The ups and down of Alaska job growth

A selection of new projects are driving employment to record highs, but inherent limitations keep Alaska behind other states

Eric Lidji

For Petroleum News

It can be hard to make sense of oil and gas industry employment in Alaska.

The industry has reported record employment levels almost every year since 2006 and as of April 2013 direct employment stood at a high of 14,100 jobs. But the steady increase in jobs came as oil production fell just as steadily over the same time period. The rise in employment generally followed a similar rise in oil prices, except that a sharp drop in oil prices during the early days of the recession barely dented the steady growth in employment.

For all its economic power, the core industry comprises just 4 percent of statewide employment. Alaska is currently responsible for some 8 percent of total domestic oil production, but employs less than 3 percent of all U.S. oil workers. And while oil industry employment is growing in Alaska, it is growing slower than in other states.

A new analysis from the Alaska Department of Labor and Workforce Development suggests these discrepancies are systemic, resulting from two factors unique to Alaska: exceptionally large fields located in an exceptionally remote corner of the country.

These factors undermine what has appeared to be a neck-and-neck tie between Alaska and North Dakota industry employment, and suggest North Dakota will almost certainly be home to many more jobs than Alaska as the oil industry there begins to mature.

A few big fields

The discovery of the Swanson River field in the Cook Inlet basin helped secure statehood for Alaska and the discovery of the mammoth Prudhoe Bay field on the North Slope a decade later gave the young state the financial wherewithal to ensure it could survive.

With the industry focused largely around a single large field in its early years, employment boomed and busted based on the life of Prudhoe Bay: swelling during the construction on the trans-Alaska oil pipeline and shrinking after the project was done.

All fields require a certain number of workers for basic tasks, and as such a large field typically employs fewer people per barrel than a small field, according to the analysis.

Even though the industry has brought several fields online in the decades since discovering Prudhoe Bay, they have all been large by industry standards. By some counts, 10 of the 50 largest oil fields in North America are on the North Slope.

The current increase in employment can largely be attributed to new activity from Pioneer Natural Resources, Eni Petroleum, ExxonMobil, Shell and the many smaller companies in Cook Inlet, but even with all those new fields and all that new exploration, Prudhoe Bay still accounts for some 45 percent of total state oil production.

By comparison, most oil producing states have a mix of field sizes, including stripper wells that produce less than 10 barrels per day, but still require some employment.

In states where smaller fields are economic, the industry is less consolidated.

Some 117 oil and gas establishments called Alaska home in 2011, and only a handful of those actually drilled wells. By comparison, Louisiana had 1,788 establishments that year. And Oklahoma, a state with less than half as much production as Alaska, had 3,092.

Marginal economics

“If Alaska’s oil fields were not as remote, employment would be considerably higher,” Department of Labor Economist Neal Fried wrote in his analysis. “Oil fields considered marginal or not economically feasible would be economic if they were less remote.”

This remoteness impacts the Alaska oil industry in other ways, too.

For instance, Fried notes, most oil and gas industry jobs in Alaska exist solely to produce oil and gas in Alaska, whereas many industry jobs in Texas, Oklahoma and Louisiana involve management and research for big companies working in other states or countries.

This is why Texas employs 17 times as many oil industry workers as Alaska, even though the state is responsible for only four times as much oil production as the Last Frontier.

And because Alaska is so far from the markets it serves, the industry is primarily an upstream endeavor. The few long pipelines snaking across the North Slope and the single pipeline down through the state to Valdez barely compare to the thousands of miles of pipelines crisscrossing the Lower 48, and the handful of Alaska refineries mostly serve local needs.

In 2012, the six Alaska refineries handled 385,000 barrels of oil per day, while the 19 Louisiana refineries handled 3.2 million barrels per day, 2.5 times as much per facility.

The remoteness impacts the workers, as well as the work. The non-resident workforce in the Alaska oil industry has hovered between 26 and 31 percent for a nearly a decade.

Look out for North Dakota

As of 2011, the North Dakota oil industry produced some 242 million barrels of oil and employed 14,926 people, some 15 to 18 percent higher than Alaska figures that year.

The 37 percent job growth in the Alaska oil industry in the past decade is good for the state, but well below the 62 percent growth in the industry nationally, although still above Louisiana and California, two other states where production fell over the past 10 years.

But those states also have established industries. In North Dakota, oil industry employment jumped 557 percent over the past decade, as improved technologies opened up previously uneconomic formations and companies began leasing land and drilling wells.

These technologies have also boosted oil production in Texas and natural gas production in Louisiana, but have yet to impact Alaska production to any considerable degree.

A source rock development such as the one being pursued by Great Bear Petroleum could bring those increases to Alaska, but whether and when it ever will remains unknown.