Oil dividends flow in Alaska, but state mired in huge deficit

High pump price a boon, but falling supply bodes ill

March 08, 2003|By Marego Athans | Marego Athans,SUN NATIONAL STAFF

ANCHORAGE, Alaska -- Across most of the country, the ritual is the same these days. Pull in, fill up, look at the numbers and groan.

Then there's Alaska, where a million barrels of oil a day flow through an 800-mile pipeline and onto the market, supplying 15 percent of U.S. oil consumption, 80 percent of the state's general revenue and an annual dividend check -- $1,540 last year -- for every man, woman and child.

"Every time I go to the gas pump and see the price going up, I smile," said Neil Fried, a state labor economist.

Rocketing oil prices, which yesterday closed at a 12-year high of $37.78 a barrel amid war jitters and sent gas prices to record highs in 16 states this week, are putting the squeeze on motorists, businesses and governments already suffering economic malaise.

But here on the frozen frontier, the soaring prices are providing a tonic for the state treasury, which faces a $500 million deficit this year, the worst per-capita shortfall of any state in the country. With dwindling oil production from the aging oil fields around Prudhoe Bay, and with no statewide income or sales taxes to fall back on, the state expects to burn through its savings by 2005.

To raise money, Alaska Gov. Frank H. Murkowski this week proposed eliminating 22 state programs, cutting aid to local governments and levying taxes and fees.

Meanwhile, every time the price of oil goes up a dollar, the state gets a $65 million windfall.

"Good news for us is not necessarily good news for other countries or other states," said Rich Owens, owner of a Tastee-Freez ice cream franchise in Anchorage. "Usually, higher oil prices mean there is some problem in the world. We don't sit around having prayer sessions, `Please let there be unrest somewhere.' But we do realize that most of the state's economy is based on natural resources, especially oil."

Pain at the pump

But don't expect dancing at the gas pumps. When asked to discuss oil prices, Alaskans tend to sound like the rest of us. Grumble grumble.

They get angry "because the gas is made right here," said Terry Seymore of Wasilla, whose family often takes their motor home, which gets 10 miles per gallon, to her son's snowmobile races and on fishing trips.

The higher prices might bring more money to the state, "but they're never going to offset what it costs businesses in transportation," said Jack Barber, 56, owner of an air taxi company in Anchorage that uses 50,000 to 100,000 gallons of gasoline and jet fuel a year.

In better economic times, prolonged surges in oil prices can also mean bigger dividend checks for Alaskans, at least eventually. By law, 25 percent to 50 percent of the revenues from the state's oil fields are collected in a fund, called the Permanent Fund, now worth more than $22 billion. Each year, the state calculates the five-year average of profits from the fund's investments and distributes half of that money among the state's 635,000 residents.

But the Permanent Fund has taken a hit in the ailing stock and bond markets. By law, the state can distribute only profits from the fund, not principal. Therefore, state officials say, there might be little or no dividend money to pay out this year.

Traditionally, higher oil prices have also brought new investment and high-paying jobs to the oil patch on the state's North Slope. This time, that hasn't happened, either. In fact, even as oil prices rose during the past two years, the number of oil industry jobs has dropped, from a peak of 9,486 in 2001 to 8,783 last year, says Fried at the Department of Labor.

Projects' impact

The decline is partly related to two big projects in 2001 that created a one-time flurry of activity but not sustainable jobs, economists say.

But major Alaska oil producers such as BP and Exxon Mobil have redirected their exploration to more profitable areas of the world.

"The North Slope is a fairly mature area," said Matt Berman, economics professor at the University of Alaska. The most promising exploration prospects are not necessarily in North America.

When oil companies open new fields, plenty of jobs are created for installing new wells or building pipelines. That type of investment is largely in the past for Alaska, where most activity centers on maintaining the flow of oil from older fields, Berman said.

Roxanne Sinz, spokeswoman at Unocal in Anchorage, said the oil company's Alaska division has to compete for funding with units from all over the world. This year, the budget in Alaska is half that of last year, when the company identified many good projects in the state, she said.

While higher prices are generally positive for Alaska's economy -- psychologically, in particular -- oil companies are wary of spikes that might not last.

"These companies are looking not for just a high price but a long-term stable price," said Werner Munk, a retired engineering advisor for the Alyeska Pipeline Service Co.

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