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Alaska’s tough times

January 30, 2016

Alaska’s economic forecasts are gloomy as the state struggles with declining oil and gas prices and sharply reduced State revenues. Key metrics such as employment, population growth and investment plans all look not great for 2016.

The Alaska jobs forecast from the Anchorage Economic Development Corporation for 2016 shows a reduction, but less than the population decrease. Anchorage is predicted to lose 1,600 jobs during 2016. The largest reductions will be seen in Oil and Gas (-600), Government (-500), Construction (-400) and Professional and Business Services (-400). The biggest winner will be Healthcare, which is predicted to add 300 jobs this year. The industry has added 5,000 jobs in the past ten years. The loss of 1,600 jobs is about 1 percent of the Anchorage job market.

While all oil and gas companies have entered into a period of austerity, some commitments to exploration and development continue. As of December 2015, ConocoPhillips has six drilling rigs operating on the North Slope with plans for two more rigs in 2016. ExxonMobil’s Point Thomson project is well-positioned to commence first oil production in early 2016. Point Thomson holds 25 percent of the state’s known gas reserves, plus millions of barrels of associate condensate. While this $2.6 billion development will increase Alaska’s hydrocarbon production in the long-term, the workforce needed to operate the site is much less than the short-term workforce needed during construction. In 2015, more than 70 contractors employing 1,000 workers across Alaska were involved in this project.

Reduced capital spending by the oil and gas industry and the State of Alaska, and slowing business investment due to economic uncertainty, will dampen construction activity. Overall capital spending is expected to drop by 18% to $7.3B in 2016, with most of the decline being made in the private sector. Alaska’s six operating mines are hanging tough, with expenditures of $180 million expected in 2016, the same as in 2015.

Commentary

Alaska’s economy has fared better than one would have expected given the precipitous drop in the price of oil from around $100 per barrel to $33 in a year. As with other northern jurisdictions a large government sector has helped provide stability. Yet the high reliance on oil and gas revenues is causing the State to expend its reserves to balance its budget. 

All northern jurisdictions have endured a decline in their standard of living over the past few years, but Alaska has done better than most. Yet the decline in oil prices will present ongoing challenges for both public and private sectors.

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