Alaska’s economic dependence on oil and gas extraction is quantified in a report that the McDowell Group, an Anchorage-based economic consulting firm, does every three years for the Alaska Oil and Gas Association trade group.
On Wednesday, McDowell Group Vice President of Anchorage Operations Donna Logan presented this year’s edition, a snapshot of what oil companies put into state coffers and private pockets in 2016, to members of the Kenai and Soldotna chambers of commerce.
Logan’s presentation attributed about a third of all jobs in the state and third of all wages earned — $6 billion — to spending by oil and gas companies. The 103,878 jobs credited to oil consist of 4,275 coming directly from oil companies, 6,095 in support of oil activity, 35,205 indirect jobs attributed to spending by oil and oil support companies and 58,300 public sector jobs whose wages McDowell attributed to oil companies’ tax and royalty payments.
“It’s a third,” Logan said. “Just remember, it’s a third of our economy, the oil and gas industry.”
For its calculations of spending impact, the McDowell group used data volunteered by 14 companies — all AOGA members except ConocoPhillips and the privately owned exploration company Great Bear Petroleum — about their spending and government payments in Alaska. The 14 include producers such as BP, Chevron, ExxonMobil, ConocoPhillips, BlueCrest Energy, Glacier Energy, Furie Operating Alaska, Great Bear Petroleum and Shell, as well as the refinery operators Andeavor — formerly Tesoro — and PetroStar, and the Alyeska Pipeline Service Company, operator of the TransAlaska Pipeline System.
McDowell’s last two reports for AOGA — she’s been involved in five, she said — add a new element to the spending impacts of these companies: the effect of their taxes and royalty payments as well, which in 2016 amounted to $1.6 billion according to Logan’s presentation.
“Typically when you do these kinds of studies, you don’t spend a lot of time working through the economic impact of taxes that are paid, and how that trickles through the economy,” Logan said. “Well, this will be the second generation of the report we’ve done where we not only measure the economic impact of the industry itself, but also the economic impact of the government revenue that comes from taxes and royalties and so on… I think it presents a more complete picture of what the impact is.”
Alaska’s statewide oil production has been in steady decline since peaking at 2 million barrels a day in 1988, according to the Alaska Oil and Gas Conservation Commission, when it represented 25 percent of U.S. oil production. It’s presently around 500,000 barrels a day. A global oversupply drove the value of Alaska’s oil from $101.78 per barrel in September 2014 to $30.22 in January 2016, according to the Alaska Department of Revenue. The state’s revenue from oil declined from a six-year peak of $9.8 billion in 2012 to $1.6 billion in 2016, according to the McDowell report. Decreases in the state’s employment and government spending followed, creating the shortfalls that are now reaching local governments.
The McDowell report also quantified the oil dependence of the private and public sectors of six Alaskan regional economies. For the Kenai Peninsula Borough, it attributed 20 percent of local jobs and 25 percent of local wages to the oil industry.
Oil and gas properties also account for 13 percent of the Kenai Peninsula Borough’s property tax revenues, according to McDowell. In addition, money from the state’s community assistance program — through which local governments receive state funding, ammounting to $57 million in fiscal 2016 — can be largely attributed to oil revenue, according to McDowell.
After Logan’s presentation, Kenai Peninsula Borough Mayor Mike Navarre said that with historical context, data on state and local oil dependency could help communicate what he called a need for other sources of government revenue. Navarre unsuccessfully sought to avoid deficit-funding this year’s borough budget with $4.3 million from the borough’s fund balance with a series of tax measures, all rejected by voter referendum or borough assembly vote, including reducing the borough’s optional portion of its senior property tax exemptions, increasing its sales tax cap and a 0.5 mill rate increase.
“What I’m interested in is how things have changed,” Navarre said. “Because one of the things that’s difficult to get across to Alaskans is why we can’t have the industry paying for all the costs associated with all residents in Alaska, the way we used to be able to do it when we were at 2 million barrels a day. That, I think, would be a useful comparison to get the message out about why we’re talking about broad-based taxes, in order to make sure we can encourage industry development.”
Other commenters also asked how McDowell’s oil industry impact numbers have changed. However, the group’s triennial reports for AOGA are not meant to provide historical perspective. In a later interview, Logan listed factors that make them difficult to compare across time, including inflation and the fact that not all the reports draw spending data from the same set of companies.
In answer to Navarre’s concern about diversification, Logan said “I think it’s always important to diversify your tax base.”
“A healthy economy is a diverse economy,” Logan said. “And if you look at (countries in) the developing world, that are so dependent on one industry — a mine, for instance — I mean, Alaska would look like one of those developing world economies, frankly, we’re so dependent on (oil and gas). We’ve been really fortunate over the years to do what we have been able to do with the monies, but it’s not necessarily going to get easier to depend on the industry to pay all the bills. You have to really think about how to grow other aspects of your economy to support that stability. But thank God, they’ve been there to pay what they have been able to pay.”
Reach Ben Boettger at firstname.lastname@example.org.