A look forward at Alaska’s economic prospects

I was in Fairbanks a couple of months ago having a beer with Mouhcine Guettabi, economist at the University of Alaska Anchorage's Institute of Social and Economic Research. We were in the Interior as part of Northrim Bank's annual presentations on the state's economic condition for community leaders. Mouhcine and I were musing about what it will take to jerk Alaska's economy out of its slump, which is now in its third year.

The standard view among those of us who write about the economy, which includes myself and Mouhcine, is that the employment decline will bottom out soon and things will gradually improve. That happened after the severe 1980s recession, similarly caused by an implosion of oil prices. The cycle took about three to four years from downturn to the tip up.

But in 1989, the trans-Alaska oil pipeline was still full and North Slope oil activity was strong (although it was affected too by the 1986 price crash). But we also had the Exxon Valdez oil spill cleanup pumping several billion dollars into the economy.

Let's not wish for another catastrophe to regenerate growth, though I remember Alaskans in the 1960s sharing the grim joke that whenever the economy sputtered, as it did often in those days, disasters happened — the 1964 earthquake; the 1967 Fairbanks flood — to bring in a surge of reconstruction cash.

But after downing a couple of brews, Mouhcine and I couldn't think of what might happen this time to cause jobs to start growing again. We could certainly see losses leveling — but what, realistically, might spark an upturn?

Many Alaskans put faith in new oil finds in the Arctic National Wildlife Refuge, where preparations for leasing are underway. Others see an upturn in North Slope oil work, propelled by new discoveries and rising oil prices.

To be realistic, ANWR's potential is indeed there, but it's likely a decade away, and exploration could always yield dry holes. There's no guarantee. As for higher oil prices, those will help our state budget a bit and will make North Slope explorers more confident, but the near-term effects will be modest, more a strengthening of the jobs we have now.

There are some big oil projects pending, like a possible new ConocoPhillips production center for Willow, a new North Slope discovery and a plan by Point Thomson field owners ExxonMobil and BP to build a pipeline to bring gas to Prudhoe Bay to repressurize the field to produce more oil. These haven't been approved yet for construction, and even if they are the jobs are several years away. Ditto with other developments like the pending Pikka project by Oil Search and Repsol and Caelus Energy's promising find at Smith Bay, which needs more exploration. These are not yet sure things.

What I advise people is that given development of what we know now — the sure bets — we can probably assume stability in the oil workforce for the next few years and stable production through the oil pipeline.

The same can generally be said for the state budget. We crossed a big psychological barrier this year when the Legislature agreed to use a portion of the Alaska Permanent Fund's ample earnings to help fund the budget. We're not out of the woods on this yet because there's still a deficit, but we're on the right track.

Many business leaders feel that when we get our state's fiscal house in order we'll see enough confidence to spur new investment. I hope this happens, but we're not there yet.

Our recession can mainly be traced to the loss of thousands of well-paid oil and state jobs and the money that this took out of the economy.
There are positives, of course. Tourism is showing growth and that's great, but the effects are seasonal and modest. These jobs don't replace oil and state employment. Seafood is a great industry with big positives for coastal communities, but it can be cyclical.

Our producing mines, few as they are, are doing well and support good payrolls, but we need more of them. The growth in health care is a positive but it's also a puzzle to economists, who can't figure out what's really driving it. Our aging Alaska population and expansion of Medicaid explains some of this, but not all. When the experts can't explain the growth, we have to wonder how stable this is.

So back to Mouchine and I musing in Fairbanks: Alaska's economy will always be based on its natural resources, we agreed, and things we thought of that could nudge the needle in the near-term include two large new mines.

These are Donlin Gold on the Kuskokwim River, owned by Barrick Gold and NovaGold Resources, and the Livengood gold project north of Fairbanks, a project of International Tower Hills Mines, Ltd. Donlin Gold would be a $6 billion-plus project that would have beneficial ripple effects across Southcentral Alaska. Livengood would similarly be big for Fairbanks — like a second, but bigger, Fort Knox Mine. Those projects would bring in a slug of new cash. Donlin would be great for Southwest Alaska, a region long economically depressed.

There's also Pebble, at least a $6 billion-plus mining project. Despite the intense political heat around Pebble, let's not forget its economic benefits for Southcentral Alaska and for the Bristol Bay region as well. I put Pebble in the speculative category, however, given the intense political heat.

Which leaves us with — guess what? — the gas pipeline.

Many Alaskans are skeptical, to put it mildly, about the state leading this giant $40 billion-plus project. Few people thought Gov. Bill Walker, its champion, would ever find an interested customer. But he did — the Chinese.
There are still a lot of huge unknowns for the Alaska LNG project, not the least the splatter that might come from a trade war between the U.S. and China. But the fundamentals remain that China needs Alaska's gas if we can deliver it economically. That's still an unknown. And we now have a new competitor, a big Shell-led LNG export project in British Columbia.

But despite our skepticism, the Alaska LNG project is the only thing we have that could really move the needle. It's our best shot, so we should do what we can to help it along.

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