Transcript Slide 1

Declining North Slope Oil
Production: Implications for the
Alaska Economy
Scott Goldsmith
Institute of Social and Economic Research
University of Alaska Anchorage
December 9, 2008
LAW SEMINARS INTERNATIONAL
Fourth Annual Conference on
New Developments for Energy in Alaska
Anchorage, Alaska
North Slope Oil Basic Statistics
15 Billion
Barrels
Production (enough to supply total world
$378
Billion
$118
Billion
Value of production at the wellhead
demand for 6 months)
(purchasing power in 2007 $)
State of Alaska cumulative revenues
(purchasing power in 2007 $)
$40 Billion Alaska Permanent Fund balance
Alaska Natural Resources:
2005 Market Value (Million $)
Oil
 Gas
$18,164
$
761
Mining
 Seafood
 Timber
$ 1,506
$ 1,392
$
142
Tourism
$ 1,592



Value determined at point of
production except for mining.
Indicators of Oil’s Share of Economy
NR Production value since 1867
90%
State General Fund revenues
Market value of resource production
Industrial property tax base
Private investment spending (Direct)
Gross state product (Direct)
Personal income (Total)
Jobs (Total)
Jobs in Oil Sector
85%
82%
80%
60%
33%
33%
33%
3%
Gedankenexperiment
April 1, 1968
ANOTHER DRY HOLE
AT PRUDHOE BAY
Companies Say “We Give Up”
Alaska: The Road Not Taken
I. No Production
II. Resource Industry Squeeze
III.Support Sector Squeeze
IV.Federal Dollar Squeeze
V. Retiree Out Migration
Alaska: The Road Not Taken
I. No Production
No Production:
Oil Patch Pathway
No Production:
Oil Patch Pathway
No Production:
Oil Patch Pathway
No Production:
Government Pathway
STATE GOVERNMENT
EMPLOYEES
$$$
16 Thousand
PETROLEUM
REVENUE
SPENDING
$$$
PRIVATE SECTOR
JOBS
18 Thousand
LOCAL GOVERNMENT
EMPLOYEES
15 Thousand
TOTAL JOBS = 49 THOUSAND.
Assumption: All Spent Petroleum Revenues Pay for Operations.
No Production:
PFD Pathway
2008 DIVIDEND BASICS
$3,269 Dividend
611 Thousand Recipients
$2 Billion Distribution
COMPARE 2007 EARNINGS (Billion $)






$1.4
$1.6
$1.7
$1.8
$2.0
$2.2
Retail Trade
Federal Civilian
Construction
Oil + Mining
Health
Military
Alaska: The Road Not Taken
I. No Production
ACTUAL
OIL
DISAPPEARS
AND TAKES
AWAY
WHAT’S
LEFT
INCOME
(Bill $)
JOBS
(000)
$24.3
$7
$17.3
361
107
254
PEOPLE
(000)
660
183
477
Alaska Economic Drivers:
The Foundation of the Economy
OIL AND GAS
33%
NON PET
RESOURCES
33%
FEDERAL GOVT
34%
Shares of Personal Income in 2005
Alaska with Oil:
Bigger, Richer, Healthier
Job Opportunities
 Business Opportunities
 High Incomes
 Low Taxes
 Low Prices
 New People
 Public services
 Public Infrastructure
 Business infrastructure
 Consumer goods and services

Alaska: The Road Not Taken
II. Resource Industry Squeeze
Resource Industry Squeeze:
Job Growth (Thousands)
TOTAL
Tourism
Fishing
Air Cargo
Mining
Timber
STATE
HOOD
1961
2006
Change
10
45
35
1
7
1
1
22
17
3
2
1
21
10
3
1
-
Resource Industry Squeeze:
Actual and Projected Tax Burden
2004 State General Fund Revenues (Million $)
from Seafood, Tourism, Mining
Actual
$112
If Oil $ Disappeared
$502
Incremental Burden without Oil $ $390
Increase in Tax Rate
4+ Times
Resource Industry Squeeze:
State Government Economic
Development Assistance
Tourism
Fishing
Docks
Loans
Air Cargo
Jet
Fuel
Roads
Mining
Timber
Resource Industry Squeeze:
Other Benefits of Oil
•Low Wages
•Support Business Services
Resource Industry Squeeze:
No Oil Job Growth (Thousands)
Actual
2006
No Oil %
Reduction
No Oil
2006
TOTAL
45
Tourism
Fishing
22
17
30%
30%
15
12
3
2
1
50%
30%
30%
1
1
0
Air Cargo
Mining
Timber
29
Alaska: The Road Not Taken:
II. Resource Industry Squeeze
BEFORE
TAXATION AND
CONTRACTION
TAKES AWAY
WHAT’S
LEFT
INCOME
(Bill $)
$17.3
$.9
$16.4
JOBS
(000)
PEOPLE
(000)
254
20
233
477
35
442
Alaska: The Road Not Taken:
III. Support Sector Squeeze
Support Sector Squeeze:
Household Tax Burden Reduces
Purchasing Power
34%*
$13,150 Per
Capita in 2006
* Average State Income Tax Rate to Replace Oil Revenues—1970 to 2006.
Support Sector Squeeze:
Smaller Market Size
Purchasing Power (Billion $)
$25
$20
$15
$10
$5
$0
With Oil
The Road Not Taken
Support Sector Squeeze:
Petroleum Reduces Seasonality
Index of
Seasonality
1968
32%
2006
12%
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
Percent job increase July over January.
FISHING
TOURISM
MINING
PETROLEUM
Ratio of July to January Tourist Visitors is 10:1.
Support Sector Squeeze:
Cost of Living
Anchorage COLA
% A b o v e U S A v e ra g e
40%
30%
20%
10%
0%
1965
1970
1975
1980
1985
1990
1995
2000
2005
Alaska: The Road Not Taken:
III. Support Sector Squeeze
BEFORE
HOUSEHOLD
TAXATION AND
UNSTABLE
MARKETS TAKE
AWAY
WHAT’S
LEFT
INCOME
(Bill $)
JOBS
(000)
$16.4
$1.5
$14.9
233
20
214
PEOPLE
(000)
442
33
409
Alaska: The Road Not Taken:
IV. Federal Dollar Squeeze
Federal Dollar Squeeze:
The Largest Federal Grants in
2007 (Million $)
MEDICAL ASSISTANCE PROGRAM
$
697
HIGHWAY PLANNING AND CONSTRUCTION
$
629
AIRPORT IMPROVEMENT PROGRAM
$
225
INDIAN HEALTH SERVICES HEALTH MANAGEMENT DEVELOPMENT PROGRAM
$
135
INDIAN HOUSING BLOCK GRANTS
$
106
UNEMPLOYMENT COMPENSATION BENEFIT PAYMENTS
$
IMPACT AID
$
FOOD STAMPS
$
TRIBAL SELF-GOVERNANCE
$
PAYMENTS FOR EXCESS EARNED INCOME TAX CREDITS
$
98
95
86
68
61
INSERT
Non Earned Income
(Excluding Retirement Income)
• With Oil
$439 million
• Without Oil
$220 Million
Alaska: The Road Not Taken:
IV. Federal Dollar Squeeze
INCOME
(Bill $)
JOBS
(000)
PEOPLE
(000)
BEFORE
SMALLER
POPULATION
TAKES AWAY
WHAT’S
LEFT
$14.9
$1.7
$13.2
214
19
195
409
32
377
Alaska: The Road Not Taken:
V. Retiree Out Migration
Retiree Out Migration
•Tax Free
•PFD
•Public Amenities
Retirees represent $1.5 billion in
spending.
Alaska.: The Road Not Taken
V. Retiree Out Migration
BEFORE
ABSENCE OF
RETIREE
BENEFITS
TAKES AWAY
WHAT’S
LEFT
INCOME
(Bill $)
JOBS
(000)
$13.2
$1
$12.2
195
6
189
PEOPLE
(000)
377
11
366
Alaska: The Road Not Taken
The Bottom Line
WITH
WITHOUT
OIL
%
DIFFERENCE
INCOME
(Bill $)
JOBS
(000)
$24.3
$12.2
50%
361
48%
PEOPLE
(000)
660
189
(90)
366
(230)
44%
Alaska: The Road Not Taken
The 2/3 Rule
About 2/3 of the economic growth
in Alaska since Statehood can be
traced to Petroleum.
Alaska: The Road Not Taken
Economic Driver Job Growth (000)
STATEHOOD
1961
2006
INCREASE
TOTAL
59
74
16
Tourism
Fishing
1
7
15
12
14
5
Mining
Air Cargo
Timber
1
1
2
2
1
2
-
33
16
26
17
-7
1
Military
Federal Civilian
Alaska: The Road Not Taken
Non Oil Economic Driver Shares
TOTAL
Tourism
Fishing
Mining
Air Cargo
Timber
Military
Federal Civilian
STATEHOOD
1961
100%
2%
2006
100%
20%
12%
2%
0
2%
56%
27%
16%
3%
3%
0
35%
23%
Candidates for Comparison ?
Oklahoma
 New Mexico
 South Dakota

Wyoming
 Montana
 Idaho

Florida
 Nevada
 Hawaii

Maine Is Not Like Alaska
Physically attached to Lower 48
 Federal land ownership 1%
 Native American population 1%
 Lobsters instead of crabs
 Unusual accent
 Presidential hangout

Maine and Alaska
 Many
moose
 Few humans
 Cold
 Remote
 Independent streak
Maine and Alaska








Fish / Tourism / Timber / Mining / Agriculture
Limits on sustainable harvests
Challenged by globalization
Small and declining manufacturing
Dependence on federal $$$s
Conflicting visions about use of resources
“Zero Sum Game” development mentality
Strategic development planning advice from Brookings
Institution
Maine Economic History in a
Nutshell
Throughout the second half of the twentieth
century, Maine has struggled to find a
proper balance between resource-based
industrial development and environmental
protection.
The state has come to rely heavily on
tourism, small manufacturing enterprises
and defense-related activities and
installations for much of its economic base.
Maine Economic Performance:
Some Evidence

Gross State Product per capita: 43rd (Ak 7th)
Job Growth: 66% (Ak 144%)
Population Growth: 46th (Ak 5th)
Median Age: 1st (Ak 49th)
Housing Built Before 1939: 31% (Ak 2%)

Median Paycheck: 77% as high as Alaska

Projected Population Growth = 1/3 US average (Ak 30%
above)




Alaska vs. Maine Family
Comparing the Average Family of 4
MAINE*
ALASKA
Wages
$55,641
$72,750
State Taxes
-$7,077
$0
Dividend
$0
$6,800
Public
Spending
TOTAL
$29,995
$49,064
$78,560
$128,614
Difference
* Adjusted for lower cost of living in Maine.
+$50,054
Actual Performance Since 1990:
Jobs vs. Oil Production
(Index: 1990 = 1)
1 .3
1 .3
1 .1
1 .1
0 .9
0 .9
0 .7
0 .7
0 .5
0 .5
0 .3
1990
1995
2000
0 .3
2005
Confounding The Paradox ?
•
•
•
•
104 thousand jobs added
99 thousand are “Support”
5 thousand “Basic”
New Basic jobs are lower
wage (tourism) replacing
higher wage jobs in Timber
and Federal Government
Explaining The Paradox










Federal $$
Military Expansion
Petroleum Revenues
Retirees
Air Cargo
National Economic Boom
Increased Labor Intensity of Petroleum
Production
Anticipation of Gas Line, OCS, etc.
Support Sector Catching Up
Wealth Accumulation
Federal $ Juggernaut
FEDERAL FUNDS TO ALASKA
BILLIO N 2007 $
$10
$10
$8
$8
$6
$6
$4
$4
$2
$2
$0
$0
1975
1980
1985
1990
Sourc e: Cons olidated Federal Funds Report
1995
2000
2005
Wealth Creation: Business and
Public
Wealth Creation : Households
“Son of the Permanent Fund” Fund
$35
Billion
The Economic Future of Alaska:
50 Years of Statehood Has Not
Changed the Challenges
Alaska Natural Resources:
2005 Market Value (Million $)
Oil
 Gas
$18,164
$
761
Mining
 Seafood
 Timber
$ 1,506
$ 1,392
$
142
Tourism
$ 1,592



Value determined at point of
production except for mining.
Petroleum Resources for a
Sustainable Economic Future
(Billion Barrels of Oil)
Production History:
North Slope
Cook Inlet
Reserves Today:
Central North Slope
Cook Inlet
15.4
1.3
5.9
.1
Potential Additional Reserves
(Technically Recoverable—USGS, MMS):
ANWR
NPRA
OCS
Central North Slope
10.4
10.6
23
4
Resource Curse:
Some Symptoms
 Corruption
 Rent
Seeking
 Entrepreneurial Decline
 Overheating Economy
 Economic Distortions
 Public Sector Overexpansion
 Mismanagement
 Underinvestment
Declining North Slope Oil
Production: Implications for the
Alaska Economy
Scott Goldsmith
Institute of Social and Economic Research
University of Alaska Anchorage
December 9, 2008
LAW SEMINARS INTERNATIONAL
Fourth Annual Conference on
New Developments for Energy in Alaska
Anchorage, Alaska