Alaska’s revenue forecast has increased by $1.2 billion this fiscal year because of higher oil prices as U.S. supplies remain tight and demand rebounds from the pandemic.
Department of Revenue Commissioner Lucinda Mahoney announced the new figures, expressing optimism about current oil prices and North Slope production trends.
Alaska oil prices are at a seven-year high, yielding larger oil royalties to the state. Mahoney projected that the state will have an additional $1.2 billion in fiscal 2022 and $1 billion in fiscal 2023, compared to earlier state forecasts.
“Recent oil prices have significantly improved our current fiscal situation,” Mahoney said, declaring the state budget outlook good for Alaska.
On Nov. 1, the oil price per barrel was $85.83, according to the state Revenue Department, when Alaska had projected $61 per barrel for North Slope production.
Federal litigation from environmental groups and financing issues by the oil companies have had an impact on production, which has been on a decline for several years.
But the strong oil prices are projected to continue for the near future, analysts predicted.
“Right now the futures market — where oil traders invest real money on the issue — tells us higher prices are here for the next couple of years, as OPEC continues to control the supply market,” Alaska energy lawyer Brad Keithley told the News-Miner Tuesday.
After that, Keithley said that oil prices may “decline significantly” as “both oil supplies and demand adjust.”
Other energy analysts are pointing to a long-term price increase from an investment slowdown in the oil supply.
Keithley said he looks at the “futures market, because it’s the result of people trading real dollars on the issue instead of just pontificating.”
“Because it involves real dollars, it’s the best tool we have at any given point of time to peer into the future,” said Keithley, publisher of “Thoughts on Alaska Oil and Gas,” an industry newsletter.
“What [the futures market] is saying right now is that either due to a supply or demand response, or a combination of both, prices will moderate.”
Will larger royalties yield a second PFD?
Some state lawmakers are calling for a second Permanent Fund Dividend payout from the higher oil royalties, which would be considered when the Legislature convenes in January.
But Fairbanks Rep. Adam Wool urged caution Tuesday.
“As for a supplemental PFD, if we have surplus monies, they should either be put in savings, since we’ve drained most of those accounts, or used for things that have been neglected,” Wool said.
He identified spending needs for ferries, school bond debt reimbursement and community assistance programs.
“We will need new revenue even if oil prices are currently high,” he said. “Oil will not be our savior for the future.”
Wool said that Alaska’s leaders need to recognize that “oil is on the decline both geologically and politically,” because of the environmental impact of burning fossil fuels.
Wool has been issuing the warning with frequency, as climate change has become a focus of the Biden administration and global leaders.
“Even if we discover more oil, the world is losing interest in burning it with abandon,” Wool said “since we’re seeing the effects on our changing climate and we cannot ignore that any longer.”