In early December, RDC jointly sponsored a luncheon in Anchorage entitled, The Politics of the Economy, featuring University of Alaska economist Scott Goldsmith, Northrim Bank’s Chairman Marc Langland, and former Representative Ralph Samuels of Holland America Line. The luncheon was well attended and provided a detailed and realistic view of Alaska’s economy.

In the opening presentation, Goldsmith built the foundation, pointing out that those activities which bring new money into Alaska are what drives the economy. He said the picture is quite simple – one third of jobs and income can be traced to the development of our traditional resource industries such as fishing, mining, timber and tourism. One third of our economic activity depends on dollars flowing into Alaska from the federal government, and one third of the jobs and income depend on the oil industry. He said other sectors such as construction, banking, and health care are heavily dependent on inflow of dollars from one of these drivers.

Basically, if you work for a bank or grocery store, one third of your coworkers have jobs because of Alaska’s traditional natural resources, one third because of the federal government, and one third because of petroleum, Goldsmith noted.

While acknowledging the importance of traditional natural resources and federal spending to the economy, Goldsmith said Alaskans tend to underestimate just how much petroleum means to Alaska. Given nine out of ten of us were not here before petroleum, Alaskans have little collective memory of the difference petroleum has made, Goldsmith asserted. He also noted our attention has been diverted by the run-up in the price of oil and other commodities, a decade long boom in federal spending and a booming U.S. economy.

So how important is petroleum?

The easiest way to understand petroleum’s role, Goldsmith suggested, is to think of what would happen if an atom bomb went off under Prudhoe Bay, rendering all the oil and gas radioactive and un-saleable. Over 40,000 jobs directly and indirectly related to exploration, production, and transportation would disappear. The large share of government jobs funded by petroleum revenues, plus many private sector jobs dependent on public spending would disappear, leaving an additional 50,000 Alaskans without employment. The boost from the Permanent Fund Dividend would soon disappear. Altogether one-third of all jobs would be gone.

But Goldsmith said this is only part of the story of petroleum’s importance, given the industry has generated spinoff benefits for our other economic drivers, helping them grow, and for the rest of the economy as well. In fact, if we account for these spinoffs, about two-thirds of the growth of the economy since statehood can be traced to the petroleum industry, Goldsmith said.

So what would we look like today without the growth from petroleum? Growth would have come from our other resource industries. Most jobs would come from tourism – a highly seasonal sector – and the federal government, but the economy would be half its current size.

Alaska would look today a lot like it did at statehood – small, thin, seasonal, poor, and dominated by the federal government, Goldsmith said. He suggested it would look a lot like Maine – a state that perennially ranks near the bottom for economic vigor.

The Alaskan economist also reminded those attending the December luncheon that nearly the entire state general fund operating budget has been financed by petroleum revenues for 30 years.

Oil production has largely sustained Alaska’s economy for 50 years, with production peaking at over two million barrels per day in 1989. Petroleum has the potential to sustain the economy for another 50 years, with six billion barrels in reserves remaining on state lands and perhaps 50 billion barrels under federal lands and the Outer Continental Shelf. Natural gas and heavy oil would bring additional activity and revenue. But production today is only one-third its peak and it is becoming more challenging to squeeze each additional barrel of oil out of the ground.

Langland and Samuels both urged Alaskan policymakers to address the declining production curve on the North Slope and make the right policy calls to encourage the billions of dollars in private sector investments needed to reverse the decline.

Samuels pointed out that with an annual five percent decline in production, oil prices will need to rise to about $95 a barrel within the next five years to balance the state budget. As production declines further, higher oil prices well over $100 a barrel will be necessary to offset the decline and balance the budget.

Langland warned that without oil and gas, we don’t have the ability to have a vibrant economy in Alaska. He pointed out that the industry is global and Alaska must change its approach to compete for capital investment. He urged state lawmakers to adopt policies that recognize and mitigate the higher costs and risks of doing business in Alaska to ensure the state can compete for capital in global markets.

As we look into our future, we need to consider how much our economy will continue to depend on petroleum. It’s in everyone’s interest to get more oil and gas out of the ground and more oil into the pipeline. Alaska businesses and residents can continue to benefit from high wages, low taxes and public expenditures.

There are significant petroleum resources yet to be produced and discovered in Alaska, but we must attract the level of investment needed to find and produce more oil and build a pipeline to take our gas to market. In turn, the federal government will need to provide access to new, prolific energy frontiers – both onshore and offshore.

The trio of speakers agreed that Alaska policy makers must devote additional attention to the development of and investment in our petroleum resources. They concluded this is the best single strategy for the continued economic prosperity of this state. For those who were not able to attend this forum, we invite you to visit RDC’s web site at www.akrdc.org where videos of each of the presentations have been posted.

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