Alaska’s oil revenues are expected to decline over the next few years, creating a substantial budget deficit that will have to be filled by withdrawals from the state’s savings, according to a semiannual forecast released by the state Department of Revenue on Dec. 12.
Or spending cuts or taxes could be used to cover the deficit, though neither option was presented in the department’s forecast.
The new forecast is more pessimistic about the state’s oil-revenue prospects over the next few years than was the department’s previous forecast in March, said Department of Revenue Commissioner Adam Crum.
“This is due to lower oil prices,” Crum explained at a news conference, as well as higher operating costs and investment spending that increase deductions and reduce companies’ tax and royalty payments,
Oil production through the end of the 2020s decade will also likely be lower than what was expected in the department’s previous forecast, “but there is an expected increase in production and revenues after that,” Crum said.
The new forecast predicts that North Slope oil production will average 466,600 barrels per day in the current fiscal year, which started on July 1, and rise slightly to 469,500 in the next fiscal year. Average production for fiscal 2024, which ended on June 30, was 461,000 barrels per day.
Alaska North Slope production peaked in 1988 at more than 2 million barrels per day.
While Alaska North Slope oil prices averaged $85.24 in the 12 months that ended on June 30, they are expected to be only $73.86 in the current fiscal year and $70 in the year after that, then hold steady within a range between $68 and $73 a barrel through the early 2030s, according to the forecast.
That is $4.14 per barrel lower for the current fiscal year and $4 per barrel lower for the next fiscal year than the prices predicted in the department’s March revenue forecast.
Counting all general fund revenue sources, the state will receive $220 million less in the current fiscal year and $232 million less in the next year than was expected last spring, according to the forecast.
The forecast predicts a significant upswing in North Slope oil production in the latter part of the decade, eventually bringing average production to over 600,000 barrels per day in the early 2030s and 656,866 by the middle of that decade.
That is attributed in large part to two projects in development on the western side of the North Slope: Pikka, operated by the Australian company Santos, with Spanish company Repsol as a partner; and Willow, the ConocoPhillips project that is on federal land and expected to produce up to 180,000 barrels per day at its peak. Pikka is expected to start production by 2026, and Willow could start up in 2029.
The state’s total petroleum revenues in the 12 months that ended on June 30 were a little over $3 billion, the forecast said. That total will drop to around $2.2 billion in coming years before starting to rise in the early 2030s.
Oil income is less important to the state budget than it was at the height of North Slope production, when it contributed as much as about 90% of the unrestricted revenue the state can spend on services.
In the 12 months that ended on June 30, oil money provided 37% of the state’s $6.6 billion in unrestricted revenue, a category that does not include $6.1 billion from the federal government.
In contrast, earnings from investments — primarily from the $79 billion Alaska Permanent Fund — accounted for 55% of the state’s unrestricted revenue in the past fiscal year, according to the latest forecast.
The annual withdrawal from the earnings of the Permanent Fund is scheduled to put $3.7 billion into the general fund for the current fiscal year and $3.8 billion in the following fiscal year, according to the forecast. That money goes toward state government operations and the annual dividends paid to residents.
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