In remote Western Alaska communities that receive fuel by barge in the summer months, fuel prices locked in long before the war in Iran are already eye-wateringly high.
Now, those prices are set to increase as barges make their first deliveries of the season. Northern Journal reporter Nat Herz traveled to Hooper Bay as part of a broader look at what leaders describe as an unfolding crisis that threatens barge-dependent communities in Western Alaska. KYUK’s Evan Erickson spoke to Herz on June 2 about what he learned.
This interview has been edited for length and clarity.
KYUK (Evan Erickson): This reporting talks a lot about the current hardships with sky-high fuel prices in Western Alaska, but it comes as the first fuel barges of the season are arriving. How did we get here to this place we're at?
Herz: I think this reporting, in part, is geared toward people on the road system who I think don't understand and appreciate the expense that is associated with gas and heating fuel in rural Alaska. But I mean, I think we have a system that supplies rural Alaska with refined fuels, not Alaska crude oil, but it's an incredibly logistically complex system that requires moving these liquids thousands of miles, typically with multiple watercraft involved. I think not an enormous amount of competition either, just sort of a couple companies that are making sales, and I think this stuff sort of, it all adds up, such that even before the market turmoil that we've been seeing as a result of the war, prices were far, far higher than people are complaining about what they are down south.
KYUK: A lot of the stuff with fuel logistics is pretty secretive and opaque. What did you learn through your reporting about how these barged fuel systems actually work?
Herz: I mean, I think I understood that this was a relatively complex system, where basically you had these tugs and barges running up rivers every summer to deliver fuel to off-road-system communities, and you have this sort of shortened window, and the price gets set as a result of that. What I didn't understand was that you literally have full-sized oil tankers coming over to Western Alaska waters from South Korea, from Vancouver [Canada], just full up with refined fuels. These are 300,000-barrel tanker type watercraft, and what was really interesting to me was the tankers don't ever come to shore because the owners and the companies that are chartering them don't want to have to go through the regulatory process of getting the ships into state waters. So you've got these huge tankers out there, and then this sort of rotating fleet of tugboats and barges that kind of approach up to the tanker, and they can only do this when the weather is adequate to do this safely, and they basically run pipes or hoses and transfer the refined fuels at sea. And so the tankers kind of, I think, move around up the coast, and then back down the coast over the course of spring, summer, fall, when ice and weather conditions allow, and the tugs and barges just are kind of continually offloading cargoes of heating fuel and gas, running them up the rivers or to villages along the coast and then going back for another load.
KYUK: You had this anecdote in the story that I really love, which is that the Trans-Alaska Pipeline System moves as much unrefined petroleum in 30 minutes as Hooper Bay's industrial tanks store for an entire year. Why can't we use that fuel?
Herz: That's a great question. So, yeah, I mean, basically the issue is the Trans-Alaska Pipeline System moves almost 500,000 barrels of oil every single day, which is, I think, a little less than 5% of all the oil that the entire United States of America uses in a day, so we're talking an enormous quantity of oil. The problem is that we have a limited refinery capacity in Alaska. Those refineries really only produce enough to take a portion of that 450,[000], 500,000 barrels a day, and they are basically, I don't want to say they're high grading, but I think they are kind of using their capacity to produce gas and refined fuels that just goes on to the Alaska road system market. I think you also have to contend with this really old protectionist federal law, the Jones Act, that I think only allows you to move cargo on merchant vessels …
KYUK: That would be U.S. flagged?
Herz: Correct. If you're going from one U.S. port to another U.S. port, you have to be U.S. flagged, and consequently those movements end up being more expensive than if you're using a foreign flagged tanker to move cargo from a foreign country. And then yeah, I mean, just sort of economies of scale, the Trans-Alaska Pipeline System and those companies are geared toward export and toward moving huge quantities of oil, not half an hour's worth of production for one community for the year.
KYUK: You reported this story from the Bering Sea coast, from Hooper Bay, but you covered a broad area. You delved into Nome and Bristol Bay, and far up on the middle Kuskokwim [River] as well. In your mind, what is the worst case scenario that these communities are facing? And is there anywhere you see reason for optimism?
Herz: I think it's a pretty grim narrative right now. I mean, I think you have this constellation of things that are all sort of landing on coastal, sort of Western Alaska communities with the global energy crisis, and that's really that you have this global spike in the price of petroleum products sort of coming and being maintained through this summer shipping season when prices get locked in for a whole year. And unlike the rest of the world, you don't really have an opportunity for there to be a correction after you get the last barge in the late summer or fall, through the whole winter, and then again until sort of the spring, early summer. And so I think that outlook is, it's not good. I think it does sort of sound like the price impacts that are starting to land, they're not good, obviously. I think in Bethel, the first price hike went from something like $6.70 to $9.30 [per gallon], so that objectively sucks. But it's not, you know, $12, and I think it'll be interesting to see sort of what these prices end up looking like in other communities.
One thing that I didn't really get into in the story, but probably is worth people talking and thinking about, is there are some communities that have done a lot of work, I think particularly when you look to Northwest Alaska, that have built out some pretty impressive renewable energy infrastructure, which you know, again, isn't going to totally eliminate their dependence on on fossil fuels, right? They're going to be days when, especially in the winter, I think, where maybe you're getting some wind if you have some wind capacity, but a lot of these projects are solar, and so in the winter you're still going to need to be running your diesel generators and stuff. But I think in the summer there are communities that are really starting to free themselves from this dependence on a global commodity price that they have absolutely no control over. There's a huge sort of demonstration project in Northwest Alaska where they're putting in big solar farms, and then they're providing free heat pumps in every house in every Northwest Alaska village who wants one, I believe, can get one. And I think that has the potential to really sort of revolutionize what at least individuals are contending with when it comes to heating their homes and energy prices. So stay tuned for that story later this year, hopefully.