Alaskanomics

Forbes: Alaska's energy tax structure is among "Worst in the World"

At the Anchorage Economic Development Corporation annual economic forecast luncheon, keynote speaker Steve Forbes characterized Alaska's energy tax structure as one of the worst in the world - second only to North Korea. Forbes believes that oil prices will not stay above $100 per barrel forever, and suggested that a "sensible" tax structure will attract more capital and result in more long term revenues to Alaska.

Forbes, chairman and editor-in-chief of Forbes Media, also believes the U.S. could be a major energy exporter, saying "The abundance (of energy resources) has barely been scratched." With a changes in Congress that Forbes predicts will take place in the fall elections, he said it was possible that ANWR could be opened to oil exploration and development.

Anchorage Office Market Strong in National Comparisons; Forecast for Somewhat Softer Market in 2012

Anchorage's office space vacancy rate is just over 5%, compared with a national rate of 16%, according to Theodore Jensen, MAI, of Reliant LLC in his January presentation to the Building Owners and Managers Association of Anchorage. Other western city vacancy rates range from about 9% in Portland to 25% in Phoenix.

Jensen forecasts another 200,000 of new Class A office space to be built in 2012, with more projects "in the wings." With low job growth limiting demand, and significant new supply, Jensen expects market conditions to soften in 2012 and result in downward pressure on rents at the high end and flat rents for the rest of the market. However, Jensen noted that Anchorage is still one of the better performing markets in the country. 

Fread Sees 0.6% Job Growth for Anchorage in 2012; Health Care and Hospitality will Lead Gains

In a January presentation to the Building Owners and Managers Association in Anchorage, Alaska Department of Labor's veteran researcher, Neal Fried, revealed his forecast for job growth in Anchorage for 2012.

Preiminary figures for 2011 indicate that Anchorage jobs grew 1.4%, after job losses in 2009 and nearly flat job numbers in 2010. Fried's forecasts "modest" growth for 2012 at 0.6%:

• Government and Construction sectors will lose 400 and 300 jobs, respectively
• Health Care sector will gain 700 jobs
• Leisure and Hospitality will gain 400 jobs
• Transportation will gain 300 jobs
• Retail Trade and Professional Services will each gain 200 jobs

Without "Significant" Investment, State Forecasts 60% Decline in North Slope Oil Production by 2021

Alaska's Department of Revenue, in the Fall 2011 Revenue Sources Book, forecasts a 4.7% decline in total North Slope oil production in FY2012, to 574,000 barrels per day (bpd). This forecast depends on 26,000 barrels per day in "under development" production. "Under development" production forecasts are based on new projects that are currently funded by North Slope operators or are expected to get funding in the very near future. The state forecast only includes production from fields that have already been discovered.

Production from currently producing fields is expected to decline 9.1% next year, and by 2021, the state expects production from currently producing fields to be just 241,000 bpd - a third of this year's production. Nearly half of the state's total North Slope production forecast for 2021 must come from projects "requiring significant new investment," according to the state.

From 2006 to 2011, State North Slope Oil Production Forecasts Increasingly Pessimistic

The State of Alaska Department of Revenue released their Fall Revenue Sources book this month. By FY2015, the state forecasts that total Alaska North Slope production will be 538,000 barrels per day (bpd), down from 603,000 bpd in FY2011. Five years ago, the Fall Revenue Sources book forecast 782,000 bpd of production in FY2011 - a forecast that was off by 179,000 bpd. Because the oil production forecast is a key driver of state government revenues, elected officials may have counted on revenues, particularly in the out years, that did not materialize.

Since those very optimistic projections in FY2006, the state has, for the most part, lowered the oil production forecast each year as shown in the chart below.

Alaska's Department of Revenue noted this trend in the latest forecast: "When reviewing forecasted production versus actual production in previous production forecasts, it is apparent there has been a significant trend towards higher anticipated levels of production than those actually realized." The state incorporated a more in-depth review of the forecast, resulting in lower estimates this year.

ConocoPhillips Permit Application Moves Forward on Agency Agreement; Murkowski Says Road and Bridge Could Spur Development in NPR-A

Reuters reported today that the Environmental Protection Agency and the U.S. Fish & Wildlife Service have reached an agreement with ConocoPhillips to construct a road and bridge over the Colville River to reach the company's Alpine Unit. The Army Corps of Engineers is expected to complete its review of the permit application in the next few weeks. ConocoPhillips has agreed to let other companies use the facilities, which Alaska's Senator Lisa Murkowski said in a press release that the decision could open the NPR-A, with an estimated 1 billion barrels of recoverable oil, to exploration and production. The Department of the Interior will hold a lease sale in the NPR-A on December 7.

 

Alaska Travel Statistics Trend Positive in 2011

Preliminary analysis of hotel bed tax receipts around the state coupled with the mid-year data from Alaska's international airports shows a positive trend in the travel sector in 2011.  These figures are the most insightful indicator of current tourism activity, though they do not differentiate between in-state and out-of-state visitors.

Bed taxes are collected for short-term hotel visits in Alaska's three largest communities of Anchorage, Fairbanks and the Mat-Su Borough.  All three report positive increases in tax collections in the last 12 months compared to the same prior period. 

Anchorage numbers are reported on a quarterly basis.  For the last reported year from July of 2010 to June of 2011, room tax collections totaled $20.3 million compared to $18.9 million for the same prior four quarters.  This is an increase of 7.5%.  Municipal officials confirmed the tax rate remained constant during this time.

For the same 12 month period in the city of Fairbanks there was a 2.6% increase in taxes collected.  The Mat-Su Borough reports bed tax collections by fiscal year, which ended in July of 2011.  They reported a 4.7% increase over the fiscal year 2010 figures.

Supporting these numbers are recent passenger statistics from the Anchorage and Fairbanks international airports.  They track the number of enplaned, deplaned and in-transit passengers.  The two airports together increased 3.7% in the volume of passengers between the state fiscal year 2011 and 2010 levels.  The state runs on a July to June fiscal year.  Anchorage had an increase of 4.1% while Fairbanks grew 1.9%.

The report also counts the number of passenger aircraft that landed, which was up 3.6% in both Anchorage and Fairbanks.  The number of cargo aircraft landed was up 5% in Anchorage, but declined 4.8% in Fairbanks in fiscal year 2011.

 

The State of Alaska Department of Commerce typically puts out a comprehensive report on the economic impact of the tourism industry for the prior year in March.  The last report showed 1.5 million visitors between May and September of 2010.  This was a 6% decline in the number of summer visitors between 2009 and 2010.  This was attributable to an 11% decline in cruise ship passengers in 2010.  It was the third consecutive year of total summer visitor declines after peaking at 1.7 million in 2007.

In July of 2011 the Department of Commerce produced a Fall/Winter update focusing on the period between October of 2010 and April of 2011.  It reported 244,100 visitors, a 3% increase from the prior year.  95% of the Fall/Winter visitors exit Alaska by air transportation, compared to 46% in the busier summer season.  49% of summer visitors exit by cruise ship and the highway and ferry account for only 5% in both seasons.

The increase in bed tax reciepts in Alaska's three largest communities, the higher volume of passengers at the international airports and positive growth in winter 2011 visitor numbers all signal an improving travel sector in Alaska this year.

Oil Production Continues to Decline in 2011; Oil Prices Remain High

Alaska's oil production continued to decline in the State's fiscal year 2011 that ended in June.  Statewide production averaged 608,000 barrels per day (bpd), falling 7% from 652,000 bpd in fiscal year 2010.  The peak production was over 2 million bpd in 1988 and has declined continuously over the last two decades.  Alaska dropped below the 1 million bpd mark in 2004. 

This troubling trend is often considered the most important long-term economic issue facing the state of Alaska.  The problem does not stem from a lack of potential energy resources to be developed.  Billions of barrels of recoverable oil are known to exist in places like ANWR, NPR-A and off-shore in the Beaufort and Chukchi Seas. 

However, much of the wealth of resources exists under Federal lands.  Legal access to explore for the energy, approval of regulatory permits and onerous state severance tax issues have all slowed the pace of development or blocked it outright.  Because the issues are political in nature and not technological it is possible to see an improvement of production numbers in the future.

There has not been a pressing need for the State Legislature to act decisively on this issue because revenues to the government have been robust even as production declines.  This is due to higher production tax rates and continued high prices for Alaska's oil.

Oil prices that averaged under $20 a barrel for decades suddenly began to rise in 2005.  By 2008 they averaged over $90 a barrel and in fiscal year 2011 prices averaged a record high $94.  In 2006, Alaska passed a new progressive oil tax structure.  This increased the production taxes paid by oil companies by a fixed percentage for every dollar change in the price of a barrel of oil.  The State is now collecting billions more than in the previous system. 

As a result, State operating and capital budgets have grown to record levels.  Despite dramatic spending increases, revenue surpluses have been achieved for the past seven consecutive fiscal years.  The private sector has expressed their concern over the declining production trend for many years, but with the higher oil prices and production taxes the government has not felt the pressure in their budgets. 

The future of Alaska's energy sector can be very productive if tangible regulatory and tax adjustments are approved by State and Federal policy makers to make energy investment more competitive in Alaska.

North Dakota Oil and Gas Production at "All Time High"

The latest "Director's Cut" from the North Dakota Department of Department of Mineral Resources reports that North Dakota oil production in August was more than 444,000 barrels per day, an "all time high" according to the report. Gas production was more than 461,000 million cubic feet per day, and producing wells at 5,951, also all time highs. The report notes that there is a backlog of 300 wells waiting for fracturing services. Read the full report here.

ConocoPhillips Purchases Remaining Share of Kenai LNG Plant; Says Plant has "Options"

Today ConocoPhillips announced the purchase of Marathon's 30% share of the Kenai LNG plant, giving the company 100% ownership of the 42-year-old plant. While the company still plans to mothball the plant later this year, a spokesperson said the company is still considering other options, including resuming LNG exports (which have primarily gone to Tokyo Gas and Tokyo Electric) or converting the plant to import LNG. Read the full story here (subscription may be required).