Slumping oil prices means widened budget gap

Alaska oil prices hit their lowest mark since 2010

Alaska oil prices are dropping. Last week they hit a low not seen in four years. With Alaska’s budget wedded to oil revenue, the trend will impact the state’s bottom line.

 

Prices came in at $82.82 per barrel Oct. 16, and since then have perked up to $83.09, the most recent price point in a steady slump that began in August. Before then, prices had been level for several years, hovering in the low-$100 range, and starting the current fiscal year at a healthy $111.56 per barrel. In June, prices hit $113 per barrel, the highest in nine months. 

Just four months later, a barrel of oil is $30 cheaper. It was in October 2010 that Alaska last saw its oil selling for so little, three years after Alaska’s Clear and Equitable Share, or ACES, was enacted by the Legislature.

This fiscal year’s state budget is based on an oil price of $105.06 per barrel, Gov. Sean Parnell spokeswoman Sharon Leighow said in an email. Of the $4.5 billion budgeted in general fund unrestricted revenue, 85 percent of that, or $3.94 billion, was expected to come from oil revenue.

Alaska was already expecting to draw $1.34 billion from its reserves this year to supplement general fund spending and balance the budget. The state won’t know how that number will change because of low oil prices until the Department of Revenue releases its fall revenue forecast and Parnell releases the fiscal year 2016 budget, Leighow said.

Increased oil production worldwide and flat demand has pushed Alaska prices lower and lower in recent months. Unfortunately, there’s nothing the state can do about it.

“The State is a price taker in the world oil market,” Leighow said. “In other words, Alaska cannot influence the price of oil on the world market. Recognizing this, the primary strategy Alaska employs is to recognize and anticipate there will be fluctuations in price, both on the up and the down side. The strategy is to build reserves during periods of higher prices so that State government services can be maintained during periods of lower oil prices.”

It isn’t all about price per barrel. The volume of oil produced also plays an important role in the budget, she said. If SB21 does what it’s supposed to, the state’s oil revenue will be up regardless of price per barrel because of increased production. If SB21 had been repealed earlier this year, Leighow said, low oil prices would impact the state’s budget much more. 

“At all prices below $110 per barrel, MAPA (More Alaska Production Act, or SB21) generates more revenue than ACES would,” Leighow said. “For example, at $80, MAPA generates an estimated $210 million more than ACES, which is almost  9 percent more revenue than the State would have collected under ACES.”

• Contact reporter Katie Moritz at 523-2294 or at katherine.moritz@juneauempire.com. Follow her on Twitter @katecmoritz.

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