What others say: Alaskans shouldn’t bank on increased oil production, prices

  • Monday, August 1, 2016 7:52pm
  • Opinion

A report from the U.S. Energy Information Administration earlier this month contained a small but — from the Alaska view — telling notation.

The July 11 report, “EIA projects rise in U.S. crude oil and other liquid fuels production beyond 2017,” projected a continued decline in Alaska’s output.

“Production in Alaska continues to decline through 2040, dropping to less than 0.2 million b/d (barrels per day) in 2040,” according to the report.

This is not good news for anyone hoping that increased oil production or an increase in oil prices, or both, is going to help Alaska out of its precarious fiscal situation.

To think either of those occurrences is going to materialize to help Alaska is folly. Alaskans, and especially those campaigning for a seat in the Legislature, are making a grave mistake if they choose to reject major deficit-reduction efforts in favor of such wishful thinking. Some people, unfortunately, do argue that our situation will be saved by an oil price and production renaissance.

Alaska had a $3.1 billion deficit for the current fiscal year, a gap that was covered through Gov. Bill Walker’s $1.29 million in vetoes and by drawing on savings accounts. Those savings accounts are going to run dry in about two years unless the Legislature approves significant legislation to straighten out the state’s finances. Gov. Walker put forward solid ideas in December, but legislators repeatedly balked.

Nothing got done.

Once upon a time, not too long ago, revenue from Alaska’s oil fields accounted for about 90 percent of the state government’s general fund revenue. Now it’s a fraction of that amount. Massive and sudden change would be needed in the oil world to return to the good ol’ days.

The Energy Information Administration report is but one of several that constantly come out about the global oil market, of which Alaska is but one of many players. Those reports have a variety of differing projections based on various price and production scenarios, adding to the uncertainty.

Alaska’s own report, from the Alaska Department of Revenue — it issues two reports annually — gives a pretty grim near-term and medium-term outlook about the amount of oil income the state can expect. The cover letter from Revenue Commissioner Randall Hoffbeck spells it out:

“The revenue forecast is based on a revised oil price forecast of about $40 per barrel versus $50 in the fall,” he wrote. “The forecast prices over the next 10 years have also been reduced to reflect anticipated future lower prices. The average price is now not forecast to reach $60 until FY 2021. However, with the global contraction on investment in production, and spare capacity that represents less than three percent of global demand — we also recognize the potential for significant price volatility over the next few years.”

Oil revenue collapsed several years ago, and there’s little sign of improvement. The year-to-year change in the amount of the state’s oil income is staggering, from $1.69 billion in fiscal 2015 to $801 million in fiscal 2016 to a projected $705 million for fiscal 2017, the current fiscal year. And the fiscal 2015 number is down sharply from the days when oil exceeded $100 a barrel; it’s now about $40.

That’s catastrophic. It isn’t going to change anytime soon. And what that means is Alaska urgently needs its residents and its elected officials to live in the real world and not in the world of fantasy.

—Fairbanks Daily News-Miner, July 29, 2016

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