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Oil prices drive industry employment New report shows jobs growth and loss in Alaska moves with prices; Alaska often lags behind Lower 48 in service industry jobs growth Eric Lidji Petroleum News
When North Slope oil production peaked 20 years ago, around 8,500 people worked in the Alaska oil industry. With production today down 70 percent from those highs, the oil industry now employs around 12,600 people in Alaska, a record for the state.
The difference? The price of oil today is five times higher than the price in 1988.
Over the past two decades, the growth and contraction of oil industry employment in Alaska has moved nearly in lockstep with global oil prices, despite statewide production rates declining almost every year and a variety of tax and royalty systems.
The jobs figures come from a new report by the Alaska Department of Labor and Workforce Development that examines the role the oil industry plays as an employer in Alaska, both compared to other industries in the state and to other oil producing states across the country, like Texas, Louisiana, California and Wyoming.
“We have record numbers of people in Prudhoe Bay, and we’re producing a third as much oil,” said Neal Fried, the state labor economist who wrote the report. “I just find that fascinating.”
The report shows Alaska entering a phase where oil production is spread across more fields, and producing oil from the old giants requires more workers than ever before. Also, while Alaska follows national employment trends, it often lags behind the Lower 48.
As an employer, the Alaska oil industry makes big waves with small numbers.
The roughly 13,000 people employed by oil companies and the oil field support industry in Alaska make up only 4 percent of the statewide work force, but collect around 10 percent of all wages earned in the state.
Moreover, the oil industry accounts for nearly 30 percent of the total gross state product.
Prices have long driven jobs Nationally, oil prices have long driven employment, despite production rates.
Take Wyoming, a major gas producing state with a long history of oil production.
When employment fell to 6,250 in 1971, the state produced around 150 million barrels of oil at an average price of $4 a barrel. A decade later, with prices closer to $35 a barrel, employment peaked at 22,500, even though production dropped to 120 million barrels.
The recent spike in oil industry jobs in Alaska comes during an extended run up in prices, which have doubled over the past two years, and jumped five times since 2001.
“If we’re looking at $50 oil, I’m sure employment would not have grown the way it did,” Fried said. “Maybe it wouldn’t have grown at all, or grown very little.”
Something similar happened in the years immediately following the peak of Alaska oil production in 1988. The first Gulf War pushed prices up around the world, and by 1991, with oil production down 10 percent, oil industry employment in Alaska reached 10,700 jobs, a milestone unsurpassed for 15 years.
In 1998, with prices averaging around $19 a barrel and production declines gaining momentum, oil companies started developing a slate of new North Slope fields like Alpine, Tarn and Badami, leading to the first year of major jobs growth since 1991.
But as oil prices fell 30 percent that year, down to $13 per barrel, record jobs losses followed. Oil industry employment dropped below 8,000 for the first time since 1983.
Prices and employment don’t always run along parallel tracks, either.
Between 1994 and 1998, the oil industry in Alaska gradually lost jobs even as oil prices slightly rose, albeit remaining at or near historical lows.
Alaska lags behind Lower 48 But while fluctuating oil prices often predict jobs growth and loss, Alaska usually lags behind other oil-producing states in jobs growth.
Last year, Texas produced nearly twice as much oil as Alaska, but employed nearly 17 times as many people. Some of that can be attributed to the oil company headquarters based around Houston and Dallas, but California under-produced Alaska by 8 percent last year, but still employed 60 percent more people within the industry.
Unlike the mix of large and small oil fields dotted across Texas and California, most of the oil produced in Alaska comes from just two fields: Prudhoe Bay and Kuparuk.
So while Alaska supplied 14.5 percent of the total oil produced domestically last year, the state is home to just one-third of one percent of the total production sites in the country. This is probably why Alaska employed less than 3 percent of the oil and gas work force in the country in 2007. Employment at Prudhoe Bay remained fairly steady between 1990 and 2004, despite a gradual decline in oil production.
Some of that is starting to change though.
The past three years have seen work to bring Alpine satellites online, to develop previously uneconomic heavy and viscous oil resources and to replace corroded pipelines at Prudhoe Bay, as well as unprecedented activity by independents and new players.
While the support industry continues to grow much faster across the Lower 48, Alaska outpaced the rest of the country in jobs growth among oil producers through the first seven years of the decade.
Following those 15 years of steady employment, the Prudhoe Bay work force jumped 50 percent between 2004 and last year, topping 9,000 people.
“It takes more people to get a barrel of oil out of the ground,” said Bill Popp, president and CEO of the Anchorage Economic Development Corp. “The days of easy oil are behind us.”
Other factors play into jobs Oil prices certainly aren’t the only factor in jobs creation, of course.
Following that record employment year in 1991, a restructuring among several major oil producers in the state led to 1,300 jobs being cut in Alaska, even though oil prices remained unchanged. And as prices remained level over the ensuing six years, jobs cuts slowly brought the industry work force back to 1988 levels.
And a major oil spill at Prudhoe Bay in 2006 led BP to hire hundreds of workers to rebuild corroded pipelines, a project likely to have moved forward without high prices.
During that same time, new technologies made it possible for companies to produce more oil from fewer wells and with fewer people. Fried noted in his report that the oil industry is often ranked among the most productive industries in the country.
Taxes still a wildcard Although the report describes a situation where statewide jobs growth is often at the whim of global markets, it doesn’t address how taxes, one of the few economic factors the state can control, might impact the relationship between prices and employment.
At least on the surface, changes to the state fiscal system over the past 20 years appear to have done little to alter the basic relationship between prices and employment, though whether the jobs growth could be greater or the losses could be less is open for debate.
Legislation in 1989 raising or maintaining the tax rate on Prudhoe Bay, Kuparuk and Endicott preceded several years of rising prices and jobs growth.
Meanwhile, jobs losses in 1987, 1992 and 1999 came not only during low-price periods, but also at times when regressive elements in the prevailing tax code meant the state took a greater percentage of the wellhead value of each barrel of oil.
Because tax codes don’t change as frequently as markets, it can be hard to measure the direct impact on jobs, especially in the short term, according to Matthew Berman, an economist with the Institute of Social and Economic Research at the University of Alaska Anchorage.
“It’s unlikely that you would see a direct effect… Generally, it’s a second level effect to market,” Berman said.
During legislative hearings last year leading to a revision of the state petroleum tax code, those who argued against increasing taxes, especially during a period of declining production, claimed it would stunt jobs growth, or even lead to losses.
But the revisions also expanded the tax credit program for exploration work.
The upcoming drilling season, the first where recent tax changes would factor in to company exploration decisions, is expected to be among the busiest in recent years. But even with recent volatility, prices remain above $100 a barrel.
Popp suggested Alaska might see jobs growth during sustained high prices, and could probably do little to stave off jobs cuts during sustained low prices, but that the fiscal system could become a pivotal force in jobs creation during periods of midrange prices.
Nevertheless, Popp believes it will take a few more years to see how the recent tax changes will impact jobs creation.
“I think the jury’s still out on that,” Popp said.
Growth depends on finds Even with continued high prices, the state Labor Department report suggests recent jobs growth might be temporary without “other major developments or discoveries.”
As Alaska matures as a basin, however, independent companies and new players have already started exploring for relatively smaller reservoirs passed over by larger companies.
New oil production from the National Petroleum Reserve-Alaska and offshore prospects in the Chukchi and Beaufort Seas and in Bristol Bay, along with a natural gas pipeline and associated gas production in the future would further diversify the industry in Alaska.
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