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Oil & gas makes one third of AK economy New McDowell report indicates that the industry directly and indirectly creates 104,000 jobs and $6 billion in wages in the state Alan Bailey Petroleum News
In 2016 spending by oil companies operating in Alaska created about 104,000 total jobs and $6 billion in wages, both directly and through taxes and royalties paid in the state, Jim Calvin, owner and managing principal with the McDowell Group, told the Alaska Oil and Gas Association’s annual conference on May 31. That amounts to about one-third of the entire Alaska economy, Calvin said. Calvin was presenting the results of a new report by his company into the role of the oil and gas industry in the state’s economy.
The 2016 figures compare with the 111,000 jobs and $6.4 billion in wages that the McDowell Group had assessed for 2013 in its last report on the same topic. Jobs and wages associated with the oil industry peaked in late 2014 and in 2015, before dropping sharply in response to the plunge in the price of oil. Between 2015 and 2016 Alaska saw a net job loss of about 6,500, about 2 percent of the employment base, Calvin said. But during that time there was an addition of about 1,300 health care jobs and 300 to 400 jobs in the visitor industry. Thus, the gross job loss associated with oil and gas would have been closer to 7,500 to 8,000. And further decline is expected, with the latest data for 2017 showing continuing job losses, Calvin said.
Primary companies In conducting its analysis the McDowell group started by gathering data about spending in Alaska by what it refers to as the 14 primary companies in the state’s oil and gas industry, companies that include the main oil and gas producers and explorers, as well oil refiners and the company that operates the trans-Alaska oil pipeline. A broader definition of the industry also includes the oilfield service companies that these primary companies use. Money flows through the Alaska economy as a consequence of direct employment by the primary companies, as a consequence of money paid by these companies to Alaska businesses for services rendered and as a consequence of taxes and royalties that the primary companies pay to the state and to local governments.
In 2016 the primary companies directly employed about 5,000 people in Alaska, with these people earning a total of about $750 million in wages. The primary companies spent $4.6 billion in obtaining services from around 1,000 Alaska vendors. The total impact of all of this was the creation of a total of 45,575 jobs in the state and $3.1 billion in wages.
Taxes and royalties But in 2016 the primary companies also paid $1.6 billion in taxes and royalties, and $447 billion in property taxes to local governments. Tax and royalty money may not be spent instantly, with some flowing through multi-year capital projects or being invested in the state’s Permanent Fund. However, taking account of this blurring of expenditure over time, the McDowell Group estimated that oil industry taxes and royalties generated 58,300 jobs and $2.9 billion in wages in 2016. State agency operations accounted for 19,500 of these jobs; state programs, including education and Medicare, accounted for 19,600 jobs; capital expenditure accounted for 10,400 jobs; Permanent Fund distributions for 4,200 jobs; and local government activities for 4,600 jobs.
Adding up all of the numbers leads to that estimate of some 104,000 jobs and $6 billion in wages thought to have resulted from the activities of the oil and gas industry in Alaska.
Looked at from another perspective, the 104,000 jobs broke down into 4,275 jobs with the primary companies, 6,095 jobs with oilfield service companies, 35,205 indirect jobs induced by oil industry spending and 58,300 jobs related to oil and gas taxes and royalties.
“The oil and gas industry accounts for more wages than seafood, mining and tourism combined,” Calvin said. “All of these primary (oil and gas) companies are at the heart of this giant economic footprint.”
Multiplier effects Economists often talk about the multiplier effect, the manner in which one primary job results in the funneling of money into an economy and thus generating a multiple number of other jobs. In terms of the impact of the oil and gas industry on the Alaska economy, each of the jobs with the primary companies appears to drive nine jobs across the entire economy. The multiplier for the whole industry, taking into account the number of jobs in both the primary companies and the oilfield service companies, is closer to four.
That multiplier of four would be the appropriate factor to use when estimating the potential total impact on Alaska employment of a new project, such as an oil and gas exploration program or a development program on the North Slope, Calvin suggested. That is still double the multiplier that applies to any other industry in Alaska, he commented.
But these multipliers relate to short-term impacts on employment levels. Looking at the longer term, say over 10 to 15 years, the multiplier for total private and public sector jobs relative to jobs in primary oil and gas companies is around 20, Calvin said.
Uneven impact However, the impact on different regions of the state of employment driven by the oil and gas industry is uneven.
Anchorage, the state’s commercial hub, accounted for 28,000 of the jobs and $1.9 billion in wages in 2016. That represented 15 percent of total jobs and 16 percent of total wages in the city. The Kenai Peninsula, a region where the oil and gas industry is active, saw 5,000 jobs and $400 million in wages derived from the industry, with oil and gas companies particularly prominent in the Kenai Peninsula Borough’s property tax revenue. The North Slope Borough, where the North Slope oil fields are located, saw 1,845 jobs and $105 million in wages related to the oil industry. The borough obtained 97 percent of its property tax revenues from the industry.
Other places enjoying significant oil and gas impacts consisted of the Fairbanks North Star Borough, the Mat-Su Borough and the city of Valdez. In 2016 Fairbanks saw 2,960 oil and gas derived jobs and $1.9 billion in wages; Mat-Su saw 3,270 jobs and $287 million in wages; and Valdez, home of the Valdez marine oil terminal, saw 680 jobs and $71 million in wages.
In summary, Calvin stressed the importance to the Alaska economy of spending by the oil industry on oil and gas exploration, development and facility renewal.
“A healthy oil and gas industry economy is a healthy Alaska economy. A weakened oil and gas industry is a weakened Alaska economy,” he said.
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