Peninsula's diversity pays off

Economic base helps buffer downturns

Posted: Thursday, February 17, 2005


  A cargo ship takes on a load of product from Agrium's fertilizer plant in Nikiski. Oil and natural gas play a significant role in the Kenai Peninsula economy. Clarion file photo

A cargo ship takes on a load of product from Agrium's fertilizer plant in Nikiski. Oil and natural gas play a significant role in the Kenai Peninsula economy.

Clarion file photo

While other parts of the state struggle to make ends meet, state analysts are crediting the diversity of business and industry on the Kenai Peninsula with producing a relatively healthy local economy.

In November, the Alaska Department of Labor and Workforce Development specifically pointed to the peninsula's strong visitor industry, its good-paying jobs in oil and gas production and refining, and the stabilizing effect of government employment.

Also having a generally positive impact were the fishing industry, despite its ups and downs, and the influx of retirees drawn here by the peninsula's climate and lifestyle.

Still, the peninsula's economy has its problems. As mentioned, the volatility of the fishing industry is an example. So too is the continuing uncertainty over the supply of natural gas, though there are positive signs to be found in the ongoing interest in exploration by several oil and gas players.

Then there's the imminent demise of Agrium's North Kenai fertilizer plant, which is set to close by the beginning of November.

That is expected to result in the loss of more than 200 direct jobs and perhaps more in peripheral businesses, not to mention the loss of property tax revenue.

"The peninsula's diversity does not guarantee economic health," said state analysts Neal Fried and Brigitta Windisch-Cole in November. "Struggles and periods of economic woe do come, and the past five years furnish plenty of examples. But when one of the sectors goes through a period of difficulty, the others keep the overall economy afloat."

Some of that stability can be credited to government. Analysis shows that better than one in every four jobs on the peninsula is to be found in the government sector, either at the local, borough, state or federal level. Two-thirds of those are with local government and half of those are school district jobs. The government sector is the largest by far of all employment sectors. This peninsula trend also mirrors statewide averages.

The retail trade industry's 13.8 percent of local employment and the leisure and hospitality industry's 13.5 percent make them the next largest employment sectors.

Publishing their analysis of the Kenai Peninsula's economy in the November issue of Alaska Economic Trends, Fried and Windisch-Cole noted the struggles within the Cook Inlet oil and gas industry.

The discovery of oil and gas in Cook Inlet was a factor leading to statehood, but those fields are mature now. In 1970, production peaked at about 226,000 barrels a day. Today it is about 29,000 barrels. The discovery and exploitation of natural gas reserves has tended to prop up employment in the oil and gas industry, according to the analysts.

"Despite its status as Alaska's 'over-the-hill' oil province, the local industry remains an important economic actor, particularly on the central peninsula," Fried and Windisch-Cole said.

High oil prices, while a drain on wallets at the pump, may serve to encourage more exploration and production in Alaska's oil and gas fields. That could spell good news for employment in the oil and gas sector.

State economists Jeff Hadland and research analyst Jack Cannon wrote in September that growth anywhere in the oil and gas industry would depend on the price of the commodity.

"If recent high oil prices continue and production increases, the result could be even stronger employment growth," they said.

Their prediction did not assume any development in the Arctic National Wildlife Refuge during the next 10 years. If that happens, it would only brighten the industry's employment picture.

Meanwhile, construction of the 750-mile Alaska segment of a natural gas pipeline from the North Slope could mean employing some 8,500 skilled workers.

Writing in the February 2005 issue of Trends, Gov. Frank Murkowski said that could include pipefitters, equipment operators, truck drivers, laborers, welders' helpers, supervisors, construction inspectors, camp and catering workers, electricians and iron workers.

Current estimates predict some 2,500 new jobs by 2012 in the construction sector. Other sectors, too, are expected to produce still more jobs — an estimated 9,700 in health care and 6,000 in transportation and warehousing.

Looking to the future, state economists Paul Olson and Brynn Keith predicted in a Trends article in October that between 2002 and 2012 as many as 43,000 jobs may be created statewide, pushing the size of the state work force to more than 356,000. Their study looked at 700 wage, salary and self-employed occupations and divided the economy into service-providing and goods-producing jobs.

Over the past decade, the service sector, which includes health care, food services, transportation and trade, has experienced rapid growth. By 2002, 87 percent of all jobs were in the service sector. That sector should continue to grow, though perhaps not as robustly as in the recent past, Olson and Keith said.

One area where service sector demand will be felt will be in the health care industry. However, it is the retail sales area that should see the most job creation by 2012, the economists said.

Among other things Keith and Olson found were that over the past 10 years the job market has fallen in mining, construction, manufacturing and logging. The economists predicted, however, that because of resurgence in metal mining and the proposed natural gas pipeline construction, the goods-producing sector would likely keep pace with the overall economy and at least maintain its 13-percent share of employment through 2012.

As far as mining is concerned, Kenai Peninsula residents and government officials are watching with hope that Northern Dynasty Minerals' proposed open-pit mining operation north of Lake Iliamna will result in favorable fallout here in terms of employment, business contracts and even educational opportunities. That project, which could begin construction by 2007, could create some 2,000 mine construction jobs and 1,000 permanent jobs for residents of Southcentral Alaska.

A natural gas pipeline also is of great interest to residents on the peninsula and the rest of Southcentral Alaska, who expect a share of North Slope gas to serve residential, commercial and industrial uses here.

Proposals under consideration include a spur line off a main pipeline to the Lower 48 and a bullet line direct to Southcentral from the North Slope.

All that being said, Alaska's economy remains subject to conditions elsewhere in the world and how well we the state fares in the near future could depend on events beyond its control.

Michael Williams, economic analyst with the Alaska Department of Revenue, said high oil prices likely will impact decisions over the next year of so.

"You can imagine it would be positive because higher oil prices translates into higher state revenues," he said. "Those dollars typically get spent, so there could be lots of economic effects."

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