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$70 oil prices expand state’s coffers Latest milestone comes two years after price first hit $40; price averaged $26.81 per barrel from 1996 through 2005 Wesley Loy Anchorage Daily News
The price of North Slope crude oil closed above $70 a barrel for the first time April 19, yet another monster milestone for Alaska’s most vital commodity.
North Slope crude for delivery to West Coast refineries settled at $70.37, up 82 cents from the April 18 close.
Energy watchers say the nuclear stalemate in major Mideast oil producer Iran, militant attacks in Nigeria, and worries that oil suppliers can’t meet global demand helped propel oil prices upward.
High oil prices are flooding state coffers with unexpected tax and royalty riches, and lawmakers in Juneau are enjoying a respite from chronic budget deficits and are finding ways to spend nearly all the newfound wealth, state budget officials say.
Alaska oil has been on an incredible hot streak since May 14, 2004, when it closed above $40 a barrel for the first time.
Five months later, it topped $50.
On Aug. 5 last year, it cracked $60.
Now it’s north of $70.
By comparison, North Slope oil averaged $26.81 a barrel from 1996 through 2005.
Staying power surprises many Oil’s staying power is surprising many experts, including Michael Williams, chief economist in the Alaska Department of Revenue and a researcher on Daniel Yergin’s Pulitzer-winning oil history, “The Prize.”
The high prices don’t mean the world is running out of oil, Williams said.
“No, not a chance,” he said. Rather, it’s the perception in the market that oil supplies are tight and that geopolitics might disrupt shipments that continues to elevate oil prices.
Alaska oil production is declining, and mishaps such as the March pipeline leak in the giant Prudhoe Bay field aggravate the slide.
But the state still is a major producer, sending about 850,000 barrels a day down the trans-Alaska pipeline. That’s about $60 million worth of oil per day at the April 19 price — a profit bonanza for major oil companies including ConocoPhillips, BP and ExxonMobil and also a boon for the state, which relies heavily on oil dollars.
State oil revenue averaged $1.6 billion a year from 1992 through 2003 but has taken a sharp rise since then to more than $3.5 billion this year.
Lawmakers don’t have to dip into reserves That’s given Gov. Frank Murkowski and state legislators a pleasant problem: How to spend or save all that cash.
Cheryl Frasca, the governor’s budget director, said surging oil revenue hasn’t created a budget surplus for the state. Rather, it only has allowed lawmakers to avoid dipping into reserve accounts, as they did regularly before oil prices rocketed, she said.
But they’re also making spending decisions they otherwise wouldn’t have except for the high oil prices, Frasca said. Last spring, for example, lawmakers appropriated $83 million for school maintenance and construction, she said.
They also made 10 pages of “grants to named recipients” such as $15,000 to the Alaska Trappers Association to make an educational video on wolf trapping; $70,000 to the Palmer Senior Center for a handicap accessible van; and $250,000 for building improvements to the Alaska Aviation Heritage Museum in Anchorage.
Lawmakers hadn’t been able to make many such expenditures in the past, before the run-up in oil prices, Frasca said.
“We’ve all tried to do a good job of making spending proposals based on what are good projects or good purposes,” she said.
Governor also proposing grants In an unusual move, Murkowski has introduced a new slate of proposed grant recipients for next year, said David Teal, director of the Legislative Finance Division, which helps lawmakers write the state budget. Normally, lawmakers would tack grants onto the governor’s budget proposal.
Whether the grants are worthwhile depends on your outlook, he said.
“You know, it’s sometimes hard to say what’s necessary and what’s nice,” he said. But the grants are relatively small change anyway, Teal said, totaling $11 million in the current state budget. Rising school and public pension costs are gobbling up far more money, he said.
“We’re looking at the budget increasing at a rate of $200 million to $300 million a year, just to continue doing what we’re doing, no increase in service,” he said.
Lawmakers have, however, voted to save $700 million for spending later on schools or other purposes — half the $1.4 billion oil revenue surplus that greeted them upon arrive at the capital in January for the start of the four-month legislative session, Teal said. The bill now awaits the governor’s signature.
Senate Finance Committee Co-Chair Lyda Green, R-Wasilla, said it’s nice to have enough money to cushion the state’s operating budget and also consider extra projects.
“It’s not very glamorous,” she said, but last year she was able to get some money for her district to help hook water and sewer service to the new Mat-Su Regional Medical Center.
“The onus is on us to save some money as well, you know, put some aside,” she said.
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