Service Co. could manage the actual construction, Egan said.

The governor felt state ownership, and the assertion of a state transportation right-of-way, might help cut through the environmental lawsuits and also allow the state to make more money as a pipeline owner.

The same idea was suggested in 1969 by Keith Miller, the governor who preceded Egan in his second term. Miller’s initial idea was narrowed down to the state building the North Slope road, and it actually came close to happening.

The governor was talked out of the idea by advisors and, in the end, the industry. Three years later, the Legislature didn’t buy into Egan’s later idea for state ownership of the entire pipeline and the lawsuits continued. Congressional action in 1973, pushed by Alaska’s U.S. Sen.

Mike Gravel, finally cut through the environmental lawsuits. Congress was then becoming worried about U.S. dependence on imported oil (the Arab oil embargo was to come in 1974).

Work on the pipeline finally began in 1974 but the state’s financial problems had become urgent. Oil wouldn’t begin flowing until 1977, but the state’s reserves would be exhausted in 1975.

A unique agreement between the oil industry and the state solved this. The industry agreed to a form of advance tax payment which the companies could credit against their production tax liability when oil began flowing in 1977.

It was essentially an interest-free loan. The arrangement worked because it was negotiated between willing parties, and it was to provide crucial bridge financing for the state at a time of financial peril.