Alaskanomics

Alaska Rig Count at 5; U.S. Total is 1,800

There are 5 rotary drilling rigs operating in Alaska as of April 21, four onshore and one offshore, according to the Baker Hughes weekly rig count. Onshore rigs are down 2, and offshore rigs up 1, from April 1. The total U.S. rig count for April 21 is 1,800. States with more than 100 operating rigs include:

• 801 in Texas, up 30 from April 1
• 174 in Oklahoma, down 1
• 170 in Louisiana, down 5
• 161 in North Dakota, up 2
• 104 in Pennsylvania, unchanged

Foreclosure Activity Slows in 2011

Today the Alaska Housing and Finance Corporation completed the first quarter of 2011 report on Notices of Defaults and Trustee Deed foreclosure action. In Anchorage, Fairbanks and the Mat-Su there was a fairly significant reduction in the number of notices of default in the first quarter of 2011 compared to the same three months of 2010. Anchorage trustee deed filings were virtually the same in the first quarter compared to last year, but Fairbanks and the Mat-Su were both lower in 2011.

The Notices of Default are based on legal property descriptions and may contain multiple units of housing. They do not distinguish between commercial structures, residential structures and land. Statewide there were 548 notices of default in the first quarter of 2011 compared to 749 in the first quarter of 2010. The quarterly average number of notices was 654 in 2008, then rose to a high of 864 in 2009, and declined to 700 in 2010. The complete report gives detail for the largest communities in Alaska and graphs the trend back to 2000. Anchorage notices declined from 354 in the first quarter of 2010 to 237 in the first quarter of 2011. Fairbanks notices declined from 100 to 93 during the same first quarter comparison, while the Mat-Su fell from 152 to 109.

Notices of Default are a leading indicator of upcoming foreclosure activity. This can be tracked by the filing of Trustee Deeds, which represent the completion of the foreclosure process a minimum of 90 days later. There were 309 Trustee Deeds filed statewide in the first quarter of 2011 compared to 361 in the first three months of 2010. The quarterly average number of Trustee Deeds was 283 in 2008, 312 in 2009, and 347 in 2010.

There were 120 Trustee Deed filings in Anchorage during the first quarter of 2011. This was right on par with 2010 when there were 117 first quarter filings and an average of 119 each quarter during the year. In Fairbanks there were 43 filings in the first quarter of 2011 compared to 55 in the first quarter of 2010 and 56 on average per quarter for the year. The Mat-Su had 64 filings in the first quarter of 2011 compared to 104 in the first three months of 2010 and 91 on average per quarter for the year.

Looking back at all the data from 2000 to 2010 there were a total of 21,666 notices of default filed in Alaska and 10,422 resulted in the issuance of Trustee Deeds. Therefore, roughly half (52%) of notices of default were cured or restructured in some way before a foreclosure was completed. Over the last 11 years there was an annual average of 1,968 Notices of Default statewide. The last four years have all been higher than the long-term average, which is partially explained with inherent growth in the economy. However, 2009 was clearly the worst year with rates 76% higher than average. 2010 showed an improvement to 42% above average and the first quarter of 2011 is about 11% higher than the historical quarterly average.

The total number of foreclosure actions in the last three years has also been higher than the average since 2000, but the percentage of notices of default that turn into trustee deed filings is getting smaller. For example, in 2000 there were 1,484 defaults and 1,066 trustee deeds. Therefore, only 28% were cured or restructured compared to an average over the decade of 52%. In 2009 the comparable number was 36% and 49% in 2010.

Click Here to view a copy of the three page report. It contains several graphs of this data which show an increase in this activity in 2007 and the beginning of a decline trend in 2010.

Alaska's Unemployment Continues Downward Trend; Still Under U.S. Level

Alaska's seasonally adjusted unemployment rate for March 2011 was 7.4%, down from 8.2% a year ago, according to the Alaska Department of Labor's March unemployment statistics. The U.S. unemployment rate for March was 8.8%, down from 9.7% a year ago. This is the 28th month that Alaska's unemployment rate has been below the national rate - in past years Alaska's rate trended several percentage points higher than the national rate.

Shale supply, electricity demand explored at pipeline conference

Note: Federal Pipeline Coordinator Larry Persily attended and presented at the Pipeline Opportunities Conference in Houston on April 19. The discussion centered on increased supplies from shale gas production and rising demand from electricity producers. Here is his report from the conference.

“We don’t know what hydraulic fracturing regulation will look like over time,” said Ed Kelly, vice president for North American Natural Gas and Power with international consulting firm Wood Mackenzie. “We’re all making a lot of assumptions.”

“Environmental resistance and political attention continue to build,” adding uncertainty to shale gas production, he said. “Regulatory costs and permitting delays could slow development considerably.”

Despite that uncertainty, there likely will be enough shale gas in the market for the next 20 years to push completion of the Alaska natural gas pipeline past 2030, said Kelly, one of several speakers at the Pipeline & Gas Journal’s annual Pipeline Opportunities Conference in Houston April 19.

But that could easily change, he said, depending on regulation of fracking and increased demand for gas. “Close to 50 percent of total supply longer term will be affected by regulations on hydraulic fracturing,” he said.

“By 2013-2014, we will know much more about how shale wells perform longer term, and will have a much better idea of ultimate recoveries and production potential.”

Bruce Henning, vice president for regulatory and market analysis at consultants ICF International, also talked about shale gas production and the high-profile opposition to fracking. “There are real environmental concerns,” he said, though ICF, just as Wood Mackenzie, predicts shale production will continue to grow and dominate the U.S. market for years to come.

However, he also offered a warning: “Industry is only as good as its least diligent player.”

AGING PIPE INFRASTRUCTURE

Several speakers at the conference talked about the need for the oil and gas industry to prove to the public that it can operate pipelines safely and without leaks and spills. More than half of the pipes in the ground were buried more than 40 years ago, said Peter Lidiak, pipeline director at the American Petroleum Institute. Corrosion is the single largest cause of pipeline leaks, he said.

The industry will have to work with the Federal Energy Regulatory Commission to ensure it can recover its costs of pipeline repair and replacement, estimated in the tens of billions of dollars, said Daniel Martin, senior vice president for pipeline safety at El Paso Corp.

PRICES AT $6 TO $7 PER MCF

Much of the day’s discussion, however, centered on gas demand, supply and shale. An estimated 450 people attended the one-day conference.

The Interstate Natural Gas Association of American Foundation sees gas demand growing by 6 billion cubic feet a day by 2020 and an additional 5 bcf a day by 2035, with most of that demand growth coming from power plants. INGAA sees long-term gas prices settling in a range between $6 and $7 per thousand cubic feet, said Richard Hoffman, executive director of the trade group’s foundation.

The key, Hoffman said, will be to get a high enough price to cover costs and make a profit, but not so high as to stifle demand growth. Wood Mackenzie predicts gas will settle into a long-term price around $6.50 per thousand cubic feet (2010 dollars).

Coal-plant retirements and a resumption of economic growth could add 1.5 bcf a day to U.S. gas demand each year through 2020, according to Wood Mackenzie.

“It’s really looking pretty good for gas,” Kelly said. The “silver bullet” to creating more demand, he said, would be carbon regulation on the federal level. “That could have added 10 bcf a day to the demand side,” joking that independent gas producers could have helped themselves had they voted for Al Gore for president in 2000.

New federal legislation probably will not happen, especially after the 2010 Republican gains in Congress, but EPA carbon-emissions regulation is entirely possible.

The long-term prospects for natural gas are favorable, Kelly said, based on the anticipated retirement of a lot of older coal-fired power plants. “Carbon and environmental policy, coal retirements are the lever” on the demand side, according to the Wood Mackenzie presentation.

PETROCHEMICAL DEMAND UP

There also is good news for gas on the industrial side, Kelly said. After years of reduced demand and shuttered plants, “industrial demand redevelopment really is happening,” with even the petrochemical industrial seriously considering expansions to take advantage of affordable, plentiful domestic gas supplies.

Shale gas production is behind the talk of new petrochemical and industrial demand. But the unknowns of future shale production, its costs and environmental constraints maybe could help prospects for the Alaska gas line, Kelly said. Maybe.

Alaska gas does not compete with today’s shale plays, he said. Rather, Alaska’s competition in the 2020s and beyond will be shale plays not yet under production, plays possibly with higher costs. Alaska competes “with the next most costly shale,” he said.
 

$12 Billion Gas Plant is One-Third of Alaska Pipeline Project

A new report released by the Office of the Federal Coordinator describes the massive gas treatment plant which would be required as part of the Alaska Natural Gas pipeline project. The plant, which is estimated to cost $12 billion of the estimated $30 to $40 billion project, would prepare 4.5 billion cubic feet of North Slope natural gas each day for shipment through the pipeline.

Construction of the plant is estimated to require a workforce of 3,000, with sealifts over several years to ship 95 modules weighing a total of 270,000 tons to the North Slope.

North Slope natural gas contains more carbon dioxide than the market allows. The gas treatment plant would reduce the carbon dioxide content from about 12 percent to less than 2 percent of the gas. The plant would also remove other impurities from the gas, then chill the gas to 30 degrees and pressurize it for shipment.

For more information about the proposed gas treatment plant, click here for the complete report.

Southeast State Forest to Double in Size; Managed for Timber Harvest and other Uses

The Alaska Legislature passed a bill this session to add 23,000 acres to the Southeast State Forest (SESF). The SESF was established by the legislature in 2010, with an initial designation of about 25,000 acres, with the objective of creating and sustaining jobs in the timber industry in Alaska. Governor Parnell introduced the bill, and is expected to sign it, as part of a long-term strategy to "stabilize and revitalize the timber industry" in Southeast Alaska.

The Alaska Division of Forestry will manage the SESF for long-term timber supply and other uses, including fish and wildlife habitat, recreation, hunting, fishing and mining through a Forest Management Plan that will be prepared within three years.

The Southeast State Forest is Alaska's third State Forest. The 268,000 acre Haines State Forest was established in 1982 and the 1.8 million acre Tanana Valley State Forest was established in 1983.

For more information about Alaska's State Forests, including maps and fact sheets, click here for the Alaska Division of Forestry's State Forests page.

 

Alaska's "Continuous Workers" Weather Recession Well

In April's issue of Alaska Economic Trends, the Alaska Department of Labor released the 3rd quarter 2010 "continuous employment" figures, the latest available. Continuous employment is defined as workers who have worked for the same employer for the four quarters prior to the reporting period.

Overall, the continuous workforce grew .6%, or 1,300 workers, from the third quarter of 2009 to the third quarter of 2010.

• The largest number of continuous workers are in local government, with just over 31,000 employees, virtually unchanged from the prior year.
• Health Care and Social Assistance is the second largest group, with 29,000 continuous workers, an increase of 6% over the prior year.
• State government workers are the third largest group, at 21,000 continous workers, growing 1% over the prior year.

Several industries changed by a significant percentage, although the absolute numbers were small:

• Agriculture, Forestry, Fishing and Hunting increased 13%, to 462 continuous workers
• Management of Companies and Enterprises declined 10%, to 311 workers
• Educational Services declined 8%, to 1,152 workers

Department of Labor economists expect the continuous employment number to grow if the recent increases in new hires stay in their positions.

Commonwealth North Issues Oil Tax Study; Calls for Changes to ACES

Commonwealth North released their oil tax study report, "Alaska's Oil Investment Tax Structure: Establishing a Competitive Alaska." The Board of Directors and members of Commonwealth North engaged in a four month study to evaluate the primary public policy concerns associated with Alaska's oil tax structure. The study group was headed by Northrim Bank President Joe Beedle and Municipality of Anchorage Office of Management and Budget Director Cheryl Frasca. Study group members heard from oil tax payers, legislators, economists, and informed Alaskans. The data was analyzed, compared, discussed, and the final report produced. The study group determined that the current oil production tax, ACES, adversely affects investment in oil production on the North Slope.

The Commonwealth North Board of Directors approved a resolution supported by the findings of the oil tax study report, urging the legislature to reduce the ACES progressivity rate. Many of the presentations from individuals who met with the study group are available on the study group page.