In the state with the fourth-largest proven reserves of oil and gas in the U.S., there is a looming energy shortage.

Above the Arctic Circle, oil producers on Alaska’s North Slope send an average of 465,000 barrels of crude oil south each day for shipping to refineries and users around the country and the world.

But in south-central Alaska – Anchorage and the surrounding region, home to 63% of the state’s population – utility companies are warning they may not have enough natural gas from current sources to keep the power and heat on without interruption.

As a professor at the University of Alaska Anchorage who studies the economics of natural resources, I can see this apparent contradiction has a straightforward cause but no simple solution.

The North Slope region once produced nearly 2 million barrels of oil per day at its peak in the 1980s. Every barrel is transported via the 800-mile Trans-Alaska Pipeline System to the port of Valdez, where it is loaded onto tanker ships.

The state government collects significant taxes and royalties on oil production. For decades, oil revenue allowed the state to fund all government spending without imposing broad-based income, sales or property taxes. At the height of the oil boom, there was so much money that Alaska established a wealth fund, now valued at over US$80 billion, and began distributing dividends to every resident.

But the Trans-Alaska Pipeline is designed to carry oil, not natural gas. A state law prevents producers from burning off excess gas, or flaring, as happens in many fields. With nowhere to send it, gas extracted from........

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