The Alaska Department of Revenue’s Spring 2020 Revenue Forecast, released April 6, shows a sharp drop in the forecast West Coast price for Alaska North Slope crude from the fall forecast, and a smaller drop in ANS production.
The department’s fall forecast, issued in December, had ANS West Coast pegged at $63.54 per barrel for fiscal year 2020, which ends June 30, and $59 per barrel for FY 2021, which begins July 1.
The spring forecast shows the projected average ANS West Coast price for the fiscal year ending June 30 at $51.65 per barrel, down $11.89 from the fall forecast, 18.7%, and the 2021 fiscal year price at $37 per barrel, down $22, 37.3%, from a fall forecast of $59 per barrel.
In a cover letter for the spring forecast, Revenue Commissioner Lucinda Mahoney said the forecast is based on ANS “oil prices remaining below $30.00 per barrel for the remainder of FY 2020, resulting in an annual average price of $51.65 per barrel. The ANS price forecast is $37.00 for FY 2021, climbing to $53.00 by FY 2029. The oil price forecast is based on futures market prices and reflects the extreme supply and demand imbalance gradually relaxing over the next several years.”
Revenue’s daily price update for April 7 showed ANS at $18.21 per barrel, down $9.88 from the previous day, and production at 509,747 barrels per day.
Assumptions
Revenue noted in the forecast that oil prices had “crashed to near $20 per barrel based on supply and demand fundamentals.” It said the Organization of the Petroleum Exporting Countries “has broken down and Saudi Arabia and Russia are engaged in a price war, pledging to maintain or increase production regardless of price.”
It would be easy to blame OPEC, the department said, but “there has also been an unprecedented decline in oil consumption due to the pandemic. Simply put, there is currently too much oil in the world presently and from an economics perspective, the current low prices are needed to remove supply from the market or stimulate demand.”
Revenue said the spring forecast assumes that pandemic-related shutdowns will continue through the end of the current fiscal year, with reversal of shutdowns during the first half of FY 2021 (July through December 2020), with overall economic activity returning to baseline levels by FY 2022 (July 2021 on).
Production down slightly
ANS production is expected to average 486,400 barrels per day in FY 2020, “remaining stable at 486,500 barrels per day in FY 2021, and slightly climbing to 491,000 by FY 2029,” Mahoney said.
“The spring forecast for oil production was developed prior to the March 2020 oil price crash. Given the long lead time for Alaska oil projects and high level of uncertainty, the production forecast has not been further revised at this time,” she said.
The fall forecast estimated FY 2020 ANS production averaging 492,100 bpd and FY 2021 ANS averaging 490,500 bpd. The spring figures are drops of 1.1% and 0.8%, respectively.
Cook Inlet production was forecast at 16,200 bpd in the fall forecast and is down 12.4% in the spring forecast to an estimated 14,200 bpd, a number which more closely tracks current production volumes.
Extreme uncertainty
Mahoney said the spring forecast is issued in “a period of extreme uncertainty” due to the COVID-19 pandemic and “highly volatile investment markets and oversupplied oil markets.”
The spring forecast is for unrestricted general fund revenue at $1.6 billion for FY 2020 and $1.2 billion for FY 2021 - it was $2 billion in FY 2019 - with a $2.9 billion transfer from the Permanent Fund to the general fund in FY 2020 and $3.1 billion in FY 2021 (it was $2.8 billion in FY 2019) - overall a reduction in UGF revenue of $527 million from the fall forecast for FY 2020 and $461 million for FY 2021.
Total state revenue, unrestricted and restricted, was $11.18 billion for FY 2019, and is forecast to be $6.57 billion for FY 2020 and $10.57 billion for FY 2021.
Petroleum revenue
Of the $527 million UGF reduction, $461 million is a reduction in expected petroleum revenue.
“Petroleum revenue reductions are largely a function of a lower oil price forecast,” the department said.
For FY 2019, UGF petroleum revenue was $2.04 billion. The spring forecast is for petroleum revenue of $1.1 billion for FY 2020, with FY 2021 petroleum revenue dropping to $716.6 million.
The largest parts of petroleum revenue are production tax and royalties.
Oil and gas production tax was $595.5 million in FY 2019 and is forecast at $267.6 million in FY 2020 and $122.3 million in FY 2019. Oil and gas royalties were $1.07 billion in FY 2019 and are forecast at $646.2 million in FY 2020 and $410.9 million in FY 2019.
Total petroleum revenue was $2.225 billion in FY 2019, drops to $1.397 billion in FY 2020 and $835.3 million in FY 2021, and then is forecast to rise gradually, reaching $1.346 billion in FY 2029.
