State mulls shutdown options

Alaska has funds for two to four months without Prudhoe pipeline

Posted: Tuesday, August 08, 2006

Alaska has a cushion of two to four months, state officials estimate, before it faces major financial setbacks from a Prudhoe Bay oil supply shutdown.

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North Slope oil producer BP this week is shutting down a number of badly corroded transit pipelines discovered over the last few days. In reaction to news of the looming North Slope oil squeeze, West Coast oil prices jumped more than $2 per barrel Monday.

Alaskans already were wincing over their pocketbooks and wondering Monday if the state would cut spending. Nearly 90 percent of the state's revenue comes from oil production in Alaska.

The state does not face an immediate deficit because oil prices so far this year have been 25 percent higher than originally forecast, said Tom Boutin, a spokesman and deputy commissioner for the Alaska Department of Revenue.

That has kept anxiety levels from hitting fever pitch so far at the Capitol.

"My panic level is very low. I am in the concerned mode," said Senate Finance Co-chairman Gary Wilken, R-Fairbanks.

This year's high oil prices equate to a $200 million state budget surplus, which will prevent the state budget from dipping into the red for 60 days, according to revenue department calculations.

Some people noted the timing of the pipeline shutdown with negotiations for a North Slope gas pipeline contract.

"My first thoughts were, 'Gee, that's kind of strange timing,' " said Juneau's David White.

BP and other major North Slope producers have been pressuring the Alaska Legislature to approve the governor's proposed pipeline contract. The controversial contract would give the state a new source of revenue.

White said he is anxious about further leaps in oil prices.

"My next thought: There's no doubt that gas prices are going to rise," said White, a state worker.

The shutdown of much of Prudhoe Bay's oil production will likely last for weeks or months, resulting in $6.4 million per day of delayed revenue to the state, according to the revenue department.

The state will have to make careful plans for a potential shortfall, Wilken said.

"We don't want to yell fire here, yet. We have a lot of options. Hopefully we can do it without affecting services to Alaskans," Wilken said.

The revenue department defines the North Slope shutdown as "a postponement of state income, rather than a loss," Boutin said.

"It's not as if the oil is evaporating. ... The petroleum is still there," Boutin said.

On Monday, the Alaska Capitol was buzzing with talk about the pending Prudhoe Bay oil shutdown. BP executives met with legislators to convey their apologies.

As of Monday, legislators and Murkowski administration officials had not begun discussing in public how they'd make up for a potentially severe state budget shortfall in 2007.

"I think people are still assessing that," said Sen. Kim Elton, D-Juneau.

"The two pieces we are all missing is how much and how long," Wilken said.

If there are budget cuts, "that's an executive decision," he said. Gov. Frank Murkowski could demand state spending freezes, he added.

There are other options available - the Legislature socked away $650 million in savings in 2006 for future spending.

And there's the $2.3 billion Constitutional Budget Reserve, which the Legislature can dip into when the spending is approved on a three-quarters majority vote.

The Legislature has a more optimistic outlook than the Department of Revenue on the length of the state's budget cushion.

Based on current oil prices, the budget surplus is $800 million and will keep the state in the black for 120 days, according to the Legislative Finance Division.

BP officials said Monday that they didn't know yet how long it will take to replace corroded lines.

• Elizabeth Bluemink can be reached at

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