:quality(70)/s3.amazonaws.com/arc-wordpress-client-uploads/adn/wp-content/uploads/2017/11/01233107/LH20150522-Prudhoe-Bay-1117.jpg)
North Slope oil prices have reached their highest level in more than two years, but the increase may not last and the boost to the Alaska treasury will likely be limited, state analysts say.
And while North Slope oil production is also up in recent years after a long slide, Alaska still faces a $2.5 billion deficit.
The higher oil prices are "good news," said David Teal, legislative fiscal analyst, on Wednesday.
But things aren't like they were in the old days, when much more oil flowed from Prudhoe Bay and other fields, said Teal. In 1990, every $1 increase for a barrel of oil over a year's time brought $150 million extra to the state's treasury, news accounts show.
Now, every $1 increase annually brings Alaska about an extra $30 million, said Ken Alper, Tax Division director.
"It's not as responsive to price change as it once was," said Teal.
North Slope oil prices have risen about $7 since early October, as prices globally have ground higher in part from rising demand. The price of Alaska North Slope crude was $63.67 on Monday. Prices haven't been that high since June 2015.
"Every bit helps, but it's impossible to tell how long it will hold," Alper said. "There are a lot of global market forces beyond our control."
To close Alaska's huge deficit, oil must reach about $94 a barrel, Alper said.
Analysts have blamed the price collapse that began three years ago in part on increased oil production from Lower 48 shale fields. That contributed to a worldwide glut of oil, said Dan Stickel, chief economist for Alaska.
But global supply and demand for oil now appear balanced, Stickel said. And shale fields, where production can quickly increase as oil prices rise, is expected to keep a lid on those prices.
It's a "self-correcting" mechanism, Stickel said. The state expects oil prices to remain close to where they are today for several years to come, growing with inflation.
Oil companies also expect stable oil prices over the long haul. ConocoPhillips Alaska president Joe Marushack told an industry group in October that prices will remain around $50 a barrel for a "long, long time."
The state expects North Slope production to average 533,000 barrels per day in the current fiscal year, up from 501,000 barrels three years earlier.
In a preliminary report in October noting the increased production, the state boosted its revenue forecast for fiscal year 2019 by about $100 million, to $2 billion.
[Alaska expects third straight year of higher oil production.]
The increased prices and production are "good news," said Bruce Tangeman, policy director for the Republican-led Alaska Senate majority.
Perhaps oil prices will remain high enough to bring Alaska an extra $200 million a year, he said. That, and “downward pressure” on spending, could help shrink the budget gap.
Add a plan to use Alaska Permanent Fund earnings while still paying residents an annual dividend check, something both chambers have passed though differences need resolving, and the effect on the deficit could be significant, he said.
“It’s not the end-all, be-all solution but it helps our bottom line,” Tangeman said.