Economic Outlook 2018

Running theme: Alaska will recover but not without stable fiscal plan

As we do each year, Alaska Business asked industry leaders and public officials to provide us with insight into what they expect to see for the state’s economy in the coming year. A running theme throughout each response is that Alaska is on the road to recovery, but without a comprehensive fiscal plan that promotes stability and economic growth, that recovery will remain elusive. As a state we must create a stable, competitive fiscal environment to attract investment dollars and create job opportunities. Although many experts expect Alaska’s job count to fall again in 2018, job losses are expected to decline thanks in part to continued growth in the healthcare and tourism industries. Minimal job losses are expected for other industries such as retail and professional services. In fact, there are many signs the worst of the recent recession may now be behind us, as oil prices ticked upwards in 2017 and oil production increased for the second consecutive year. There is more reason to be optimistic as the housing market ha proven resilient and growth in military activity and the fishing industry act as stabilizing forces, helping to diversify the economy; something most industry leaders agree must happen for Alaska to emerge from its current low-price oil environment. And while low interest rates and a strong US economy positively impacted Alaska in 2017, continued lack of agreement on a fiscal plan has eroded private sector confidence and investment, hitting some industries, such as vertical construction, hard. But enough from us. Here Alaska’s public sector and private industry leaders offer expert opinions on what we can expect to see in the coming year.

AEDC’s outlook for the Anchorage economy in 2018 is for a moderation of the current recession. Since the recession began in 2016, the Anchorage economy will have lost more than 5,000 jobs, just below 4 percent. In 2018 those job losses will likely be less than 1,000. Oil prices have seen modest recovery and industry investments are starting to increase, benefiting Anchorage jobs and spending as a result. Air cargo and the visitor industry will continue to see growth, as will the health care sector. Other service sector industries such as retail, professional services, and the like will see minimal job losses. With the chance that the legislature will resolve the fiscal crisis and oil prices remaining at or near current levels, there could a better outcome in 2018 than our current predictions suggest.

Bill Popp
President and CEO
Anchorage Economic Development Corporation

The Alaska economy is still challenged by low oil prices and related State budget deficits. However, there are many signs the worst of the recent recession may now be behind us. Job losses are slowing. Oil prices ticked upward in 2017 and oil production increased for the second straight year. The housing market has been resilient. Prices and sales activity remain stable in lower and middle income homes. Growth in military activity, healthcare and the fishing industry are stabilizing forces, helping to diversify the economy. Low interest rates and a strong US economy positively impacted Alaska. A change in federal policy has renewed optimism for natural resource development. There have been appointments of Alaskans in key government positions, expanded lease sales, and serious discussion of allowing oil development in ANWR in the recent tax bill.

Mark Edwards
Senior Vice President, Senior Credit Officer, and Bank Economist
Northrim Bank

Construction continues to shed jobs at an uncomfortable pace. The maintenance level capital budget of recent years will likely continue flat until there is a revenue source to pay. Continued lack of agreement on a fiscal plan erodes private sector confidence and investment, hitting vertical construction hard. Horizontal construction, financed mostly with federal funds, remains steady but very competitive. I expect the construction volume to slow its recent downward slide, buoyed by the increase in activity on the North Slope combined with defense spending, both giving some badly needed optimism to the construction sector.

John MacKinnon
Executive Director
AGC of Alaska

The Legislature must work together in 2018 to implement a comprehensive fiscal plan that promotes stability and economic growth. If not, we will see further cuts to troopers, local law enforcement, public schools, healthcare, and infrastructure. We must put Alaskans first, or lack of action will drive Alaska further into recession and hurt our current healthy industries like tourism, and our world class fisheries. The House Majority stepped up to the task, did their job, and passed a sustainable plan last session. It is time for the Senate to do the same—put working Alaskan families first, and make the tough political decisions.

Senator Berta Gardner
Senate Democratic Leader, Alaska

Alaska, as America’s Arctic, will continue to see attention paid to the challenges and opportunities in the region, which should result in improved community and economic development. Since the US Chairmanship of the Arctic Council ended in 2017, the Nordic states and Europe, as well as Asia, will increasingly have a role in this process. Alaskans should expect greater cooperation with Asian states like Singapore, Korea, and China, and bilateral relationships develop between the state and organizations or even governments from Norway, Finland, Iceland, and across North America. This cooperation will involve knowledge exchange and the sharing of solutions, but most importantly we hope to see business development and partnerships emerge that positively contribute to Alaska’s companies and communities.

Nils Andreassen
Executive Director
Institute of the North

ConocoPhillips Alaska (COPA) plans significant activity on the North Slope for 2018. In addition to completing the final year of construction for Greater Mooses Tooth 1 (GMT1), we are also planning to drill five exploration wells. GMT1 represents about $900 million in investment (gross), and is estimated to have peak gross production of about 30,000 barrels of oil per day (BOPD.) The project will support 600-700 construction jobs during this winter season, and first oil is expected in late 2018. Nearby drill site GMT2—which represents about $1.5 billion in gross investment—is still working through the federal permitting process.

For the exploration season, COPA is planning three wells in the National Petroleum Reserve-Alaska: two to further appraise the Willow discovery we announced in early 2017, and one exploration well nearby. Two additional exploration wells are planned on state acreage. In addition, we are planning new seismic on the state leases we picked up in Dec. 2016.

We completed the first extension of the CD5 development during the 2017 winter season, and are planning a second extension to add 10 more well slots, for a total of 43 wells. CD5 is currently producing 28,000 BOPD, significantly more than the 16,000 BOPD first estimated.

Finally, in November we announced that viscous oil development 1H NEWS began producing two months ahead of schedule, and at peak, will add about 8,000 BOPD to TAPS.

The key elements of the 2013 production tax restructuring (Senate Bill 21) are still place and have been important in ConocoPhillips’ decision to invest in Alaska. Keeping a stable, competitive fiscal environment will be critically important in attracting future investment dollars.

Scott Jepsen
Vice President of External Affairs and Transportation
ConocoPhillips Alaska

Over the past year, GCI has made great strides in bringing better Internet and improved wireless service to communities throughout the state, through the expansion of 1Gig Internet, to the ringing of the TERRA network, and more. And with more than $160 million slated for capital investment in 2018, GCI plans to continue that trend of upgrading and expanding our services to improve the customer experience for Alaskans and businesses throughout the state. Through our ongoing investment, GCI aims to make Alaskans more connected in 2018 than ever before.

Heather Handyside
Senior Director of Corporate Communications
GCI, Inc.

As we look forward into 2018, there are numerous promising developments with exploration and production activity in Alaska’s oil and gas industry. However, the oil industry and other potential investors need to have confidence in our state fiscal situation before they will further invest in our state. In the coming year, Alaska must find a long-term solution to its fiscal situation to stabilize our economy and stimulate growth.

Despite the current recession, there are bright spots in Alaska’s economy. Military spending is ramping up with the F-35 squadron coming to Eielson, and the state’s tourism and healthcare industries continue to see steady growth.

Wells Fargo remains firmly committed to fueling Alaska’s economy as we help our customers make the most of expansion opportunities and navigate through potential economic headwinds.

Greg Deal
President, Alaska Region
Wells Fargo & Co.

The clean energy sector continues to grow quickly worldwide. Wind and solar are competitive with coal and natural gas in many markets, and renewable prices are likely to continue to fall. In Alaska, building owners are retrofitting inefficient building stock, investments that can have very short payback periods. Property Assessed Clean Energy (PACE) programs authorized by the legislature this year may soon provide another financing avenue for the commercial energy efficiency sector. The ability of the Railbelt utilities to consolidate grid operations and adopt regional rules will impact the private sector’s willingness to invest in renewable infrastructure. The Railbelt also continues to be influenced by the uncertainty associated with natural gas prices in Cook Inlet, which are highly susceptible to volatility associated with the availability of state production subsidies, and Alaska’s small market size.

Chris Rose
Executive Director
Renewable Energy Alaska Project

Alaska’s job count is expected to fall again in 2018, although the losses appear to be tapering.

The majority of losses in oil and gas, state government, construction, and professional business services are likely behind us, although all four industries are expected to continue losing jobs in 2018. While the losses are slowing for the industries initially impacted by low oil prices, the effects of two years of overall job losses will continue to cause widespread—although potentially shallow—losses across most sectors of the economy. Healthcare is the only major exception, although its recent Medicaid expansion driven growth spurt will likely slow. Federal government is forecasted to remain stable, and local government, which has experienced growth in recent years despite the recession, may feel the effects of diminished state funding.

Karinne Wiebold
Economist
Department of Labor and Workforce Development, Research and Analysis

Alaska is a land rich in resources and people, with endless opportunities. Alaska needs diversification to build a stable and thriving economy. Oil and gas has been Alaska’s economic driver since the discovery of Prudhoe Bay. With oil being a global commodity, Alaska can no longer afford to base our economy on oil alone. Oil will always be a large part of our economy, but it can no longer be the only part.

Alaska needs a moderate broad-based tax to help fund vital programs and services as our population grows. Alaskans need good paying jobs, which means we need a robust capital budget to maintain, repair, and expand our infrastructure. This can only happen with a predictable revenue source. Alaska would have an economic foundation to last generations if our revenue stream included a reasonable annual draw from the Permanent Fund earnings reserve, a moderate broad-based tax, and continued exploration and production of oil and gas.

Representative Paul Seaton
Alaska State Legislature, District 31