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February 2018

Vol. 23, No. 5 Week of February 04, 2018

Construction up in 2018 due to petroleum activity

ISER forecasts higher capital budgets in Alaska this year with 15% increase in oil & gas spending; without o&g likely would be down 2%

Kay Cashman

Petroleum News

Construction spending in Alaska in 2018 will likely be around $6.6 billion, up 4 percent from 2017. That increase is largely due to a recovery in spending by the petroleum industry, where investment is expected to be up about 15 percent to nearly $2.6 billion, per the newly released construction forecast report prepared by Scott Goldsmith and Linda Leask at the Institute of Social and Economic Research, or ISER, at the University of Alaska Anchorage. The annual report, which includes spending by both the public and private sectors, is prepared for the Associated General Contractors of Alaska and the Construction Industry Progress Fund.

Petroleum spend at $2.6 billion

Without petroleum, ISER said overall construction spending this year would probably be down about 2 percent to $4.1 billion. But even though a number of sectors will spend less, some kinds of spending - particularly national defense - will be up.

The $2.6 million petroleum industry spending does not include large, identifiable equipment purchases such as new oil tankers.

Among other things, ISER attributed the brighter petroleum construction outlook to “recent discoveries,” such as “much more recoverable oil in NPR-A than previously thought,” specifically naming some of the Nanushuk discoveries, as well as “a large inventory of projects and cost-cutting.”

The annual forecast also noted ConocoPhillips will continue to be very active, both at Kuparuk and its new projects; BP is not exploring, but rather concentrating on operating efficiency to maintain production at Prudhoe Bay; and Exxon will begin to expand its development at Point Thomson.

Spending down in Cook Inlet basin

Construction in Cook Inlet, ISER said,” will be “less this year, as explorers wait for the state’s decision on paying tax credits,” with expenditures dominated by Hilcorp, “which will be concentrating on new production wells, repairs, workovers, & replacing facilities.”

The report did not mention proposed capital spending by Nutrien for refurbishment of its North Kenai/Nikiski fertilizer facility, likely because Nutrien’s announcement came out later than the report was released.

“Other lease owners and operators in Cook Inlet, like the Municipality of Anchorage and ConocoPhillips, will continue to spend on investments to optimize production,” ISER predicted.

Doyon, Ahtna gas mentioned

“Elsewhere in the state, Doyon regional corporation will continue to explore for gas at its site near Nenana, and Ahtna regional corporation will be looking for gas for the local market at a site near Glennallen.”

Pipeline-related expenditures will include “maintenance and upgrades by Alyeska, as well as construction of an oil pipeline across Cook Inlet by Hilcorp, to allow retirement of the Drift River Oil Terminal,” the report said.

Utilities spend at $539 million

ISER said utility construction spending in Alaska will be up slightly this year to $239 million.

Although there are no new large projects anticipated for the major electric utilities, “they continue to spend on maintenance and upgrades of existing facilities.”

Golden Valley Electric Association, or GVEA, is finishing up work on its Healy 2 unit.

Utility spending on renewable-energy projects also continues, with “upgrades to the Terror Lake project in Kodiak and Bradley Lake are ongoing, but the expansion of the Fire Island wind farm near Anchorage is on hold. Other smaller projects around the state are still funded by the state Renewable Energy Fund, but no new money is being added to that program,” ISER said.

“No significant expenditure related to gas utilities is projected, as development of the gas distribution system for Fairbanks awaits a final financing plan from AIDEA” (for details see this edition’s Oil Patch Insider column on page 1).

“Telecommunications spending will be a little higher this year” ISER said, “as firms make expenditures to improve the quality of service.”

Mining spend at $239 million

Spending by the mining industry - on exploration and development, as well as maintaining and upgrading existing mines - will be higher than last year as the industry worldwide continues to rebound from several years of low activity, ISER said, pegging total construction investment at $239 million for 2018.

“Spending by the six major mines currently in operation will be about the same as last year, as producers make new investments to increase efficiency and to develop new reserves to extend mine life. For example, Teck Cominco, buoyed by the rise in the price of zinc, is exploring a new deposit at the Red Dog mine, one of the world’s largest zinc producers.”

Whereas, ISER said spending for “drilling and other site work will be higher this year at the several large prospects under various stages of development, including the upper Kobuk mineral prospect and the Bokan rare-metals prospect in Southeast. The three largest prospects are still in various stages of pre-construction work (Donlin Creek, Pebble, and Livengood).”

Thanks to an improved outlook in the mining industry worldwide, spending on other Alaska prospects will be higher this year, ISER said.






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