1. Declining North Slope Oil Production: Implications for the Alaska Economy
Scott Goldsmith
Institute of Social and Economic Research University of Alaska Anchorage
December 9, 2008
LAW SEMINARS INTERNATIONAL
Fourth Annual Conference on
New Developments for Energy in Alaska
Anchorage, Alaska

2. North Slope Oil Basic Statistics
15 Billion Barrels
Production (enough to supply total world demand for 6 months)
$378 Billion
Value of production at the wellhead (purchasing power in 2007 $)
$118 Billion
State of Alaska cumulative revenues
(purchasing power in 2007 $)
$40 Billion
Alaska Permanent Fund balance
$3 Million Per Hour
Oil and the Alaska Economy

3. Alaska Natural Resources: 2005 Market Value (Million $)
Oil $18,164
Gas $
Mining $ 1,506
Seafood $ 1,392
Timber $
Tourism $ 1,592
Value determined at point of production except for mining.

4. Indicators of Oil’s Share of Economy
NR Production value since 1867
90%
State General Fund revenues
85%
Market value of resource production
82%
Industrial property tax base
80%
Private investment spending (Direct)
60%
Gross state product (Direct)
33%
Personal income (Total)
Jobs (Total)
Jobs in Oil Sector 3%
Oil and the Alaska Economy

5. Oil and the Alaska Economy
Gedankenexperiment
Oil and the Alaska Economy

6. ANOTHER DRY HOLE AT PRUDHOE BAY Companies Say “We Give Up”
April 1, 1968
ANOTHER DRY HOLE
AT PRUDHOE BAY
Companies Say “We Give Up”
Oil and the Alaska Economy

7. Alaska: The Road Not Taken
No Production
Resource Industry Squeeze
Support Sector Squeeze
Federal Dollar Squeeze
Retiree Out Migration
A WORK IN PROGRESS
Oil and the Alaska Economy

8. Alaska: The Road Not Taken I. No Production
Oil and the Alaska Economy

9. No Production: Oil Patch Pathway

10. No Production: Oil Patch Pathway

11. No Production: Oil Patch Pathway

12. No Production: Government Pathway
STATE GOVERNMENT
EMPLOYEES
16 Thousand
$$$
PETROLEUM
REVENUE
SPENDING
PRIVATE SECTOR
JOBS
18 Thousand
LOCAL GOVERNMENT
EMPLOYEES
15 Thousand
TOTAL JOBS = 49 THOUSAND.
Assumption: All Spent Petroleum Revenues Pay for Operations.

13. No Production: PFD Pathway
2008 DIVIDEND BASICS
$3,269 Dividend
611 Thousand Recipients
$2 Billion Distribution
COMPARE 2007 EARNINGS (Billion $)
$1.4 Retail Trade
$1.6 Federal Civilian
$1.7 Construction
$1.8 Oil + Mining
$2.0 Health
$2.2 Military

14. Alaska: The Road Not Taken I. No Production
ACTUAL
OIL DISAPPEARS AND TAKES AWAY
WHAT’S LEFT
INCOME (Bill $)
$24.3 $7
$17.3
JOBS (000)
361
107
254
PEOPLE (000)
660
183
477
Oil and the Alaska Economy

15. Alaska Economic Drivers: The Foundation of the Economy
Shares of Personal Income in 2005

16. Alaska with Oil: Bigger, Richer, Healthier
Job Opportunities
Business Opportunities
High Incomes
Low Taxes
Low Prices
New People
Public services
Public Infrastructure
Business infrastructure
Consumer goods and services
Oil and the Alaska Economy

17. Alaska: The Road Not Taken II. Resource Industry Squeeze
Oil and the Alaska Economy

18. Resource Industry Squeeze: Job Growth (Thousands)
STATEHOOD 1961
2006
Change
TOTAL 10 45 35
Tourism 1 22 21
Fishing 7 17
Air Cargo - 3
Mining 2
Timber
Oil and the Alaska Economy

19. Resource Industry Squeeze: Actual and Projected Tax Burden
2004 State General Fund Revenues (Million $) from Seafood, Tourism, Mining
Actual
$112
If Oil $ Disappeared
$502
Incremental Burden without Oil $
$390
Increase in Tax Rate
4+ Times
Oil and the Alaska Economy

20. Oil and the Alaska Economy
Resource Industry Squeeze: State Government Economic Development Assistance
Tourism
Docks
Fishing
Loans
Air Cargo
Jet Fuel
Mining
Roads
Timber
Oil and the Alaska Economy

21. Resource Industry Squeeze: Other Benefits of Oil
Low Wages
Support Business Services
Oil and the Alaska Economy

22. Resource Industry Squeeze: No Oil Job Growth (Thousands)
Actual 2006
No Oil % Reduction
No Oil 2006
TOTAL 45 29
Tourism 22
30% 15
Fishing 17 12
Air Cargo 3
50% 1
Mining 2
Timber
Oil and the Alaska Economy

23. Alaska: The Road Not Taken: II. Resource Industry Squeeze
BEFORE
TAXATION AND CONTRACTION TAKES AWAY
WHAT’S LEFT
INCOME (Bill $)
$17.3
$.9
$16.4
JOBS (000)
254 20
233
PEOPLE (000)
477 35
442
Oil and the Alaska Economy

24. Alaska: The Road Not Taken: III. Support Sector Squeeze
Oil and the Alaska Economy

25. Support Sector Squeeze: Household Tax Burden Reduces Purchasing Power
34%*
$13,150 Per Capita in 2006
* Average State Income Tax Rate to Replace Oil Revenues—1970 to 2006.
Oil and the Alaska Economy

26. Oil and the Alaska Economy
Support Sector Squeeze: Smaller Market Size Purchasing Power (Billion $)
Oil and the Alaska Economy

27. Support Sector Squeeze: Petroleum Reduces Seasonality
Index of Seasonality
1968
32%
2006
12%
Percent job increase July over January.
Ratio of July to January Tourist Visitors is 10:1.
Oil and the Alaska Economy

28. Support Sector Squeeze: Cost of Living
Oil and the Alaska Economy

29. Alaska: The Road Not Taken: III. Support Sector Squeeze
BEFORE
HOUSEHOLD TAXATION AND UNSTABLE MARKETS TAKE AWAY
WHAT’S LEFT
INCOME (Bill $)
$16.4
$1.5
$14.9
JOBS (000)
233 20
214
PEOPLE (000)
442 33
409
Oil and the Alaska Economy

30. Alaska: The Road Not Taken: IV. Federal Dollar Squeeze
Oil and the Alaska Economy

31. Federal Dollar Squeeze: The Largest Federal Grants in 2007 (Million $)
MEDICAL ASSISTANCE PROGRAM $
HIGHWAY PLANNING AND CONSTRUCTION $
AIRPORT IMPROVEMENT PROGRAM $
INDIAN HEALTH SERVICES HEALTH MANAGEMENT DEVELOPMENT PROGRAM $
INDIAN HOUSING BLOCK GRANTS $
UNEMPLOYMENT COMPENSATION BENEFIT PAYMENTS $
IMPACT AID $
FOOD STAMPS $
TRIBAL SELF-GOVERNANCE $
PAYMENTS FOR EXCESS EARNED INCOME TAX CREDITS $
Oil and the Alaska Economy

32. INSERT Non Earned Income (Excluding Retirement Income)
With Oil $439 million
Without Oil $220 Million
Oil and the Alaska Economy

33. Alaska: The Road Not Taken: IV. Federal Dollar Squeeze
BEFORE
SMALLER POPULATION TAKES AWAY
WHAT’S LEFT
INCOME (Bill $)
$14.9
$1.7
$13.2
JOBS (000)
214 19
195
PEOPLE (000)
409 32
377
Oil and the Alaska Economy

34. Alaska: The Road Not Taken: V. Retiree Out Migration
Oil and the Alaska Economy

35. Oil and the Alaska Economy
Retiree Out Migration
Retirees represent $1.5 billion in spending.
Tax Free
PFD
Public Amenities
Oil and the Alaska Economy

36. Alaska.: The Road Not Taken V. Retiree Out Migration
BEFORE
ABSENCE OF RETIREE BENEFITS TAKES AWAY
WHAT’S LEFT
INCOME (Bill $)
$13.2 $1
$12.2
JOBS (000)
195 6
189
PEOPLE (000)
377 11
366
Oil and the Alaska Economy

37. Alaska: The Road Not Taken The Bottom Line
WITH
WITHOUT OIL
% DIFFERENCE
INCOME (Bill $)
$24.3
$12.2
50%
JOBS (000)
361
189
(90)
48%
PEOPLE (000)
660
366 (230)
44%
Oil and the Alaska Economy

38. Alaska: The Road Not Taken The 2/3 Rule
About 2/3 of the economic growth in Alaska since Statehood can be traced to Petroleum.
Oil and the Alaska Economy

39. Alaska: The Road Not Taken Economic Driver Job Growth (000)
STATEHOOD 1961
2006
INCREASE
TOTAL 59 74 16
Tourism 1 15 14
Fishing 7 12 5
Mining 2
Air Cargo -
Timber
Military 33 26 -7
Federal Civilian 17
Oil and the Alaska Economy

40. Alaska: The Road Not Taken Non Oil Economic Driver Shares
STATEHOOD 1961
2006
TOTAL
100%
Tourism 2%
20%
Fishing
12%
16%
Mining 3%
Air Cargo
Timber
Military
56%
35%
Federal Civilian
27%
23%
Oil and the Alaska Economy

41. Candidates for Comparison ?
Oklahoma
New Mexico
South Dakota
Wyoming
Montana
Idaho
Florida
Nevada
Hawaii
Oil and the Alaska Economy

42. Oil and the Alaska Economy

43. Maine Is Not Like Alaska
Physically attached to Lower 48
Federal land ownership 1%
Native American population 1%
Lobsters instead of crabs
Unusual accent
Presidential hangout
Oil and the Alaska Economy

44. Oil and the Alaska Economy
Maine and Alaska
Many moose
Few humans
Cold
Remote
Independent streak
Oil and the Alaska Economy

45. Oil and the Alaska Economy
Maine and Alaska
Fish / Tourism / Timber / Mining / Agriculture
Limits on sustainable harvests
Challenged by globalization
Small and declining manufacturing
Dependence on federal $$$s
Conflicting visions about use of resources
“Zero Sum Game” development mentality
Strategic development planning advice from Brookings Institution
Oil and the Alaska Economy

46. Maine Economic History in a Nutshell
Throughout the second half of the twentieth century, Maine has struggled to find a proper balance between resource-based industrial development and environmental protection.
The state has come to rely heavily on tourism, small manufacturing enterprises and defense-related activities and installations for much of its economic base.
Oil and the Alaska Economy

47. Maine Economic Performance: Some Evidence
Gross State Product per capita: 43rd (Ak 7th)
Job Growth: 66% (Ak 144%)
Population Growth: 46th (Ak 5th)
Median Age: 1st (Ak 49th)
Housing Built Before 1939: 31% (Ak 2%)
Median Paycheck: 77% as high as Alaska
Projected Population Growth = 1/3 US average (Ak 30% above)
Oil and the Alaska Economy

48. Oil and the Alaska Economy
Alaska vs. Maine Family
Oil and the Alaska Economy

49. Comparing the Average Family of 4
MAINE*
ALASKA
Wages
$55,641
$72,750
State Taxes
-$7,077 $0
Dividend
$6,800
Public Spending
$29,995
$49,064
TOTAL
$78,560
$128,614
Difference
+$50,054
* Adjusted for lower cost of living in Maine.
Oil and the Alaska Economy

50. Oil and the Alaska Economy
Actual Performance Since 1990: Jobs vs. Oil Production (Index: 1990 = 1)
Oil and the Alaska Economy

51. Confounding The Paradox ?
104 thousand jobs added
99 thousand are “Support”
5 thousand “Basic”
New Basic jobs are lower wage (tourism) replacing higher wage jobs in Timber and Federal Government
Oil and the Alaska Economy

52. Explaining The Paradox
Federal $$
Military Expansion
Petroleum Revenues
Retirees
Air Cargo
National Economic Boom
Increased Labor Intensity of Petroleum Production
Anticipation of Gas Line, OCS, etc.
Support Sector Catching Up
Wealth Accumulation
Oil and the Alaska Economy

53. Oil and the Alaska Economy
Federal $ Juggernaut
Oil and the Alaska Economy

54. Wealth Creation: Business and Public
Oil and the Alaska Economy

55. Wealth Creation : Households “Son of the Permanent Fund” Fund
$35 Billion
Oil and the Alaska Economy

56. Oil and the Alaska Economy
The Economic Future of Alaska: 50 Years of Statehood Has Not Changed the Challenges
Oil and the Alaska Economy

57. Alaska Natural Resources: 2005 Market Value (Million $)
Oil $18,164
Gas $
Mining $ 1,506
Seafood $ 1,392
Timber $
Tourism $ 1,592
Value determined at point of production except for mining.

58. Oil and the Alaska Economy
Petroleum Resources for a Sustainable Economic Future (Billion Barrels of Oil)
Production History:
North Slope
Cook Inlet 1.3
Reserves Today:
Central North Slope 5.9
Cook Inlet
Potential Additional Reserves
(Technically Recoverable—USGS, MMS):
ANWR
NPRA
OCS
Central North Slope 4
Oil and the Alaska Economy

59. Oil and the Alaska Economy

60. Resource Curse: Some Symptoms
Corruption
Rent Seeking
Entrepreneurial Decline
Overheating Economy
Economic Distortions
Public Sector Overexpansion
Mismanagement
Underinvestment
Oil and the Alaska Economy

61. Declining North Slope Oil Production: Implications for the Alaska Economy
Scott Goldsmith
Institute of Social and Economic Research University of Alaska Anchorage
December 9, 2008
LAW SEMINARS INTERNATIONAL
Fourth Annual Conference on
New Developments for Energy in Alaska
Anchorage, Alaska