Oil price upends employment picture

State economists heavily revise 10-year employment forecast following crash in prices; oil industry sector hit hard

ERIC LIDJI

For Petroleum News

The state publishes a 10-year forecast for industrial employment every other year, and each forecast usually makes just a few small adjustments to its immediate predecessor.

This time is different.

While the October 2014 forecast predicted 10.8 percent growth in employment from 2012 to 2022, the current forecast predicts 5.8 percent growth from 2014 to 2024.

The reason for the change is obvious. Oil prices started declining immediately after the last forecast was published. And that has upended many previous economic assumptions.

Before the crash, the Alaska Department of Labor and Workforce Development expected employment in oil and gas extraction to increase 15.3 percent between 2012 and 2022. Now, according to an article in Alaska Economic Trends by state economist Paul Mertz, the department expects employment in the sector to fall 10 percent between 2014 and 2024. And those figures fail to include drilling and support activities employment, which are expected to fall 18.9 percent and 5.5 percent, respectively, between 2014 and 2024.

The crash in oil prices gave the department some insight into the way the oil industry influences employment in other fields. “While projections are not able to predict business cycles or foresee economic shocks, especially those caused by a single commodity’s price, the timing of the price plunge allowed us to infer some of the effects on not just future oil and gas employment but also many of the industries linked to it,” Mertz wrote.”

The projected loses extend throughout the industry.

The department expects a 7.8 percent decline in petroleum engineers, an 8.4 percent decline in roustabouts, an 8.9 percent decline in petroleum pump system operators and refinery operators, a 9.3 percent decline in rotary drill operators, a 9.5 percent decline in pipeline support positions, and a 12.2 percent decline in derrick operators. All of those fields are among the 25 professions expected to have the steepest losses through 2024.

Additionally, declining oil revenues will impact construction spending, particularly publicly funded financial civil projects and heavy construction related to oil and gas activities.

The department expects employment in the heavy and civil construction sector to fall by 15.7 percent between 2014 and 2024, even as overall employment in all the construction-related fields increases slightly. Employment in oil and gas pipeline construction is expected to face an even greater decline, falling by 38.9 percent over the forecast period.

Prices and jobs

One reason for that is the steepness of the decline. Aside from a dip after the financial crisis in late 2008, oil prices were steadily rising for more than a decade before the crash.

“This round of projections comes on the heels of the oil and gas industry’s highest employment since the early 1990s, and the drop in oil prices is quickly eroding that peak,” Mertz wrote in the article. “Prices are expected to rebound somewhat, but we expect the effects of short-run declines to last well into the projections period.”

The current projection reinforces the theory that oil prices influence oil industry employment more than any other single factor. For example, Alaska oil industry employment increased from about 8,500 in 1988 to about 12,600 in 2008 - a time period when oil production declined 70 percent and oil prices increased near fivefold. And during those two decades, oil prices and employment moved nearly in lockstep.

Between the aging big fields and a range of smaller fields, the Alaska oil industry currently requires more people across more professions to produce less oil.

While the current forecast is dour, it is hardly fate, Mertz noted. Just as an unexpected crash in commodity prices upended the last forecast, he wrote, a future project such as a North Slope gas pipeline could make the current forecast irrelevant. With two big North Slope discoveries in recent years - by Armstrong Energy Inc. and Caelus Natural Resources Alaska Inc. - perhaps a bump in prices would result in a bump in employment.