The oil industry is currently in an expansion phase of its investment cycle in Alaska. Several recent exploration activities have proven positive, providing hope for new developments over the next decade. But production from legacy fields will continue to anchor the job market.
Although there are reasons to be excited about the future, Alaska’s current economy is greatly supported by its legacy oil fields. Most notably, Prudhoe Bay and Kuparuk.
These mature fields are in their last phase of production, but should continue to produce for a few more decades. Mammoth fields like these require significant labor to maintain production and keep the mature facilities operational. So, these fields are still a significant source of employment.
Employment in the oil and gas industry falls into two basic categories tracked by the Bureau of Labor Statistics. “Oil and Gas Extraction” represents the employees of oil and gas companies. “Support Services” represents all the contractors that build the ice roads and drill pads, install pipelines and facilities, complete maintenance projects and updates, and operate the oil rigs.
Tangential employment also occurs in “Pipeline Transportation” and in the “Petroleum and Coal Product Manufacturing” (Refining) categories. It is also very likely that many of the “Professional and Technical Services” jobs are supporting the oil and gas industry.
Operating an oil field requires a certain amount of work. You need people run the machinery, engineers to manage the reservoirs, people to manage schedules, accountants to keep the books straight and pay the taxes, lawyers to protect the company’s interests, and many others to keep the oil flowing. Oil and gas operations in Alaska require about 4,000 people to keep it going. This number is relatively constant, although it is subject to occasional belt-tightening.
Our analysis suggests that employment does respond to price changes, although these jobs are not terribly volatile. Once you have a project up and running, you can’t really halt operations when the price dips.
Our calculations indicate that companies will tighten their belts if the 4 year average price falls. That means that if prices drop this year, they don’t send out pink slips right away. But, if the price stays low for a few years, it’s time to make an adjustment.
Companies historically cut about 22 jobs per dollar drop in the trailing 4-year average oil price.
Support Industry Jobs
The support industry seems to be much more sensitive to oil price changes. This makes intuitive sense. When companies have more money, they spend more. They fund pilot projects and exploration activities. They take care of deferred maintenance. And they sanction projects further down their list. When the price drops, they cut back and focus their attention on balancing the books today.
However, the data doesn’t suggest they take out the hatchet right away. It looks like what happens is they stop funding new projects, but existing projects get finished. This is probably some combination of sunk costs and contractual obligations.
Either way, our analysis of the data suggests that job losses occur about two years after a price shock. In the case of the support industry, a dollar drop in price this year will result in about 52 lost jobs in the year after next.
There are 3 operational refineries in Alaska (North Pole, Valdez, Nikiski), plus the now closed Flint Hills refinery. There are also 2 non-commercial refineries on the North Slope that provide finished products for field operations.
The jobs associated with running these refineries could be considered part of the oil and gas industry. Together, they employ about 350 people. This number was a little above 400 before Flint Hills was shuttered. These jobs are not sensitive to oil prices. We don’t expect any significant changes to these jobs in the near future.
Unfortunately, disclosure of pipeline jobs by the Federal and State agencies would violate the confidential reporting by Alyeska. So, the data is not available. However, our calculations suggest that pipeline jobs in Alaska hover around 1,000 people. These jobs are not sensitive to price changes. As long as there is oil flowing, these people need to manage the pipeline that carries it.
The Department of Labor reports that around 27,000 Alaskans are employed in the field of “Professional and Business Services,” This includes lawyers, bookkeepers, management companies, and many others – including firms that perform analyses for oil and gas companies.
Our estimate is that 2,000 – 5,000 of the people in this category have jobs that are directly impacted by contracts with oil companies. When the price of oil falls, these jobs are the first casualties. Studies of projects that are not ready to be sanctioned are the quickest and easiest projects to shut down.
By our estimate, 41 people lose their jobs for each dollar the oil price drops. And it happens in the real-time, with no lag effect demonstrated by the data.
Total Oil Industry Jobs
The Department of Labor reports monthly numbers of employees reported by companies that are classified as oil companies. From the data, it appears that they include service companies in those data.
Here are those numbers going back to 1990:
From these data, it appears that the industry was employing around 10,000 people up until 2006. When oil prices began accelerating, the industry appears to have ramped up their activity levels. Then, when oil prices collapsed in 2015, the industry pared back to its historical average.
Here is another graph which includes our approximations of tangential employment to the oil and gas industry. As you can see here, the job gains and losses largely appear in the attached jobs (service industries).
As employment in the oil and gas sector appear to be sensitive to oil price, our employment outlook is married to our oil price forecast. As oil prices have increase since 2017, we expect to see employment numbers begin to recover as well. When the 2018 data arrives, we expect to see that professional and technical service companies began signing contracts and hired around 500 additional staff.
As those analyses are completed, we expect to see projects being sanctioned in 2019. In 2020, we anticipate construction and installation contracts to be awarded and development jobs to recover at least 1,000 jobs. Below are some of the projects that could lead to that job recovery.
In the News
There are several projects that are at various stages of development. Each of these projects represent investment capital, jobs, and more oil flowing in the pipeline. Here are a few of those projects that are most often discussed.
The Pikka Unit represents the largest discovered and undeveloped conventional oil field in North America. Current estimates suggest there are at least 500 million barrels of recoverable oil in the field, which could provide up to 120,000 barrels of oil per day to the pipeline. The $5 billion project should start being developed as early as next year, once final approval is received from State and Federal regulators. Oil could start flowing as early as 2021.
Greater Moose’s Tooth
The Greater Moose’s Tooth (GMT) Unit is located on Federal land within the National Petroleum Reserve – Alaska (NPR-A). GMT1 has already been developed and should start flowing oil later this year. GMT2 is currently waiting for Federal approval and is scheduled to being development in 2020. Each of these projects represent over $1 billion investment and should produce around 30,000 barrels of oil per day each.
The next field in the Unit is known as “Willow.” That field was discovered in early 2017 and was confirmed through appraisal well drilling a few months ago. This field is much larger than the other projects in GMT, estimated to hold 300 million barrels of recoverable oil. This prospect could add up to 100,000 barrels of oil per day to the pipeline starting as early as 2023.
The Liberty Field is located within Federal waters, about 5 miles off Alaska’s coastline. The reservoir was discovered in the early 1980’s, but was not developed due to various concerns.
Management of the project was transfer to Hilcorp in 2014. Hilcorp has submitted a new development plan to the Bureau of Ocean and Energy Management (BOEM), and is now waiting for a final EIS and Record of Decision. If approved by Federal regulators and sanctioned by its project partners, development could result in production of up to 70,000 barrels of oil per day. First oil is expected to start flowing in 2021, reaching its peak about a year later.
Although the project is beyond Alaska’s taxing jurisdiction, the State is eligible to receive 27% of the federal royalties. A study by ISER calculates that the project could represent a total increase of 2,700 jobs and $250 million per year to the State GDP.
A large oil discovery was announced in Smith Bay in 2016 by Caelus Energy. The company suggests that the discovery could hold 6-10 billion barrels of oil, which would make it a world-class oil field. However, the prospect has not been subsequently drilled to confirm the company’s estimates and the 100 miles of arctic tundra between the prospect and the nearest infrastructure make development logistically challenging and very expensive.
The project is not defined well enough to determine a realistic time frame for development. However, a development of this size could easily take over 10 years to gather all the necessary permits and financing. Nonetheless, this is an exciting discovery that helps give confidence that there is significant remaining oil potential in Alaska.
During the last Federal budget negotiations, Senator Murkowski was able to insert language that opened part of the Arctic National Wildlife Refuge for oil development. The Bureau of Land Management is currently working on an EIS for the first phase of development – leasing.
The first lease sale is targeted to occur next year, in 2019, although it is likely that it will not occur until 2021. The years following a lease sale should be filled with exploration activities.
The USGS thinks there are significant resources in the area, with a mean estimate of more than 10 billion barrels. So the expectation is that discoveries will be made.
If discoveries are made and eventually developed, the oil production could reach as high as 880,000 barrels of oil per day according to the EIA. And this oil would be subject to Alaska’s tax laws.
Because the lands are owned by the Federal government, they would receive the royalty payments. However, the federal law that allowed oil activities to occur in the area require that one half of the royalties are shared with the State. This same provision applies to any bonus bids that are received as part of the leasing process.
There are also many other projects that are underway. Many of them are smaller and don’t get as much media attention. Others are projects within existing units, which also don’t seem to get people as excited. Here is a non-exhaustive list of some of those projects:
- Fiord West
- North Nikiachuq
- Badami Expansion
- Cassin (Greater Bear’s Tooth)
- Stoney Hill
- Hemi Springs
- Ice Wine
- Beechy Point
- Moose Pad
- 1H News
All of these prospects are potential future sources of employment and production. Together, they represent reasons to be optimistic about the future of the North Slope.