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Declining North Slope Oil Production: Implications for the Alaska Economy

Declining North Slope Oil Production: Implications for the Alaska Economy. Scott Goldsmith Institute of Social and Economic Research University of Alaska Anchorage December 9, 2008 LAW SEMINARS INTERNATIONAL Fourth Annual Conference on New Developments for Energy in Alaska

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Declining North Slope Oil Production: Implications for the Alaska Economy

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  1. Declining North Slope Oil Production: Implications for the Alaska Economy Scott Goldsmith Institute of Social and Economic Research University of Alaska Anchorage December 9, 2008 LAW SEMINARS INTERNATIONAL Fourth Annual Conference on New Developments for Energy in Alaska Anchorage, Alaska

  2. North Slope Oil Basic Statistics $3 Million Per Hour Oil and the Alaska Economy

  3. Alaska Natural Resources:2005 Market Value (Million $) • Oil $18,164 • Gas $ 761 • Mining $ 1,506 • Seafood $ 1,392 • Timber $ 142 • Tourism $ 1,592 Value determined at point of production except for mining.

  4. Indicators of Oil’s Share of Economy Oil and the Alaska Economy

  5. Gedankenexperiment Oil and the Alaska Economy

  6. April 1, 1968 ANOTHER DRY HOLE AT PRUDHOE BAY Companies Say “We Give Up” Oil and the Alaska Economy

  7. Alaska: The Road Not Taken • No Production • Resource Industry Squeeze • Support Sector Squeeze • Federal Dollar Squeeze • Retiree Out Migration A WORK IN PROGRESS Oil and the Alaska Economy

  8. Alaska: The Road Not TakenI. No Production Oil and the Alaska Economy

  9. No Production:Oil Patch Pathway

  10. No Production:Oil Patch Pathway

  11. No Production:Oil Patch Pathway

  12. No Production:Government Pathway STATE GOVERNMENT EMPLOYEES 16 Thousand $$$ PETROLEUM REVENUE SPENDING $$$ PRIVATE SECTOR JOBS 18 Thousand LOCAL GOVERNMENT EMPLOYEES 15 Thousand TOTAL JOBS = 49 THOUSAND. Assumption: All Spent Petroleum Revenues Pay for Operations.

  13. No Production:PFD Pathway COMPARE 2007 EARNINGS (Billion $) • $1.4 Retail Trade • $1.6 Federal Civilian • $1.7 Construction • $1.8 Oil + Mining • $2.0 Health • $2.2 Military 2008 DIVIDEND BASICS $3,269 Dividend 611 Thousand Recipients $2 Billion Distribution

  14. Alaska: The Road Not TakenI. No Production Oil and the Alaska Economy

  15. Alaska Economic Drivers:The Foundation of the Economy Shares of Personal Income in 2005

  16. Alaska with Oil:Bigger, Richer, Healthier • Job Opportunities • Business Opportunities • High Incomes • Low Taxes • Low Prices • New People • Public services • Public Infrastructure • Business infrastructure • Consumer goods and services Oil and the Alaska Economy

  17. Alaska: The Road Not TakenII. Resource Industry Squeeze Oil and the Alaska Economy

  18. Resource Industry Squeeze:Job Growth (Thousands) Oil and the Alaska Economy

  19. Resource Industry Squeeze: Actual and Projected Tax Burden Oil and the Alaska Economy

  20. Resource Industry Squeeze: State Government Economic Development Assistance Oil and the Alaska Economy

  21. Resource Industry Squeeze: Other Benefits of Oil • Low Wages • Support Business Services Oil and the Alaska Economy

  22. Resource Industry Squeeze: No Oil Job Growth (Thousands) Oil and the Alaska Economy

  23. Alaska: The Road Not Taken:II. Resource Industry Squeeze Oil and the Alaska Economy

  24. Alaska: The Road Not Taken:III. Support Sector Squeeze Oil and the Alaska Economy

  25. Support Sector Squeeze:Household Tax Burden Reduces Purchasing Power 34%* $13,150 Per Capita in 2006 * Average State Income Tax Rate to Replace Oil Revenues—1970 to 2006. Oil and the Alaska Economy

  26. Support Sector Squeeze: Smaller Market SizePurchasing Power (Billion $) Oil and the Alaska Economy

  27. Support Sector Squeeze: Petroleum Reduces Seasonality Percent job increase July over January. Ratio of July to January Tourist Visitors is 10:1. Oil and the Alaska Economy

  28. Support Sector Squeeze: Cost of Living Oil and the Alaska Economy

  29. Alaska: The Road Not Taken:III. Support Sector Squeeze Oil and the Alaska Economy

  30. Alaska: The Road Not Taken:IV. Federal Dollar Squeeze Oil and the Alaska Economy

  31. Federal Dollar Squeeze:The Largest Federal Grants in 2007 (Million $) Oil and the Alaska Economy

  32. INSERTNon Earned Income (Excluding Retirement Income) • With Oil $439 million • Without Oil $220 Million Oil and the Alaska Economy

  33. Alaska: The Road Not Taken:IV. Federal Dollar Squeeze Oil and the Alaska Economy

  34. Alaska: The Road Not Taken:V. Retiree Out Migration Oil and the Alaska Economy

  35. Retiree Out Migration Retirees represent $1.5 billion in spending. • Tax Free • PFD • Public Amenities Oil and the Alaska Economy

  36. Alaska.: The Road Not TakenV. Retiree Out Migration Oil and the Alaska Economy

  37. Alaska: The Road Not TakenThe Bottom Line Oil and the Alaska Economy

  38. Alaska: The Road Not TakenThe 2/3 Rule About 2/3 of the economic growth in Alaska since Statehood can be traced to Petroleum. Oil and the Alaska Economy

  39. Alaska: The Road Not TakenEconomic Driver Job Growth (000) Oil and the Alaska Economy

  40. Alaska: The Road Not TakenNon Oil Economic Driver Shares Oil and the Alaska Economy

  41. Candidates for Comparison ? • Oklahoma • New Mexico • South Dakota • Wyoming • Montana • Idaho • Florida • Nevada • Hawaii Oil and the Alaska Economy

  42. Oil and the Alaska Economy

  43. Maine Is Not Like Alaska • Physically attached to Lower 48 • Federal land ownership 1% • Native American population 1% • Lobsters instead of crabs • Unusual accent • Presidential hangout Oil and the Alaska Economy

  44. Maine and Alaska • Many moose • Few humans • Cold • Remote • Independent streak Oil and the Alaska Economy

  45. Maine and Alaska • Fish / Tourism / Timber / Mining / Agriculture • Limits on sustainable harvests • Challenged by globalization • Small and declining manufacturing • Dependence on federal $$$s • Conflicting visions about use of resources • “Zero Sum Game” development mentality • Strategic development planning advice from Brookings Institution Oil and the Alaska Economy

  46. Maine Economic History in a Nutshell Throughout the second half of the twentieth century, Maine has struggled to find a proper balance between resource-based industrial development and environmental protection. The state has come to rely heavily on tourism, small manufacturing enterprises and defense-related activities and installations for much of its economic base. Oil and the Alaska Economy

  47. Maine Economic Performance: Some Evidence • Gross State Product per capita: 43rd (Ak 7th) • Job Growth: 66% (Ak 144%) • Population Growth: 46th (Ak 5th) • Median Age: 1st (Ak 49th) • Housing Built Before 1939: 31% (Ak 2%) • Median Paycheck: 77% as high as Alaska • Projected Population Growth = 1/3 US average (Ak 30% above) Oil and the Alaska Economy

  48. Alaska vs. Maine Family Oil and the Alaska Economy

  49. Comparing the Average Family of 4 * Adjusted for lower cost of living in Maine. Oil and the Alaska Economy

  50. Actual Performance Since 1990:Jobs vs. Oil Production(Index: 1990 = 1) Oil and the Alaska Economy

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