Alaska has weathered the economic recession relatively unscathed but needs to “get down to business” to assure a successful economic future, said Bill Popp, president and CEO of the Anchorage Economic Development Corp., when presenting the AEDC three-year economic outlook during the 2010 AEDC investor lunch on July 28.
And, in an Aug. 3 interview with Petroleum News, Popp said that Alaska needs a more strategic vision of which development projects to pursue, to assure the state’s future economic well being. For decades to come those projects will continue to center on resources extraction industries, especially oil and gas, and mining, he said.
Importance of oilIn his July 28 speech Popp emphasized the importance of the oil industry to the economy of Anchorage and Southcentral Alaska. In the past couple of years Anchorage jobs in the oil industry have held relatively steady at 2,600 to 2,700, but oil and gas jobs across the whole state have fallen by about 1,500, he said.
“Because 58 percent of the North Slope oil and gas workers reside here in Anchorage, in the Mat-Su and the Kenai Peninsula, the loss of any oil and gas jobs on the North Slope has a profound effect on our regional economy,” Popp said. “… In 2009 that was a combined direct payroll of $1.05 billion brought home in our community in the Southcentral region.”
And although there is always considerable uncertainty about future oil prices, the emergence of the world from recession and continued economic expansion in countries like China and India will likely place upward pressure on oil prices, thus supporting the economics of the Alaska oil industry.
“Absent some new global economic shock it is unlikely that oil prices will go anywhere but up in the next several years,” Popp said. “AEDC’s outlook is for crude oil to top $92 per barrel by 2013.”
Post-GOM ‘panic’On the other hand, the fallout from the Deepwater Horizon oil spill in the Gulf of Mexico is casting a pall of uncertainty over future oil and gas development in the United States.
“Finding and producing oil in the U.S. won’t be any easier as a result of the disaster in the Gulf, and Alaska is already bearing the brunt of the political and regulatory panic that has set in since the Gulf disaster began,” Popp said.
Popp told Petroleum News that the oil and gas industry dominates the 40 percent or so of the Alaska economic activity that generates the income supporting the other 60 percent of the economy. And the oil and gas industry accounts for somewhere around 85 percent of state government revenues.
“Our entire government infrastructure, on a statewide basis, is founded … on the revenues that oil generates,” Popp said. “If we go into a significant period of decline, that is going to create some very difficult times for the state as a whole.”
That makes the fallout from Deepwater Horizon particularly concerning, since the Arctic offshore seems the most promising of the Alaska regions for the discovery of new major oil resources, to keep oil flowing through the trans-Alaska pipeline, he said.
Project delays“For any number of reasons, over the past decade projects have been shelved, have been delayed, have been pushed back to the point now, with the seven- to 10-year lead time that is necessary to bring new fields on line, we don’t have a lot of signs to be optimistic about in terms of new production offsetting the projected decline in TAPS between now and the end of the decade,” Popp said.
And, although Alaska should be looking to diversify its economy in the long term, the process of diversification will take decades to work through, with resource extraction industries remaining the economic drivers in the intervening period, generating wealth that can be invested in new industries.
“Alaska is a resource-extraction based economy and will be for generations to come,” Popp said.
However, Popp thinks that Alaska has become too obsessed with individual solutions to individual issues that the state faces, and with taking a too short-term view of the state’s situation. There are both regional and statewide issues relating to energy and other economic factors that are interconnected in some way, he said. For example, the need for a viable energy source for the planned Donlin Creek gold mine in Alaska’s Interior could lead to the possibility of developing a new power grid, and that could in turn hook into the economics of an in-state gas line from the North Slope.
“They are part of an intricate puzzle that I don’t think has been adequately worked … to put the pieces together,” Popp said.
Strategic visionWhat is needed is a strategic vision that addresses how Alaska should be positioned 10 or 20 years from now, promoting a series of projects that will bring the most benefit to the state and generate the wealth to feed new “heavy lift” industries that will come into play in perhaps 30 to 50 years time, while also finding ways of bridging the chasm that seems to have opened up in Alaska between proponents of resource development and people with other priorities.
“Where do we find the common ground between absolutely fish and absolutely oil or mining, or absolutely subsistence and absolutely oil?” Popp asked.
Also, people have tended to jump onto whichever new project they think has the most current traction, he said. Some people think that’s the North Slope gas line, some think it’s a major hydropower project while others think it’s a question of focusing on renewable energy.
“I don’t think we should be picking winners,” Popp said. “I think we should be picking as many horses as we can … and help them along to see if we can get one or more of them over the finish line, because every one of them that gets over the finish line is a winner for the state.”
Popp feels particularly concerned that the concept of a North Slope gas line, although a worthwhile project, has come to dominate much of the current development dialogue in Alaska. Yet, although a probable major employer during the development phase, the gas line will likely support a relatively small number of in-state jobs once it goes into operation.
“This has literally pushed most of the other projects out of the limelight, even although most of those projects in the longer term would generate more jobs … than the gas line will,” Popp said.
Several oil and mining related projects could create thousands of direct jobs, he said. And, as Alaska repositions itself from the recession, action is needed to ramp up project activity.
“We’ve got to start moving some of these projects forward,” Popp said.