Alaskanomics

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).

Mortgage Lending, Refinance Activity Slows in Quarter Two; Increase Expected as Interest Rates Fall

The Alaska Housing Finance Corporation (AHFC) released their second quarter report on Alaska housing indicators.  They surveyed mortgage lending activity the first six months of 2011.  It reported 3,381 loans were originated statewide for single family homes and condominiums for a total amount of $820 million.  This is compared to 4,340 loans for $1.02 billion in the first half of 2010.

2011 loans were down with an average downpayment of 10% compared to 12% at mid-year 2010. 

Single family homes accounted for 85% statewide mortgage lending activity with 53% of those loans occuring in Anchorage.  The Mat-Su contributed 16% of the volume, 10% in Fairbanks, 8% in Kenai, 6% Juneau, 2% Kodiak and 1% in Ketchikan.

Condos account for the remaining 15% of the loans with 87% of condos being financed in Anchorage.  Juneau accounted for 8% of condo loans with the Mat-Su and Fairbanks at 2% each.  Additionally, there were 377 units of multi-family housing financed by 81 loans in the first half of 2011.

There have been 282 new construction single family homes financed statewide through June of 2011.  Therefore, one in ten loans has been for new construction versus sales of existing homes.  Roughly one third of the new construction was in Anchorage and one third in the Mat-Su.  The remainder was in Kenai, Juneau and Kodiak. 

63 new construction condos were financed in the first half of the year.  This means one in eight condo loans were for new construction compared to existing condos.  91% of the new condos were in Anchorage with 7% in Juneau and 2% in Kenai.   

Refinance activity declined for the second straight quarter as interest rates moved higher at the beginning of the year.  There was $264 million of refinances completed in the second quarter of 2011 after $500 million in the first quarter and $947 million in the 4^th quarter of 2010. 

 

According to the Federal Reserve, conventional 30 year mortgage rates nationwide averaged 4.76% in January and have fallen to 4.11% in September.  An increase in refinance activity is expected when the third quarter results are calculated.  The two variables are inversely correlated.  There has historically been a spike in refinances when rates drop more than a half percent in a short period of time.

A copy of the complete report and other housing related data can be found at: http://www.ahfc.us/grants/housing_market_indicators.cfm

International and U.S. Agencies Downgrade Global Oil Demand Forecasts on Weaker than Expected Economy

Three different oil forecasts issued this month by OPEC (the Organization of Petroleum Exporting Countries), the IEA (International Energy Agency) and the United States' EIA (Energy Information Agency) each predict lower than expected demand for oil based on weakening global economies.

With lower demand, oil prices are forecast to be lower; although all three agencies note that oil prices have been and will continue to be very volatile. The EIA's price forecast for West Texas Intermediate crude for December ranges from $57 per barrel to $110 per barrel, reflecting this increased volatility in the market. West Texas Intermediate crude is trading at a significant discount to world crude oils - and at a discount to Alaska's North Slope crude - because of transportation bottlenecks for the "landlocked" crude oil.

OPEC October Report

International Energy Agency October 12 Report

U.S. Energy Information Agency October 12 Report

Anchorage Inflation Stable at 2.5% in First Half of 2011

According to the Federal Bureau of Labor Statistics, the Consumer Price Index (CPI) in Anchorage rose 2.5% annnualized in the first half of 2011.  The index is 2.8% higher than at June of 2010, which was the same as the change for the entire U.S.  Anchorage is the only "urban" community in Alaska that is tracked for these national statistics which come out twice a year. 

This is nearly identical to Anchorage's 10 year average inflation rate of 2.6%.  Average prices have not shown much volitility during the decade reaching a high of 4.6% and a low of 1.2%. 

Energy prices had the largest impact on the CPI in Anchorage, rising 11.5% mostly due to gasoline costs, up 16.6%.  Food also increased 2.8% at mid year 2011.  After removing these two highly volitile categories, the remainder of the index rose 1.6% over the last 12 months.

Since June of 2010, the largest price increases were seen in medical care (+4.8%), shelter (+3.1%), household furnings and maintenance (+2.5%) and recreation (+2%).  Price declines were measured in two major categories.  Apparel fell (-2.2%) and education and communications was (-0.3%) lower.

Nationwide, inflation has also been most impacted by rising energy costs, up 14.5% for the 12 month period from June 2010 to 2011.  Medical costs have been rising faster in Anchorage, up 4.8% compared to only 1.9% in the U.S.  However, housing costs have been flat, up only 0.7% in the U.S., compared to 3.1% in Anchorage.