December 07, 2001 --- Vol. 7, No. 152December 2001

State headed back toward deficits

After a year of high oil prices and a small budget surplus in fiscal year 2001, "the state is headed back toward growing budget deficits as oil prices move into their historic range of $17 to $19 per barrel for Alaska North Slope crude," Revenue Commissioner Wilson Condon said in a Dec. 7 letter conveying Revenue's fall revenue forecast to Gov. Tony Knowles. Revenue is forecasting that the Constitutional Budget Reserve will be empty by summer 2004.

Condon said Revenue is forecasting a $906 million deficit for fiscal 2002 (ending June 30), "based on oil averaging $20.55 for the year." High prices in the first six months of the year help keep the average up.

"Alaska North Slope crude was selling for around $17 a barrel last week and we expect it to hang around that price range for the rest of the year," Condon said.

If the nation's economy starts to recover next year and if worldwide oil demand picks up a bit, the department sees ANS crude averaging $18.81 a barrel in fiscal 2003 (beginning July 1) and $19.72 in fiscal 2004. Prices also depend upon the ability of the Organization of Petroleum Exporting Countries to manage world oil supply.

Revenue is forecasting that the state's budget gap will continue to grow, with a budget gap of $1.13 billion in fiscal 2003 and $1.07 billion in fiscal 2004.

Production, which averaged 991,000 barrels a day in fiscal 2001, is expected to average 1.012 million barrels a day in 2002 and to remain above the million-barrel-a-day mark through fiscal 2010. But, Condon said, because of the way oil production is taxed, declining barrels of Prudhoe crude are being replaced by barrels from newer fields which bring less revenue to the state.

British Columbia turns to energy sector to boost economy

British Columbia Premier Gordon Campbell has vowed to reduce conflict, streamline regulatory processes and seek ways to open up the offshore to attract C$24 billion in new oil and gas investment over the next five years.

"We think there's huge economic opportunities that you have to take advantage of quickly," he told a conference of oil and gas executives in Vancouver Dec. 6, setting a target of 8,000 direct jobs for British Columbians and a doubling of government energy revenues from the C$4.6 billion collected in 2000.

With the rest of his province's economy forestry, fishing, mining and tourism languishing, Campbell indicated he is ready to do whatever he can to spur the energy sector.

He said his government is especially eager to overcome environmental and aboriginal opposition to lifting a 30-year moratorium on exploration of the Queen Charlotte Basin, where reserves are estimated at 9.8 billion barrels of oil and 25.9 trillion cubic feet of gas.

Campbell said he is hopeful a scientific report on the contentious issue of offshore drilling, due to be released Jan. 15, will show development can be done without excessive ecological risk.

In addition, he said the Ladyfern region of northeastern British Columbia, which he rated as the "largest single natural gas discovery in Canada in the last 15 years," is proof of the province's potential.

"There are more Ladyferns out there and what we have to do is to create an environment that encourages exploration," he said.

To speed approvals, he promised a single authority permitting agency that will allow the industry to fast-track development. "We want an energized economy, we want an economy that works for everyone here," he said.

But Campbell cautioned that development must be environmentally sustainable and that aboriginal communities must have a chance to share in the wealth.

He said a five-year draft agreement to improve communications with native groups has been signed with three First Nations in the Ladyfern area, where blockades have stalled exploration and pipeline construction. The government's objective is to involve other First Nations in that agreement.

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