Alaskanomics

September Employment Numbers

Alaska’s Department of Labor and Workforce Development released the September employment numbers and employment was down 0.6 percent from September 2017 and the unemployment rate dropped 2-tenths of a percent from August 2018.

The industries with the biggest losses were Retail, Professional and Business Services and Oil and Gas with losses of 900, 500 and 400 respectively. Job growth came from Health Care, Transportation, Construction, and Leisure and Hospitality with increases of 600, 300, 200 and 100 respectively. Overall, the Public Sector lost 500 jobs due to large losses in Local Government (400) and State Government (200). Federal Government only added 100 jobs, which didn’t come close to evening out the losses felt in the other areas of the sector.

The seasonally adjusted unemployment rate fell two-tenths of a percent in September and is down eight-tenths of a percent since January. It is still well-over the national average, which was 3.7 percent in September.

The rates fall within usual employment activity around the state and we will start to see further increases in the not-seasonally adjusted unemployment as the tourism and fishing seasons wrap up for the year.

Full employment details can be found at the State of Alaska’s website.

Optimism for North Slope Oil

By Tim Bradner

Those new oil discoveries announced recently on the North Slope are pretty remarkable. It wasn’t too long ago that we’d pretty much given up on major new finds, at least in areas open to exploration.

Now billion-barrel new fields are being found. They aren’t super-giants like the Prudhoe Bay and Kuparuk River fields but the discoveries like ConocoPhillips’ new “Willow” and “Pikka,” now planned for development by Oil Search, an Australian company, are still very substantial.

We have a real possibility of actually increasing the amount of oil flowing through the Trans Alaska Pipeline System. Even if that doesn’t happen it seems a sure bet that production from the slope will at least remain stable. In fact, it has been essentially stable over the last two years. For that, let’s give a hand to the operators of the large existing fields. The Prudhoe field, operated by BP, still produces about half of the North Slope oil. There’s also ConocoPhillips, the Kuparuk field operator, and Hilcorp Energy, which manages several smaller fields on the slope.

Keeping production steady is no small feat given 6 percent annual declines we’ve seen in past years. TAPS was built to carry 2 million barrels a day since 1989 production has dropped to about a fourth of that, to just over 500,000 barrels daily.

It’s important to remember, too, that stemming the production decline in large fields like Prudhoe and Kuparuk, done by squeezing more oil out of the rocks, is just like finding new oilfields.

A lot of Alaskans are hoping for some really big new discoveries, the kind that will really move the needle on production, from the Arctic National Wildlife Refuge, a highly prospective area where there will soon be lease sales.

But ANWR is a crap-shoot. Even the best exploration prospects could be dry holes. Look no further than Shell’s spectacular flop in 2013 at the highly-touted Burger well in the Chukchi Sea, or the failure of Mukluk, a costly Beaufort Sea well drilled in the early 1980s in which companies like Sohio and BP had great confidence, but proved to hold water, not oil.

The new discoveries, which all around the Colville River and in the northeastern National Petroleum Reserve-Alaska west of Prudhoe Bay and Kuparuk, seem pretty good bets, in contrast.

Oil has been found and the wells have been flow-tested, so companies now know they can actually get hydrocarbons out of the rocks.

Cumulatively, what’s now discovered could bringing tens of thousands of new barrels of oil per day to TAPS in the near future.

What’s remarkable is that these finds are in areas like the northeast NPR-A that have been explored for years by companies, but without commercial-scale finds. Why are discoveries being made in what was until recent years considered a lot of caribou pasture?

New technology is one answer. Explorers continue to improve their ability to spot potential underground oil traps in geologic formations previously thought unproductive, and once the oil is found to commercially extract it.

Companies are also quick to credit state tax changes made in 2013 for this, which were very controversial at the time. The tax changes improved the economics of finding and developing new oil set the stage for a burst of new exploration.

The pace of new technology gains has been a real surprise, however. Companies are rapidly improving their ability to drill horizontal production wells, essentially wells drilled sideways. These enable explorers to reach underground prospects several miles from the surface location of a drill rig. It means companies can explore and then produce from a wide expanse of subsurface acreage, a huge financial savings of surface infrastructure.

There are also “multi-lateral” wells, another development, that involve as many as five wells drilled underground from a single vertical well to the surface. These lateral wells can target several oil formations which can be produced through one surface production pad and set of flow lines and utilities instead of several sets if the deposits were developed on a stand-alone basis, as done previously. Again, huge savings.

These technologies are now being combined, with horizontal drilling and multilateral wells used together, and when new methods of profiling and mapping underground rock layers are added we see savings enough to allow tens of millions of barrels of new oil resources to be at an economic even point at oil prices below what they are today.

This is a breakthrough. Previously we assumed $90-per-barrel and $100-per-barrel oil prices would be needed to develop new North Slope oil. Now companies say $60 may be enough, and for some deposits near infrastructure even less.

Here’s the best part: A lot of these new technologies are being developed right here in Alaska. Horizontal drilling, on a commercial scale, was pioneered by BP in the 1980s for Prudhoe Bay.

Horizontal drilling on the North Slope set the stage for shale oil and gas development in the Lower 48, where horizontal wells are used, and that has upended the world’s petroleum industry.

Multilateral wells were similarly pioneered in Alaska, by ARCO Alaska (predecessor to ConocoPhillips) a few years later.

Alaska, in effect, is an applied technology laboratory for the industry because the gain, in new oil, is substantial enough to offset the risk. Alaska contractor companies get the benefit of experience with this, also. Alaskan-owned Doyon Drilling is now operating some of the world’s most advanced drill rigs with horizontal drilling capabilities.

All in all, we’re in a good place, with experienced companies, huge untapped resources, and now oil prices moving up.

Tim Bradner is editor of the Alaska Economic Report and is the 2018 Atwood Visiting Professor of Journalism at the University of Alaska Anchorage

How do oil prices influence Alaska and other energy-dependent states?

By Mouhcine Guettabi

-How did we get here?

The Alaska economy is heavily dependent on the oil sector both in terms of private sector jobs and government funding. Since the rapid decline in oil prices, it has experienced a prolonged recession with declines in employment across most sectors. Before the end of 2014, oil prices were elevated for a long period of time when the price exceeded 100 dollars for multiple months. However, starting June 2014, oil prices experienced a deep drop averaging only $54.26 in the 4 years since. This is much lower than the $84.47 they averaged between 2006 and July 2014. While oil prices started declining in June of 2014, the first month of negative employment growth did not occur until October 2015. The state has essentially lost jobs in every month since that initial decline. This has also resulted in a precipitous drop in government revenues, which has forced the state to use savings to fill the fiscal gap. To gain perspective on the depth and severity of the Alaska experience, we attempt to compare the recessions across states and understand the features of the states which fared best and worst.

-Where are we now?

The Alaska recession has cost the state 12,500 jobs between July 2015 and July 2018. Oil and Gas, Alaska’s most important economic base, has shrunk in size. As of June 2018, it was 75.5% of its size in June 2014. April and May 2018 showed the first job gains in the sector in three years but the June employment numbers were slightly lower than 2017.

The graph above shows that employment declined by 2.2% from June 2015 to June 2016, 0.82% from June 2016 to June 2017, and 0.60% from June 2017 to June 2018. The cumulative declines in private sector employment from June 2015 to June 2018 amounted to 9,900 jobs.

It would be a mistake to characterize the small improvements we are observing in Oil and Gas, Professional and Business services, and Construction as signs of a recovery because those sectors are still considerably smaller than they were in 2014. To be exact, as of June 2018 Oil and Gas employment was 75.5% of its level in 2014, Professional and Business services was 91.6% of what it was in 2014, and construction was 86.4% of what it was in 2014. After examining all these sectors, it appears that the Alaska economy is still weak and while the losses have slowed in the initially affected sectors (Oil and Gas, Professional and Business services, and Construction), there is still significant weakness in the retail sector. In general, it would be safe to think about the economy entering the end phase of the recession with the losses now concentrated in the household dependent sectors which are typically lower paying but are indicative of household spending behavior and general confidence. It is unlikely that we will see significant growth or a recovery of the jobs lost as the government still has a non-negligible deficit and oil prices remain too low to spur a significant improvement in hiring in Oil and Gas. These two sectors are typically the catalysts of Alaska recovery and with both of them weakened, it is best to think about the state re-entering a period of low to no growth.

-How does Alaska’s recession compare to that of other energy states?

Only six of the thirteen energy states experienced economy-wide job losses. Those states are Alaska, Louisiana, North Dakota, Oklahoma, and Wyoming, and West Virginia. West Virginia’s situation is slightly different as it had been undergoing economic decline well before this most recent recession. The figure below shows the path of decline for each of the six states. We see that North Dakota and Wyoming both experienced employment declines in 2015 while the rest were still experiencing growth. Of interest is that every state in this group experienced the most severe decline between 2015 and 2016. Also, Louisiana and Oklahoma are the only two states whose employment levels in 2018 exceed those of 2014. Wyoming seems to be on the rebound as it has had a strong first portion of 2018. The table below shows that the cumulative declines across the hardest hit five states are substantial. In terms of share of employment, Wyoming and North Dakota lead the way with Alaska being third.

 

How many jobs did each state lose when the recession was at its worst?[1]

[1] We only count job losses after the beginning of the recession in each of the states.

Next, we identify the first month of negative growth for each state to determine when the recession started and then we add up the total number of months of negative growth for each of the energy states. Alaska has now had 34 months of negative growth, Wyoming experienced 27 months of decline before turning the corner, and North Dakota had 37 months of negative before June when it had it first month of growth.

Length of the recession across oil states

Alaska’s vulnerability has stemmed from both a private and public sector dependence. The most recent decision to rely on non-oil revenues to fund a portion of the government expenditures bodes well for future economic resilience to oil shocks.

-Where does this leave us?

In general, our analysis shows that the states most dependent on oil revenues both through the private sector and government revenues are the ones to have had the longest recessions. The decision in Alaska to fund a portion of government services from non-oil revenues should partially shelter the economy from future oil price drops. All the indicator variables we evaluate point to Alaska being in the tail end of the recession but the recovery of the jobs lost will be elusive as both the oil sector and the government sector are considerably smaller than they were four years ago. The future of Alaska economic development will rest on the success of the traditional basic sectors, the pursuit of new opportunities, and on whether the state can address its leaky bucket by ensuring that more of the value generated in Alaska stays in state. That will require evaluating opportunities where import substitution is possible and ensuring there is a qualified workforce that can take advantage of employment opportunities.

You can access the full report here: https://iseralaska.org/publications/?id=1725

Why the Census Matters

In the September issue of Trends the Alaska Department of Labor and Workforce Development looked at the upcoming US census. Every 10 years, the US federal government conducts a census which determines the number of representatives each state is allotted in the US House of Representatives. While Alaska is unlikely to gain a representative in the House, the state legislative districts are also being redrawn according to the 2020 census.

The US census is the only comprehensive count for people across the country and is the way that state account for population data. The census count allows states to learn significant details about its population. Data includes workforce and employment data, health statistics, education statistics, crime data, transportation plans, and housing data.

Census data also guides federal dollars for Medicaid, highway planning and construction, supplemental nutrition assistance, and the national school lunch program. Alaska also relies on the census for information on how to distribute funds for community assistance and matching funds, business licensing, health facility allocations, Power Cost Equalization, rural designations, and transportation plans.

Each census is extremely important for national, state and local politics. Preparations for the 2020 census are starting to come together. To receive email updates about the 2020 Census visit the Alaska Department of Labor and Workforce Development.

August Employment Numbers

Alaska’s Department of Labor and Workforce Development released employment numbers for August. The employment rate is down 0.6 percent from August 2017 and the unemployment rate sits at 6.7 percent, down two-tenths of a point from July.

Retail had the biggest loss of jobs losing 1,000 jobs. Professional and business services and oil and gas both lost 400 jobs. Health care continues to grow with an increase of 700 jobs. Construction and transportation also saw a small increases with 300 and 200 jobs respectively. The federal government added 100 jobs, but couldn’t offset the loss of 400 local government jobs. State government was flat.

Seasonally adjusted unemployment was down two-tenths of a percent from July and down six-tenths of a percent from the first of the year. The national average remained at 3.9 percent. As expected, the highest unemployment rates in the state are in rural areas with little commercial fishing or tourism. Five boroughs or census areas had unemployment over 5 percent. Those areas include Kusilvak Census Area, Yukon-Koyukuk Census Area, Northwest Arctic Borough, Bethel Census Area, and Nome Census Area.

For full employment data please visit the Alaska Department of Labor.

Alaska Housing Market

Throughout the recent recession many wondered when the housing market would feel the pinch. The price for a single-family home in Alaska has remained stable during the recession that started in 2015. This is mostly likely due to a few different factors. Low interest rates, migration patterns, measured selling and buying, and controlled building were likely part of the reasons for the stable prices. Many of the jobs that were lost were from non-residents, who don’t own homes in Alaska.

Interest rates have remained low over the past three years, which means that houses are more affordable to more people. More people have moved out of Alaska than have moved in. This has helped to keep housing prices low. Buyers and sellers have been moving at a slower pace than usual, which has helped maintain housing prices. Finally, there has not been a huge push to build new housing. New units have stayed slowly decreased in the past three years. There has been less competitive bidding, fewer buyers, and lower sales volume, but less activity hasn’t driven housing prices down.

Overall housing prices have become more affordable, down payments and mortgage insurance continue to be barriers to homeownership. To avoid mortgage insurance a home buyer needs to put down twenty percent, on the average home price in Alaska, this is upwards of $65,000. This is a large amount for most people to be able to afford, even with low interest rates and stable prices. Potential buyers are likely waiting on the sidelines and saving money for a down payment and other expenses.

All of these factors have led to stable housing prices during the current recession. Homes are selling relatively quickly, but there final sale price is often close to the asking price as there are fewer bidding wars as there were in the past.

More details on Alaska's housing market can be found at the State of Alaska's website.