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Bright(ish) Horizons

Apr 25, 2019Finance, Magazine, Marketplace

By Kathryn Mackenzie
Managing Editor, Alaska Business

By most accounts Alaska’s economy is finally set to emerge from several years of recession. The state’s residents can expect more employment opportunities with about 1,400 new jobs coming online in industries that have been stripping costs and reducing headcounts over the past four years.

Experts predict better times for some Alaskan job seekers

The primary drivers behind this (albeit slow) recessionary emergence are military spending, new and legacy projects in the oil and gas industry, and tourism, according to Alaska Economic Trends Job Forecast for 2019 by Karinne Wiebold, economist for the Alaska Department of Labor.

With that said, there are some unknowns keeping analysts and industry watchers cautiously optimistic about the state’s economic recovery.

“The state has a number of challenges and opportunities in the coming years. There is increased oilfield activity, tourism numbers are strong, and the F-35 installation at Eielson Air Force base is bringing in a lot of federal money as the base gets ready for the active military and family arrivals as well as federal civilian employment,” says Wiebold. “At the same time, the state government has real structural issues relating to revenue and expenditures that must be addressed. The economy will be affected by those policy decisions, although what will be done and the effects are unknown.”

Earlier this year Governor Mike Dunleavy proposed wide ranging budget cuts, calling for significant reductions to education, healthcare, and transportation, among other sectors. He also unveiled a plan to repeal municipalities’ current ability to levy taxes on oil and gas property, including exploration, production, and pipeline transportation properties. Dunleavy’s proposal would redirect those funds—an estimated $440 million—to the state in a move that primarily affects the North Slope Borough, which generates the majority of oil and gas tax revenue in the state.

Economic Drivers

Even as Alaska’s elected officials attempt to address the state’s $1.5 billion deficit problem, economists are predicting brighter days ahead for many of Alaska’s vital industries, including the natural resources sector, which in Alaska Economic Trends Job Forecast for 2019 includes mining and oil and gas.

“Sectors devastated early in the recession are beginning to add jobs again. Oil industry employment stabilized in mid- to late-2018, and increased activity on the North Slope signals resumed growth,” writes Wiebold in Alaska Economic Trends Job Forecast for 2019.

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November 2019

November 2019

New projects slated to come online in the oil and gas sector include Conoco-Phillips’ Greater Mooses Tooth 2 (GMT2) and CD5 expansion, as well as Hilcorp’s Milne Point Moose Pad. First oil is planned at GMT2 in late 2021. The development plan is for up to forty-eight wells, requiring an estimated 700 jobs during peak construction. Along with projects in North Slope legacy fields, the industry is anticipating eventual output from new discoveries such as Oil Search’s Pikka unit. Earlier this year, Oil Search reported its total proved and probable reserves plus contingent resources for oil and condensate more than doubled from 2018 estimates to 253.5 million barrels due to an additional 127.5 million barrels of oil expected to be extracted from the Pikka unit.

In March the Alaska Department of Natural Resources (DNR) told members of the state House Finance Committee that currently producing fields “remain the backbone of state oil production in [the] near to medium term” and future fields—those currently being evaluated by operators—will start to play a larger role in production in the next five to six years. DNR analysts predict new fields will increase production to more than 533,000 barrels per day on the North Slope by next year.

The oil and gas industry is expected to gain about 300 jobs in 2019 compared to the previous year, an increase of 3.2 percent, according to Alaska Economic Trends Job Forecast for 2019. Even modest growth comes as good news for oil and gas workers; since late 2015 it’s estimated the oil and gas industry lost 4,900 jobs.

Mining should see an uptick in spending in 2019 as Teck’s Red Dog Mine, Northern Star’s Pogo Mine, and the Fort Knox gold mine owned by Kinross Gold all have expansion plans in the works. Trilogy Metals and partner South32 have each agreed to add $1 million to expand exploration efforts at their Upper Kobuk Mineral Projects to identify and test for new drill targets in the Ambler Mining District. The additional $2 million brings the total budget for 2019 to roughly $18.2 million.

Meanwhile, Alaska’s construction industry should see job growth of about 6 percent or 900 additional jobs in 2019, according to Wiebold, making it one of the biggest growth sectors in the coming year.

Preparing for the bed-down of two F-35 squadrons (forty-eight aircraft) will require constructing the necessary facilities to support them—and that will require crews to build them. The first squadron of fighter jets is arriving at Eielson Airforce Base in 2020. Both will touchdown by 2022.

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Wiebold reports that preparations include a half-billion dollars in new construction just to accommodate the jets plus additional structures for active duty and civilian support staff. “This is big for the Interior, but it will also boost construction and professional and business services around the state, mainly in Anchorage and the Matanuska-Susitna Borough,” Wiebold writes.

It’s also expected that the November 2018 earthquake will result in construction job growth as the ice and snow melt and the full impact of the temblor on businesses, homes, and infrastructure is revealed.

The third primary statewide economic driver in 2019 is tourism. Alaska’s beauty and deep cultural roots draw hundreds of thousands of people to the state every year, adding seasonal jobs to both the tourism and hospitality industries.

John Binkley, president of Cruise Lines International Association Alaska (CLIA Alaska), said Alaska’s cruise industry will see unprecedented growth over the next two years, according to the association’s website.

Mining should see an uptick in spending in 2019 as Teck’s Red Dog Mine, Northern Star’s Pogo Mine, and the Fort Knox gold mine owned by Kinross Gold all have expansion plans in the works.

Alaska is expected to see an estimated 1.31 million cruise visitors in 2019, an increase of 12 percent compared to 2019, CLIA Alaska reports.

Binkley attributes the growth to high demand for Alaska cruises combined with “an extremely high level of guest experience.”

A healthy tourism season—both on and off land—will naturally lead to an increase in hospitality jobs as visitors book more hotel rooms, visit more restaurants, and schedule outings with local tourism companies. Overall, tourism is (including the cruise industry and the hospitality industry) expected to add 1,000 jobs statewide.

Healthcare is generally a stable-to-growing industry in terms of jobs and for good reason—just about everybody needs to see a medical professional at one point or another. Healthcare job stability isn’t expected to change much in 2019. The industry is set to grow, but moderately, adding some 500 jobs this year compared to 700 in 2018, according to Alaska Economic Trends Job Forecast for 2019.

On the Other Hand…

While many of Alaska’s industries are set to grow—even if modestly—in the coming year, it’s not all sunshine and roses on the horizon just yet.

Retail will continue to remain strapped. The industry shed 900 positions in 2018 and 700 in 2017. Wiebold expects the losses to slow in 2019, but the industry will still lose 300 jobs, in part due to the closure of several major retailers 2018, including Sam’s Club and Sears in Anchorage and Fairbanks.

“The recession has reduced demand in the retail sector, and until the economy recovers we expect those losses to continue. Retail losses in 2019 are forecasted to be a fraction of what they were in 2018, but it is not expected to add jobs at this point. Additionally, the popularity of online sales reduces local demand,” says Wiebold, explaining that online shopping is causing the “Amazon effect,” or the ongoing evolution and disruption of the retail market, which is putting a damper on traditional retail sales nationwide.

Other sectors that aren’t expected to rebound much in 2019 include professional and business services: legal services, accounting, architecture and engineering, management and administrative support, waste management, and manufacturing (primarily seafood processing, according to the report).

The economic report forecasts professional services will lose 200 jobs in 2019 compared to 600 last year as increased construction and oil and gas activity generate demand.

Seafood processing will drop about 100 jobs in 2019, primarily due to “changes to seafood processing techniques and the growing popularity of overseas processing.” Erratic salmon runs will also be a factor in the industry’s performance.

The Big Picture

Every major industry in Alaska is tied to the others in one way or another. The oil and gas industry creates thousands of jobs, which creates demand in the construction industry to house workers, who then spend money in the retail sector. Tourists fill cruise ships and seaside towns, spend money on trinkets and gifts, and fill hotels and restaurants. All of these industries intertwine to create jobs for Alaskans. Even if what’s happening in Alaska in 2019 is considered a slow crawl out of recession, a slow crawl out is far better than dipping further in—as we’ve done time and time again, Alaska is moving forward.

Alaska Business Magazine November 2019 cover

In This Issue

Mining in 2019: The Year in Review

November 2019

Following a year when metal prices were both up and down—sometimes dramatically; when international trade squabbles spooked investors to both enter and exit the metals markets; and when mining companies started the year cautiously bullish but ended it cautious bearish, those involved in Alaska mineral exploration, development, and production are once again asking themselves: “Where did we succeed, where did we fail, and where do we go from here?”

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