Skip to main Content

OPEC has saved Alaska before, but it won't this time

  • Author: Dermot Cole
    | Opinion
  • Updated: December 6, 2016
  • Published December 6, 2016

The price of crude oil has shot up above $50 a barrel, following an agreement by OPEC oil ministers to reduce production and make the cartel great again.

If no one cheats and the trend continues, $60 oil must be just around the corner, right? And won't that fix Alaska's budget? Don't bet on it.

The recent spike of roughly $10 a barrel, if sustained for a year, would raise about $300 million for the state, erasing about 10 percent of the deficit.

For more than 35 years Alaskans have behaved as if the decisions that determine our fate are not made in Juneau but in Saudi Arabia.

To a greater extent than we care to admit, we've been like a secret junior partner in the cartel, celebrating higher prices and bemoaning every decline. In our divided loyalties, we've wanted high oil prices for the state treasury, and complained bitterly about the cost of gasoline.

The latest shift in strategy for OPEC comes more than two years after Alaska's budget fortunes began a dizzying collapse with an attempt by the Saudis to crush the oil fracking boom in the Lower 48.

Just before the 2014 gubernatorial election, in a memorable debate with challenger Bill Walker, Gov. Sean Parnell used the words "today's oil price" and said Alaska would be OK because petroleum was about $90 a barrel, down from $113 four months earlier.

Parnell should have said "last week's oil price," because it had already dropped $10 below the figure he quoted in his remarks. As a state revenue analyst put it at the time, after years of relative price stability, "all hell broke loose."

The price of oil was down below $30 a barrel early this year but is now near $50. Whether the decision to cut OPEC production leads to sustained higher prices will depend upon whether the countries stick to the deal and how much higher prices will help to reignite the Lower 48 oil shale oil boom.

So what would a return to $60 oil mean for Alaska?

In a recent appearance before the Resource Development Council, Ken Alper, the director of the tax division in the Department of Revenue, said every $1 increase in oil prices for a year translates into a $30 million increase in state revenue.

"That means if oil gets all the way to say, $60 next year, revenue would be $1.8 billion or so," he said. That would leave a $2.6 billion deficit.

The general fund budget is $4.4 billion, down 45 percent over four years, reflecting the elimination of  many future construction projects and reduced operating expenditures.

The last edition of the state revenue forecast, published in the spring, predicted oil prices in the $40 range for this fiscal year, and oil tax revenue of zero. (That does not include revenue from the royalty oil owned by the state, which is unrelated to taxes.) Oil at $40 translates into revenues of about $1.2 billion.

The next state forecast, expected in a matter of days, will reflect higher oil price estimates and a deficit that won't be solved by budget cuts or by OPEC.

Columnist Dermot Cole can be reached at dermot@alaskadispatch.com. 

The views expressed here are the writer's and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary@alaskadispatch.com. Send submissions shorter than 200 words to letters@alaskadispatch.com or click here to submit via any web browser.

Local news matters.

Support independent, local journalism in Alaska.

Comments