The department raised its predictions on oil prices for the next three years in its regular spring forecast released Tuesday, a month earlier than usual. The announcement included key predictions on oil prices and production. A complete forecast is due in April.
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Revenue Commissioner Bill Corbus said he is releasing the numbers early so legislators can use the forecast while they craft a new oil tax system and get a head start on drafting a budget.
"It's always better to have more complete information before making decisions," said Rep. Bill Stoltze, R-Chugiak.
In December, the department predicted the state's surplus would be near $1.2 billion. The difference comes from a $1.42 increase in their new projection for the average price of oil at $58.72 per barrel.
A rise in the demand for oil in China and political uncertainties in the Middle East and Africa led the department to project a higher price, Corbus said.
In a written statement, Gov. Frank Murkowski said he favors using the additional surplus for a down payment on building a natural gas pipeline with producers. The line could cost up to $25 billion.
While the administration is negotiating with producers to sign a contract to start construction, the governor is advocating for 20 percent ownership of the project and has requested $400 million from this year's budget go toward the investment.
Legislators from both sides of the aisle are suggesting other options, such as saving half of the surplus. Rep. Eric Croft, D-Anchorage, said spending has grown out of control.
"It's kind of like a frenzy of sharks swimming in a circle," and adding surplus money is like dropping a hunk of meat in the middle of them, said Croft, who is running for governor.
The department also said Alaska North Slope oil prices will decline in the next fiscal year to $53.60 per barrel, and to $46.90 per barrel in fiscal year 2008. Last fall's forecast put those numbers at $49.20 and $40.95.
Over the long term, starting with fiscal year 2009, the department still forecasts the price of oil will be $25.50. But that prediction was made some two years ago and is due for an update this fall, said the department's chief economist Michael Williams.
A drop in prices is expected because of the cyclical nature of the market, he said.
Legislators are trying to create a new tax system that would collect more money when oil prices are high, instead of the current system that taxes production. The new plan would be a watershed moment for Alaska as it could bring in up to $1 billion more in revenue. Experts say the net-profits tax would make less money than the current system if oil is lower than $27 a barrel.
"I don't think it sounds realistic, but I think it sounds scary," said House Resources Co-Chairman Jay Ramras, R-Fairbanks. After listening to two weeks of testimony on oil markets, he said the average will probably stay between $40 and $60 a barrel.
"There's some people in this building who think it will be at $80 a barrel," Ramras said.
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