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Plunging oil prices, coronavirus fuel budget crisis in petroleum-rich Alaska
Trump: Rising oil prices are great for industry, jobs
President Trump connects rising oil prices to more U.S. jobs.
Plunging oil prices have taken a devastating toll on the economy of Alaska, one of the last American territories to gain statehood and among the most sparsely populated, at the same time its leaders grapple with the COVID-19 pandemic that has shut down businesses and slashed employment nationwide.
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Initial jobless claims in the state that dubbed itself America's last frontier have surged to more than 70,000 in the six weeks through April 25, up from just 5,000 a year ago. A large portion were in the oil and gas industry, where “stay-at-home” orders aimed at slowing the spread of COVID-19 zapped global demand by as much as 30 million barrels per day, forcing producers to cut output and lay off workers.
It was a harsh blow, given that oil and gas are responsible for about 16 percent of state revenue and tied to 77,000 jobs with $4.8 billion of wages a year. Industry laborers — about 30 percent of whom are non-Alaska residents – make an average of $148,000 annually, or 2.7 times the state's typical wage earner.
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The worst isn't yet over. Production cuts following a truce in the price war between Saudi Arabi and Russia have only just begun, and stockpiles are not only still increasing, they're nearing the capacity of storage facilities to contain them.
"Our oil industry has just been brought to its knees because of the price issues," Alaska Sen. Lisa Murkowski, a Republican, said on a call with reporters Friday.
The state's number-crunchers predicted in early April that oil revenue would drop by $527 million, to a level of nearly $1.1 billion, as long as Alaska North Slope crude averaged $51.65 a barrel in the last two months of Alaska's fiscal year, May and June.
The impact now seems likely to be harsher. The Department of Revenue predicts income could be down at least an additional $100 million, following a sharp drop in prices after the earlier report was published.
Alaska’s oil revenue comes from a production tax, corporate income tax and royalties, and every price change of $1 per barrel causes a $25 million swing in unrestricted revenue, as long as production holds steady.
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While 2020’s final reading is difficult to gauge due to the sharp drop in oil prices and changes in production levels, the Department of Revenue projects oil revenue in fiscal year 2021 — which begins in July — will fall to $716.6 million.
The state’s forecast assumes a price of $37 a barrel for Alaska North Slope crude and production of 512,430 barrels per day. On Friday, the statewide production forecast for 2021 was lowered to 479,729 barrels.
Oil is a “huge” part of the Alaskan economy, Gov. Mike Dunleavy told FOX Business.
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“We had a renaissance going on here prior to this pandemic and the Saudi-Russian price war,” he added, pointing to billions of dollars of new investment, which was expected to raise production to 775,000 barrels per day, and the discovery of millions, if not billions, of barrels of oil.
Twenty years ago, Alaska’s prized wells were the crown jewels of North America, pumping out 2 million barrels per day. Now they are producing 500,000 barrels, less than 20 percent of their 2012 peak.
The price of the crude produced has plunged 67 percent to $22.38 per barrel this year. Last month, it briefly dipped below zero before rebounding to about $17.