The energy industry supports one third of the state’s jobs, with over 100,000 tied to drilling and exploration, transportation, refinement, and other industry related jobs. Now ranked fourth in terms of crude production in the US, Alaska is down to 560,000 barrels per day. This decrease in production, mirrored around the world, has taken a bite out of the Alaskan economy. The effects however, have not been as detrimental as is the case in Texas and Oklahoma.
The lack of funds from crude production has left a $3.2 billion hole in the yearly state budget. Budget cuts of almost $650 million brought the current general fund budget to $5.4 billion for 2016, with only $2.2 million in expected revenues. The $3.2 billion spending deficit will need to be matched by increased federal, state, and local government spending cuts in operations.
Economists Mouhcine Guettabi and Gunnar Knapp tell of the importance of crude production for Alaska, calling revenues from production the most “important factor—and likely the largest driver of near-term economic changes.” With resource industries making up roughly 31% of GDP and 15% of industry wages, low commodity prices have a large impact on state coffers. Guettabi and Kapp state that it is more than just low crude prices hurting the economy. “The combined result of declining oil production, increasing tax-deductible costs of oil production, and a drastic fall in oil prices” are the direct impact of low oil prices.
The Alaska Department of Labor and Workforce Development recently posted a study projecting labor and economic trends into 2016. Unemployment is expected to increase 0.7% in the coming year from its current 6.7%. The oil and gas industry is estimated to lose another one thousand jobs, making up one of the largest areas of job loss. Professional and business services, along with the transportation, warehousing, and utilities sectors may lose to up to eight-hundred additional jobs in affiliation with decreased crude production.
Given the significant loss of revenue and employment, there is still hope for Alaska. Large LNG projects already in place or put on hold for a later date make Alaska a playground of natural gas activity. When prices rebound, these already established plants will help carry Alaska’s economic future. In the meantime, the state can rely on its thriving healthcare and tourism industries. Job growth in the healthcare industry is expected to increase 1.5% alone. Alaska also ranks 3rd in average hourly earnings for the leisure and hospitality sector and 7th in per capita spending on recreational goods and vehicles. These numbers indicate a strong and thriving tourism industry.