The 40-year free ride is done. Falling oil prices and production have left Alaska with a headache that won't fully go away even if petroleum rebounds.
The consequences of the sharp drop in oil prices are not limited to North Dakota, Texas and other Oil Patch states in the Lower 48. Alaska has fallen into recession, with gross domestic product declining since 2012 and unemployment stubbornly high.
The problems of the state’s oil dependency go beyond prices falling from more than $105 a barrel in June 2014 to around $37 today. Like many huge elephant fields around the world, Prudhoe Bay is well past its peak. From 2 million barrels a day in the mid-1980s, Alaska’s output has fallen to 500,000.
“Drill, baby, drill” doesn’t provide a solution when oil prices are so low and the elements make offshore drilling so risky and expensive, as Shell found to its grief.
As a Bloomberg story put it, “The 40-year oil boom that turned Alaska from a frigid backwater into one of the nation’s richest states is over.”
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The Puget Sound region has an economic relationship with Alaska going back to the Klondike gold rush of the 1890s. According to the Northwest Seaport Alliance, terminals at Seattle and Tacoma handle more than 80 percent of containerized ocean shipments between Alaska and the Lower 48, as well as other cargo. Alaska waters are critical to Puget Sound fishing fleets. And of course Alaska Airlines operates an extensive network there.
For Alaska, the situation is forcing measures once thought impossible. To close a $4 billion budget deficit (nearly as large as the total state budget itself), independent Gov. Bill Walker and lawmakers are proposing to raise taxes, cut oil subsidies and scale back or eliminate the distribution of earnings from the Permanent Fund, funded by oil royalties. According to Bloomberg, in 2015 the fund paid out $2,072 to each Alaskan.
From the larger picture — climate change — the price collapse has kept much carbon in the ground, at least in the short term. But oil-dependent places are hurting and the Northwest is not immune.
Today’s Econ Haiku:
Drive on, drive on, pay no mind
To what lies beneath