Part Three of Four

Alaska Oil Production is in decline

That could put our economy
on shaky legs.

Petroleum production has been the main economic driver in Alaska for more than a generation, but production is now only about 1/3 of what it was at its peak in 1989. The Alaska Department of Natural Resources projects that oil production will continue to fall, and that the new fields being developed won’t be enough to offset the declining output of the Prudhoe Bay field.

Why haven’t we noticed a negative effect on our economy?

In part, it’s because the world economic boom drove-up the price of oil to $140/barrel, along with increasing prices for gold, zinc and other Alaskan minerals. As the price of oil began to fall, increased federal funding—in the form of grant and defense spending—helped to make up for lost petroleum income.

The Alaska Permanent Fund benefited from the run-up in the stock market as well. These “boomlets” have run their course, though. Federal funding has been flat since 2005, and we cannot continue to depend on good fortune to guarantee a strong Alaska economy.

Other economic drivers have limited punch

Economic diversification has long been a goal of the state, but progress has been limited. Seafood, tourism and mining—important economic drivers in some communities—do not together generate as many jobs or as much income statewide as either petroleum or federal spending. They contribute to the “Other Resources” leg of the economic stool, but as you see below, petroleum is over twice as significant in terms of income.

The fallout from fewer dollars

Alaska has been fortunate to be partially insulated from the current national recession, but less cash coming into Alaska means less spending throughout the state. That will hurt jobs, payrolls, businesses, schools, public works projects, property values, and more.

Long-term residents remember the economic crash of 1986-1988, caused by a steep drop of oil prices that dramatically cut the flow of dollars into the state. No community or household was insulated from the effects of that crash, and none are eager to see a return to those days.

Take control of the future

The next generation of Alaskans will not automatically share in the economic prosperity enjoyed by their parents, if current trends persist. It will take work to make all three legs of the stool as strong and stable as possible.