Providing coverage of Alaska and northern Canada's oil and gas industry
February 2019

Vol. 24, No.8 Week of February 24, 2019

Petroleum construction spending up for 2019

Kristen Nelson

Petroleum News

A 2019 construction spending forecast pprojects a $7.224 billion construction spend in Alaska this year, topped by petroleum projects at $2.73 billion and public projects, including defense, at $2.61 billion. The forecast, written by Scott Goldsmith at the Institute of Social and Economic Research at the University of Alaska Anchorage and sponsored by the Construction Industry Progress Fund and the Associated General Contractors of Alaska, shows the projected petroleum spend, almost 38 percent of the total forecast for the state, up 13 percent from 2018. State forecast spending is up 10 percent from 2018, with earthquake work included, and up 8 percent to $7.02 billion, with earthquake work excluded.

Goldsmith said the numbers reflect a projection of what will actually be spent this year, with the expected spend the second year in a row of growth - the 2018 spend was estimated to be $6.6 billion.

Petroleum spend growth

Goldsmith attributed growth in petroleum spending to recent large discoveries on the North Slope, technological advances, positive federal and state attitudes and the higher oil price. Petroleum construction spending in future years “should continue to increase,” he said. “The level of petroleum related construction depends not only on the price of oil but also on the available inventory of prospects, technology, costs, the financial position of the companies, and their longrange development plans,” Goldsmith said.

He noted that while the West Coast price of Alaska North Slope crude reached a high for the year of $85 per barrel in October, it fell sharply, ending the year near $60, somewhat tempering optimism generated by the federal government’s move to open the 1002 area of the Arctic National Wildlife Refuge to exploration.

There is also, Goldsmith said, increased interest on the western side of the North Slope, which is also encouraging the federal government to push to open more of the National Petroleum Reserve-Alaska.

Low oil prices have forced companies to cut costs over the last several years, he said, and as a result “the economic breakeven price for new production has fallen significantly, increasing the development potential for many prospects.”

Goldsmith attributed reduced costs to the introduction of new technologies for finding oil, more precision drilling and new methods such as coiled tubing drilling, horizontal drilling and multilateral wells.

Jobs up slightly

The Alaska Department of Labor and Workforce Development’s January Alaska Economic Trends noted military, oil and tourism as three drivers of employment growth, with construction forecast to grow the most, economist Karinne Wiebold said.

In evaluating jobs by industry, construction is forecast to grow the most, she said, adding 900 jobs in 2019, a 5.8 percent growth. That increase is mostly related to work at Eielson preparing for the arrival of two F-35 squadrons, which with missile defense installation at Clear and Greely is largely responsible for a 13 percent growth in defense spending.

Oil and gas, hard hit by a 37 percent loss in employment after peaking in 2014, appeared to bottom out last year, Wiebold said, and is projected to regain 300 jobs this year.

Economist Neal Fried, writing about the Anchorage job market, said the oil industry lost 6,100 jobs statewide between December 2014 and November 2017, but has been mostly stable since then. Small employment gains are expected this year, Fried said, citing better oil prices, a growing list of discoveries over the past two years and improved access to resources.

Construction, he said, lost 1,100 jobs in Anchorage between 2015 and 2017. The tide turned last year and modest gains are likely to continue in 2019, “not due to big projects but because activity had fallen to such a low level.”

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