Alaska by the Numbers – November Edition

Here’s the big news that broke last month, and how it impacts Alaska’s economy.

GMT1 Production Started Ahead of Schedule

ConocoPhillips announced that they started flowing oil from the Greater Moose’s Tooth Unit on October 5th. This is a full two months ahead of schedule.

While initial flows are only around 8,000 barrels per day from the couple of wells already drilled, production will ramp up to around 30,000 barrels of oil per day over the next 8 months. 

While this oil is flowing from land owned by ASRC (which means the State doesn’t own the oil and won’t get royalties from the production), this is still good news for Alaska.

More oil means more jobs for Alaskans, lower pipeline tariffs on our royalties, and additional property taxes for the North Slope Borough. Conoco reports spending over $700 million on this project, providing over 700 jobs during the last two winters. 

This production is also taxable, which means we can expect some revenues for the State. I’ve calculated how much revenue to expect. That article will publish next week.

GMT2 and Liberty Received Final Permitting Approval

More good news in the NPR-A came from the neighboring project, GMT2. The BLM issued a Record of Decision for the project on October 15th, clearing the last permitting hurdle for the project.

During the Alaska Chamber of Commerce Fall Forum, Joe Marushak (President of ConocoPhillips Alaska) announced that they sanctioned the project. Development will start this winter, providing hundreds of jobs to build the drill site.

The project will start producing oil in late 2021, and should reach 36,000 barrels of oil per day at peak production in 2022.

Hilcorp’s Liberty project also received a Record of Decision a week ago. That is an offshore project in Federal waters just off the Alaska coast.

Construction of this project should start in the 2019-2020 winter and oil should also be flowing in 2022.

There is a third major project called Pikka (sometimes called by the formation name “Nanashuk”) that is awaiting final approval. That ROD is expected sometime before June of next year.

I’m working on compiling all these projects, which should be ready next month.

Oil Production is Rising Toward Winter Rate, But Hit a Bump

Last month, I predicted oil production in October to reach 525,000. The surprise production from GMT1 should have resulted in an even greater number.

However, for some reason, production took a dip on October 13th and has yet to fully recover. I have not been able to pinpoint the source of this disruption*, and may not be able to until AOGCC releases the October data in December.

As a result, TAPS throughput in October ended up at 513,750 barrels per day.

After adjusting the timeline for GMT1 production, I’m expecting November production to be around 540,000 barrels per day, but TAPS throughput to be closer to 530,000.

The FY19 average production is now projected at 519,238 ± 10,000 barrels per day. DOR reported production will be lower, at around 511,000.

A first look at FY20 production numbers is on the way in about 2 weeks.

*Editor’s Note: After publishing this article, we learned that the Oliktok pipeline is now delivering NGLs to Kuparuk. This is likely the cause of the production drop. The numbers in this article were adjusted to account for this new information. 

Oil Prices Trended Down, But Are Still Holding On

ANS prices trended downward over the month of October, ending the month at just under $77. The average for the month was $80.03, which pulls the fiscal-year-to-date average up to $76.90.

Iranian sanctions take effect this week. There shouldn’t be a large price reaction to this event, as the markets already priced it into the futures contracts when the sanctions were put in place.

However, the loss of this production will tighten the global supply and reduces the ability to react to disruptions elsewhere. That means that the powder is dry and will react sharply to a spark, if one occurs.

Inflation fears and trade disputes continue to add upward pressure on prices in the near term. And, with tensions around Saudi Arabia mounting and hurricane season threatening Gulf of Mexico production, it is feasible to see $100 oil at some point in the next few months.

However, current prices should be viewed as being propped up by global circumstances. The fundamentals still suggest a price of around $65 is appropriate.

When these temporary issues are resolved, I expect prices to fall. I just can’t say when that will be. Recent prices have already started to pull back on some of those upside fears.

Expect a lot of uncertainty to plague the markets for the few next months. The risk-weighted average price for FY19 currently sits at $75.08 ± $9.

Job Numbers are Sending Mixed Signals

The Department of Labor released September jobs numbers of 338,200. This is about 2,000 jobs below what I was expecting, which indicates that job losses are continuing to occur.

Although my model was only off by less than 1%, it should have done better. When the data shows up with an unexplained variance like this, there’s only a few things that could be going on.

Either the data is wrong, some unpredictable event occurred, the model has an error in it, or the relationship built into the model is no longer relevant. I’m going to take a look and see if I can pinpoint what is going on before I make any more projections.

I think there’s something interesting happening. I say that because while job losses are still occurring, the official unemployment rate improved for the fifth month in a row,  wages are increasing, and GDP is on the rise (all signs of a growing economy). 

In other words, the data is sending mixed signals. Watch for that article in a few weeks.

The Long-Term Job Forecast Was Released

The Department of Labor also released its 10-year labor market projection in this Trends article.

It’s interesting, but difficult to interpret. Because the Department hangs their forecast off the last actually data they have, you have to interpret the projection from where the economy was two years ago.

Since the jobs numbers are much lower today than in 2016, the negative numbers in the report are actually increases from today.

The best way to use the forecast is to look at the general direction of the industry rather than the actual numbers. Steeper climbs mean more growth.

With that in mind, you can see how the economy of the future is taking shape.

Healthcare and tourism look to be the source of the biggest gains. And the mining sector is expected to grow (Donlin). The information industry and State government seem poised to be the biggest losers.

The oil and gas sector will recover from today’s levels, but may not reach the numbers we saw in 2014. Several other industries will grow about as fast as the population.

Craig Medred wrote an interesting piece on this topic if you want to take a look.

Quarterly Wages Continue to Climb

The Bureau of Economic Analysis released the wage numbers for the second quarter of 2018. It shows a wage increase of 1.1% for Alaskan workers. That is the fifth increase in the last seven quarters.

Third quarter numbers are typically lower than the rest of the year (which are the other two quarters). So, I expect the 3Q:2018 numbers to show a decline (those aren’t released until January).

This trend of increasing wages with decreasing jobs points to the fact that the economy is adding high paying jobs while losing low paying ones.

Under normal circumstances, that would be a leading indicator that lower paying job growth is about to occur. But, for some reason, the labor market hasn’t got the message yet.

Investment Earnings Hit a Snag

The APFC shows year-to-date earnings of $1.6 billion during the first three months of the fiscal year. September added about $200 million to the balance sheet.

October numbers won’t be released for another month, but we know stocks got crushed last month. As of today, stock prices are about even with their prices at the beginning of the fiscal year.

Fortunately, the fund is well diversified and it locked in some of those gains before the fall. I’ll be interested to see how they are doing when I get to see the data.

But from what I can see, the recent market correction may have wiped out over $1 billion of gains. Ouch.

As best I can tell, the Fund is now on pace to earn about $4.2 billion ± $6 billion this fiscal year. The last available forecast from the APFC consultants (supplied in July) has that number at $3.6 billion.

An interesting note on that APFC projection. They have not updated their outlook since the beginning of the fiscal year. Last month, it looked like they would very likely beat that forecast. But, the recent market correction put them back on track to hit their target.

That’s either an unfortunate coincidence or a scary good crystal ball.


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