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Alaska oil forecast: prices up, volumes down Department of Revenue expects volatility in prices to continue; does not think structural supply-demand change has occurred Kristen Nelson Petroleum News Editor-in-Chief
The Alaska Department of Revenue released its spring revenue forecast April 4, and has dropped its expectation for the average price of Alaska North Slope crude oil for fiscal year 2005 (July 1, 2004, through June 30, 2005) from the $43.61 per barrel estimate in the fall forecast, released in December, to $41.75 per barrel.
The actual price averaged $43.20 per barrel through March 28, the department said.
Commissioner of Revenue Bill Corbus said prices have varied by more than $12 a month since the fall forecast was issued.
“Despite extreme volatility over the past week,” Corbus said in an April 4 statement, “current worldwide market strength for petroleum is evident in this forecast,” and he noted the spring revenue prices “confirm an all-time record high price for Alaska North Slope crude.” Why lower the expected fiscal year average when actual prices are so high?
Michael Williams, the Department of Revenue’s chief economist, told reporters when Revenue released its spring forecast April 4 that when the state held its forecast meeting in March the actual average numbers for the fiscal year were below the fall forecast, “so we knew that we had already overestimated a little.” Oil prices are volatile, he said, and since the March meeting, events have occurred which “would amplify the demand side or increase the price.”
Dan Dickinson, director of the department’s Tax Division, said as recently as four months ago the ANS price was in the $30 per barrel range. The fall forecast of $43 per barrel, he said, was followed by an average December price of $36 per barrel and an average January price of $39 per barrel. And, Dickinson added, there’s a lag: the June price affects the taxes paid in July, “so we really only have two months left in the fiscal year that are going to drive pricing.” Production down While prices for North Slope crude are up, the volumes produced are down, and are expected to average 920,000 barrels per day in fiscal year 2005. ANS production peaked at 2.08 million bpd in FY 1988, the department said in its forecast, and averaged 980,000 bpd in FY 2004.
The department said it expects ANS production to continue above 900,000 bpd through FY 2008, as new fields come into production.
Alpine satellites Fiord and Nanuk are expected to add 17,000 bpd in FY 2007 and BP’s offshore prospect, Liberty, and the National Petroleum Reserve-Alaska, are both expected online in FY 2011, adding a combined 55,000 bpd.
The department is also forecasting 10,000 to 20,000 bpd from additional known onshore and offshore fields in FY 2008 to FY 2010.
Through FY 2009, the department forecasts ANS production to average about 910,000 bpd.
The department has moved out, by a year, expected production from Liberty “to allow sufficient time for permitting and constructing an offshore facility and subsea pipeline.” Liberty lies in the federal Beaufort Sea.
The department said there is uncertainty about the scope and timing of production from Point Thomson. “With almost 350-450 million barrels of oil and condensate and 8 trillion cubic feet of gas,” the department said industry and the state have been evaluating whether Point Thomson production will be tied to a natural gas pipeline from the North Slope or whether condensates and oil from the field will be put into the trans-Alaska oil pipeline.
“If ultimate development of Point Thomson is not associated with a gas pipeline,” the department said, “we believe first production could begin as soon as FY 2010-FY 2011.”
If, however, Point Thomson production is linked to a natural gas pipeline, “first production could be delayed until FY 2012 or beyond.”
In the spring forecast the department has shown Point Thomson producing in late 2012, “with ultimate recovery of 260 million barrels by FY 2035.” Satellite fields in the Point Thomson area are forecast to come on line contributing an additional total 100 million barrels beginning in FY 2015. Department expects price volatility Corbus called price volatility “a way of life as far as the oil business goes.” Three times in the last two decades, he said, oil has dropped more than $15 per barrel over a seven-week period. More recently, this March, a drop of $7.69 a barrel was followed by a $5.79 a barrel increase the following week.
Williams said the department does not expect structural change in the price of oil. On the demand side a structural change would occur if manufacturers started making cars that get 80 miles per gallon, really impacting demand in a major way.
That isn’t happening today, he said.
There is “robust economic growth, which has been followed by robust growth in oil demand.”
And the spare capacity to produce oil is down to about 2.25 percent.
The perception exists that demand is growing faster than supply, Williams said, and “it doesn’t take much to spook the markets these days.” Whither the price of oil? “World economic growth continues and is the stimulus for increases in world oil demand,” the department said, at a time when the U.S. dollar is depressed relative to other major currencies. While oil prices continue high, “history suggests at some point there will be a downward correction.”
The department looked at low-price factors and high-price factors for where prices might go over the next 30 months
Low price factors include: China’s internal economic growth slows as does its export growth; U.S. and emerging Asian economies slow more than anticipated because of high oil prices; the Organization of Petroleum Exporting Countries is able to increase production capacity more rapidly than anticipated and increases production; political unrest continues in Iraq but other Middle Eastern countries move towards greater democracy and peace, calming oil markets; and investments in the Former Soviet Union, Africa and Canada add to worldwide production.
High-price factors the department considered include: political unrest in the Middle East continues and periodically results in disruptions in production; China’s economic growth continues; and production increases by OPEC and non-OPEC suppliers are not able to keep pace with continued consumption growth.
The low-case ANS price for FY 2005 is $40.60 per barrel; the reference or expected case is $41.75; and the high-case price is $42.90.
For FY 2006, the fiscal year beginning July 1, the department estimated a low-case price of $33.15 per barrel, a reference case price of $38.60 and a high-case price of $44. For fiscal year 2007, the low-case price forecast is $28.50 per barrel, the reference case is $34.30 and the high-case is $40.
The spring revenue forecast is available online at:
http://www.tax.state.ak.us/sourcesbook/2005/spr2005/index.asp
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