Investments in North Slope oil and gas projects will be the main driver behind statewide construction spending growth in the coming year, according to a report by the University of Alaska Anchorage Institute of Social and Economic Research.
The annual forecast projects oil and gas spending on construction work in the state to total $4.3 billion in 2014, up 34 percent from $3.2 billion last year. That sector accounts for 46 percent of all construction spending in the state, estimated to be about $9.2 billion.
Last year's initial projection of $8.4 billion was revised to $7.8 billion after oil and gas spending lagged behind expectations in 2013, setting up an even larger increase in anticipated spending this year.
The overall construction spending forecast of $9.2 billion is an 18 percent increase versus 2013.
"An 18 percent increase over last year -- it's pretty amazing. I think we can attribute most of that to SB 21," the oil tax reform legislation signed by Gov. Sean Parnell last spring, Associated General Contractors of Alaska Executive Director John MacKinnon said.
The "More Alaska Production Act," touted by Parnell and Republican legislators as a way to spur investment in the state by oil producers, went into effect Jan. 1. Opponents to the tax structure change got Proposition 1, a referendum to repeal the law, on the August primary ballot after a successful petition campaign.
MacKinnon said the "rosy" forecast, as he called it, extends beyond the oil and gas industry.
Construction employment peaked last year in August at 21,600 jobs across the state, according to Labor Department figures. It marked the most construction jobs in Alaska since September 2005.
Combined private spending in other areas is expected to increase in 2014 as well, by about 5 percent, to about $2 billion.
Despite a $1.7 billion cut in the 2014 fiscal year state capital budget -- excluding federal appropriations -- public construction spending is projected to grow slightly more than 7 percent, from $2.7 billion in 2013 to $2.9 billion this year. That is due in large part to the record state capital spend of $2.8 billion in fiscal 2013, which ended last June 30, when the $453 million construction bond package approved by voters in the timeframe is included.
It can often take multiple years for money allocated to public construction projects to be dispersed, as large projects usually are not "shovel ready." Likewise, it will probably be several years before the impact of the 2015 fiscal year capital budget -- proposed by Parnell at a $600 million state spend -- will be felt across Alaska, MacKinnon has said.
Along that line, activity at the state-funded Port MacKenzie and Tanana River rail projects will continue as expected this year, officials familiar with the projects have stated.
The oil and gas spending on the North Slope will come from ConocoPhillips drill work at Kuparuk, its Greater Moose's Tooth prospect in the National Petroleum Reserve-Alaska, and development of the CD-5 project west of the Colville River, according to the report.
Additionally, BP will concentrate on well workovers in its existing fields. The company is expected to increase capital spending "by several billion (dollars) over the next five years," the report states.
ExxonMobil will continue developing its Point Thomson field east of Prudhoe Bay, which ExxonMobil says requires up to 1,200 workers during the peak winter season.
Major Cook Inlet player Hilcorp announced in December it planned on spending about $300 million on capital projects in the basin in 2014, similar to its expenditure last year, and drill about 10 new wells.
Alaska mines will likely hold back in 2014. The $205 million projection is about $125 million less than the 2013 forecast, largely due to a drop in the price of gold, the report states.
It forecasts $110 million being spent to run the six large operating mines in the state and less exploration work being done at the Livengood and Donlin Creek gold prospects, along with Pebble.
A combination of public and private dollars, spending by energy utilities should remain fairly flat at about $850 million, ISER predicts. Construction of new power plants by Matanuska Electric Association and Municipal Light and Power, along with infrastructure expansion by Enstar Natural Gas around Homer will drive spending in Southcentral.
Golden Valley Electric Association's acquisition and subsequent emissions retrofit of a coal-fired power plant in Healy will be big in the Interior.
Verizon's push into the Alaska market will be a boost for telecom spending as well, the report projects.
Construction activity at the state's military installations "will take a big jump this year" to $103 million, the report states. Military construction work totaled $33 million last year. The 2014 budget includes seven projects at Fort Wainwright, the largest of which is a $36 million warm-storage hangar. Defense officials have warned that the spike may be short-lived, however, as uncertainty looms over future federal budgets and President Barack Obama's directive to cut defense spending continues.
Spending on health care facilities was down in 2013 as hospitals in Barrow, Nome and Fairbanks opened their doors and it is expected to remain steady at about $230 million this year. The largest project will be construction of state-financed patient housing and an associated parking garage at the Alaska Native Medical Center in Anchorage. The state contribution to ANMC work is $35 million.
Smaller projects around the state including hospital expansions in Ketchikan and on the Kenai Peninsula, along with a veterans' long-term care facility in Haines will collectively make up the bulk of health care construction in the coming year.
Residential and commercial building will combine to account for $650 million worth of construction activity. While the Cabela's and Bass Pro Shops superstore projects in Anchorage will wrap up, work on large office complexes in the city, including the new Cook Inlet Region Inc. headquarters and the 100,000 square-foot JL Properties project in Midtown Anchorage, will pick up the slack.
The tight Southcentral housing market did not lead to increased building in 2013, and "market pressure will result in a modest increase in new housing starts this year," there and in Southeast, the report states.
By ELWOOD BREHMER
Alaska Journal of Commerce