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BP in Alaska: North Slope oil yields economic benefits University of Alaska economist describes how North Slope oil transformed Alaska’s economy Frank Baker For Petroleum News
The success of BP and its partners in optimizing North Slope oil production for more than three decades spurred an economic bonanza in Alaska that has also benefited the nation, providing about 15 percent of the U.S. domestic oil production for most of that time period. North Slope oil production has reduced the cost of foreign imports by hundreds of billions of dollars, significantly improving the U.S. balance of trade and strengthening the national security.
University of Alaska economist Scott Goldsmith, with the Institute of Social and Economic Research, compiled a report in spring 2008 detailing the economic impacts of the North Slope oil industry. In 30 years, the North Slope has produced 15 billion barrels of oil, according to his research. That volume tallied up to $378 billion — in 2007 dollars — based on value at the wellhead. That would equal 5,400 of BP’s Anchorage high-rise headquarters, based on a recent tax assessment of $70 million.
And North Slope oil has landed $118 billion in cumulative revenue to the State of Alaska, Goldsmith cited, generating about 80-85 percent of the state’s general fund revenues for nearly three decades. In fiscal year 2007, that figure was 87 percent. These revenues also helped build Alaska’s savings account, its Permanent Fund, which is shared by all of Alaska’s permanent residents in the form of an annual dividend check. In mid-summer 2008 the fund was valued at $36 billion.
Without Alaska’s oil industry:
This massive infusion of petro-dollars means Alaska’s other industries have been able to enjoy a very light tax burden, Goldsmith says. Also, without the oil industry, Alaska’s other main economic sectors like fishing and tourism would be less competitive internationally.
They would lack infrastructure purchased with oil-industry-infused state funds.
The Alaska oil industry also helps stabilize the state’s work force year-round, so that the labor market isn’t skewed by seasonal jobs. The oil sector adds high-paying jobs, Goldsmith points out. The oil industry registers the highest wage average in Alaska — a monthly wage of about $12,737 — roughly 3.5 times higher than the statewide average.
One of the most striking developments in Alaska’s private economy has been the creation of a vibrant, Alaska-owned and Alaska-based oil services industry. Drilling companies, service companies and contractors owned by Alaska firms today employ most Alaskans working in the industry.
Economists like Goldsmith estimate that over the years, petroleum directly and indirectly has accounted for about a third of Alaskans’ jobs and gross state product.
Quality of life improvements Over the past half century Alaska has grown as a state and the lives of its citizens have improved dramatically, from the most northern community of Barrow to other population centers across the state.
North Slope oil has not only led to infrastructure improvements to facilities across the state, such as schools, hospitals, roads, airports, docks, bridges, shopping centers and cultural facilities. It has also lifted a huge income tax burden from the shoulders of Alaskans. The state repealed its income tax in 1980 amid oil industry payouts to the government, and has never reinstated it.
Goldsmith estimates Alaskans would have had to pay an average of 34 percent in personal income tax — since 1970 — to generate the same amount of state revenue for the general fund as the petroleum industry.
Energy for the future Phil Budzik of the U.S. Energy Information Administration notes that North Slope oil amounts to 15.4 billion barrels produced through 2006, and another 6 billion barrels is currently expected to be produced, not counting new discoveries.
“All of these Alaska North Slope developments, both past and future, pivoted on the development of Prudhoe Bay,” he said. “In other words, without Prudhoe Bay, North Slope oil and gas production wouldn’t have taken place.”
Budzik estimates Prudhoe Bay natural gas resources at 23 trillion cubic feet — one year’s worth of total U.S. gas consumption.
“Prudhoe Bay natural gas resources will be the anchor field for the development of a 4.5 billion-cubic-feet-per-day pipeline to the lower 48,” Budzik said. “Development of Prudhoe Bay as an oil field paved the way for development of a natural gas pipeline.”
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