Forecast: Oil to add $1.2B to Alaska state coffers this year

  • Alaska Revenue Commissioner-designee Lucinda Mahoney talks to members of the Alaska Senate Finance Committee on Tuesday, March 16, 2021 at the Alaska State Capitol in Juneau. Mahoney was presenting an updated state revenue forecast to the committee. (James Brooks / ADN)

The pandemic that once brought about subzero prices for Alaska oil is now a driver of what is likely to be a $1.2 billion windfall this year, according to Department of Revenue officials.

A preliminary version of the Revenue Department’s annual fall state revenue forecast published Oct. 29 projects the State of Alaska will collect nearly $1.2 billion more this fiscal year and almost $1.4 billion more in 2023 than in 2021, mostly due to higher oil prices.

Alaska North Slope crude ended Oct. 19 trading at $85.63 per barrel, well above the $61 per barrel average price for the 2022 fiscal year that Revenue officials pegged last spring. The average price for 2023 is forecasted at $76 per barrel.

The price of Alaska oil briefly went negative in April 2020 following the global onset of the pandemic.

Overall, Alaska is expected to collect nearly $6 billion in unrestricted revenue this fiscal year and more than $6.1 billion in 2023. Approximately $3 billion of the state’s yearly spendable income comes from the Permanent Fund Earnings Reserve account, based on the percent of market value, or POMV, formula lawmakers passed in 2018.

“Recent oil price increases have significantly improved our current fiscal situation and I’m pleased to report that the outlook for Alaska’s budget is good,” Revenue Commissioner Lucinda Mahoney said in a formal statement. “We are optimistic about the current oil price and production trends.”

A day prior to the publication of the preliminary revenue forecast — it is usually published in early December — Gov. Mike Dunleavy urged legislative leaders to consider his proposal to pay out supplemental Permanent Fund dividends, so this year’s total would match what would be paid under his “50-50″ fiscal plan. That plan would pay half of the spendable Permanent Fund income out in PFDs annually.

“The state is now making hundreds of millions of dollars in additional oil production taxes, while Alaskans — recovering from job losses and the pandemic economic slowdown — are now facing rising energy costs,” Dunleavy said in a statement.

Lawmakers skeptical of paying out dividends on the scale Dunleavy envisions have regularly noted that the state has mostly had balanced budgets in recent years before PFDs are paid. Paying out dividends under the governor’s plan would cost approximately $1.5 billion per year and increase from there.

Revenue officials used the median price for Brent benchmarked oil futures traded in the five days ending Oct. 26 to form their estimates for 2022 and 2023, the preliminary forecast states. However, that is where the link to oil futures markets ends. The prices predicted for beyond next fiscal year are based on futures prices for 2023 increasing with 2% annual assumed inflation, which would put oil prices at about $88 per barrel in 2030, according to the forecast.

Publicly available futures prices compiled by CME Group, a Chicago-based commodity marketplace,

gradually fall from a current mid-$80s per barrel high to $71 per barrel a year from now and $65 per barrel by the end of 2023. Futures for December 2024 are currently trading at $61 per barrel, according to CME Group.

Oil industry analysts have said the futures market indicates a belief the near-term oil supply squeeze — resulting from the sudden 2020 global industry slowdown brought about by the pandemic — will end and oil markets will return to their general pre-pandemic balance in the $60-$65 per barrel range.

Department of Natural Resources officials tasked with predicting the state’s oil output also expect the recent oil price surge to translate into higher levels of production on the North Slope, even if it is relatively short-lived. Last spring, DNR’s production prognosticators estimated North Slope operators would collectively average about 471,000 barrels per day this year and nearly 489,000 barrels per day next year, with production gradually ramping up to nearly 580,000 barrels per day by the end of the decade.

Now, production is expected to average 488,000 barrels per day this year and just more than 500,000 barrels per day next year, with slower production growth to 541,000 barrels per day by 2030.

Since the spring forecast was published, a successful legal challenge to ConocoPhillips’ large Willow prospect became likely to delay that project by multiple years; first oil from Willow was once targeted for 2025-2026. Oil Search Alaska has also acknowledged significant issues in funding its Pikka development, which is the other large-scale prospect that many believe will eventually support a sustained increase in North Slope production.

Elwood Brehmer can be reached at [email protected].

11/04/2021 - 8:13am