Diverse economy weathers the bumps

Posted: Thursday, March 01, 2001

The diversity of the Kenai Peninsula economy is its greatest strength.

"We have tourism, oil and gas, transportation, medicine, government and small business," said Betsy Arbelovsky, director of the nonprofit Kenai Peninsula Borough Economic Development District.

Commercial fishing, logging and utilities also are strong players in the peninsula economy. In addition, there is diversity within each sector. Oil and gas includes not just exploration and extraction, but also refining, fertilizer manufacture and export of liquefied natural gas. Tourism includes visitors from Alaska and Outside, independent travelers and cruise ship passengers and those who come by airline, ferry and highway.

"That means that if there is a downturn in one area, another area can pick it up," Arbelovsky said.

The mix is changing, with growth in the retail sales and services, a surge in oil and gas exploration and downturns in commercial fishing and logging.

By state figures, government -- local, state and federal -- was the borough's largest employer in 1999, accounting for 4,245 jobs, a quarter of the total, and a payroll of nearly $151 million. Retail trade accounted for 3,394 jobs, a fifth of the total, and a payroll of nearly $60 million. Services accounted for 3,344 jobs, another fifth, and a payroll of $62 mil-

lion. Oil and gas extraction accounted for 1,062 jobs, 6 percent of the total, but with a payroll of $64 million. Oil and gas extraction jobs paid an average of $5,040 per month, nearly twice the borough average.

"I see continued growth in retail and services. That's not good news, because those are lower-paying jobs," said Jeanne Camp, economic analyst for the Kenai Peninsula Borough.

Neal Fried, a labor economist with the Alaska Department of Labor and Workforce Develop-ment, said one reason for the retail boom is that as more goods become available locally, peninsula residents buy more here and less in Anchorage. Alaskans are buying less from out-of-state, he said, and shoppers everywhere are buying more.

Booming tourism also contributes.

"It has a huge impact," he said. "Go to the local Fred Meyer store in the summer. It's packed."

Camp's latest report on the borough economy says retail sales grew from $341 million in 1991 to $544 million in 1999. By 1999, there were 638 retail business licenses, roughly 8 percent of the borough total. There has been strong growth in employment at restaurants, bars, general merchandise stores, car dealers and service stations. By 1999, the average retail employee earned $1,470 per month, just 58 percent of the average wage for all industries.

Tourism also has fueled growth in services. From 1982 to 1999, the number of hotel and lodging jobs grew from 160 to 520. The number of jobs in amusement and recreation grew from 19 to 208. From 1991 to 1999, visitor industry sales doubled from $40 million to $87 million. In 1999, hotel and lodging workers earned less than half the average borough wage.

Wage and salary statistics do not include the self-employed, such as charter skippers and bed-and-breakfast operators. By 1999, there were 368 Kenai River guides. A recent oil industry study estimated that 1,200 charter boats operate from the Kenai Peninsula, including halibut boats from Seward, Ninilchik and Homer. In 1999, visitor industry business licenses included 20 for sightseeing businesses, 440 for lodging businesses and 406 for recreation businesses.

There are mixed signals for the continued growth of tourism.

Visitation to Kenai Fjords National Park grew rapidly through 1999, the last year covered by the borough report. Daily traffic counts on the Seward Highway at the head of Turnagain Arm rose slightly in 1999.

However, the number of visitors to the Kenai Visitors and Cultural Center declined from 1997 to 1999, and passenger enplanements at Kenai Municipal Airport declined from 1995 to 1999. The number of cruise ship dockings in Seward leveled off in 1995 and fell slightly in 1999. The number of visitors entering Alaska over highways from Canada declined from 1995 to 1998 and rose slightly in 1999.

Meanwhile, federal managers are poised to limit the charter halibut catch by assigning charter skippers specific shares in the annual North Pacific quota.

But tourism fuels just one sector of the service industry. Fried said there has been strong growth in health, business, engineering and social services. Camp said the elderly comprise a growing fraction of the borough population, suggesting a need for growth in health services.

In the oil and gas industry, high commodity prices and dwindling Cook Inlet gas reserves have provoked new interest in exploration. Unocal doubled its Cook Inlet capital budget this year. Phillips Petroleum Co. and Marathon Oil Co. are exploring, and Forest Oil hopes to double Cook Inlet oil production with the platform it just installed near West Foreland.

Homer Electric Association, Unocal and Enstar Natural Gas Co. are considering a $45 million pipeline from Kenai to Homer to bring south peninsula gas to markets such as Kenai and Anchorage and to supply the south peninsula.

Meanwhile, BP is building an $86 million pilot plant in Nikiski to test technology for turning natural gas to synthetic crude. North Slope gas producers are studying the feasibility of a pipeline to bring North Slope gas to the Lower 48, and Alaskans are lobbying for a spur to Cook Inlet .

"There hasn't been this much interest in sizable projects in almost a decade," Fried said.

Cook Inlet exploration or a pipeline from the slope could extend the lives of the Agrium Inc. fertilizer plant in Nikiski or the liquefied natural gas plant Phillips Petroleum Co. operates there. Those plants consume two-thirds of present Cook Inlet gas production. At present rates of consumption, known Cook Inlet gas reserves will last only another 13 years.

Meanwhile, Cook Inlet crude production has declined from a peak of nearly 83 million barrels in 1970 to less than 11 million barrels in 1999. The Tesoro Alaska Petroleum Co. refinery in Nikiski consumes all of the inlet's present production.

By Camp's report, oil and gas production provided roughly 1,100 jobs from 1990 through 1999, while related manufacturing provided 444 jobs in 1990 and 392 jobs in 1999.

The Commercial Fisheries Entry Commission reported that 1,094 peninsula commercial fishers and crew members grossed $62 million in 1999. Peninsula seafood processors employed roughly 640 workers for a payroll of $14 million.

However, upper inlet salmon fishers face declining runs, competition from farmed salmon and battles over allocation of Cook Inlet fish. Last year, processors paid just $8.2 million, about a fifth of the 20-year average, for the upper inlet salmon catch. From 1991 to 1999, Camp said, the price of a Cook Inlet salmon driftnet permit fell from $202,000 to just $25,000. Fishers who borrowed to buy permits may be paying more in interest than the permits are worth, Camp said.

The value of the Cook Inlet purse seine herring catch peaked in 1988 at $8.4 million. Due to stock declines, there were no seine fisheries in 1999 or 2000. From 1989 to 1999, the price of a Cook Inlet sac roe seine permit fell from $242,000 to $55,000.

Several Cook Inlet processing plants have closed in recent years.

The bright spot may be halibut. Last year, commercial fishers delivered 15.3 million pounds -- 28 percent of Alaska's commercial halibut -- to Kenai Peninsula ports. Camp estimated that 10.5 million pounds of halibut worth $22.7 million were delivered to Cook inlet ports in 1997, the last year for which she had figures. However, farmed halibut may soon compete with the wild Alaska variety, she said.

Camp's report says the borough's gross timber sales fell from $26 million in 1998 to $12 million in 1999. Bernie Brown, vice president for Gates Construction, said the timber industry may last another decade. The limits are declining quality of trees killed by spruce bark beetles and the availability of timber near Homer, he said.

"Most of the large Native-owned parcels have been harvested or are being harvested," he said.

Within a few years, he said, Gates will have to turn to smaller parcels, the west shore of Cook Inlet or Native corporation tracts on the south shore of Kachemak Bay. Logging in Chugach National Forest has been difficult, he said.

"You have (President Clinton's) roadless policy. You have the new administration. You have the potential for litigation that's inherent in all public land issues," he said.

Fried said the peninsula has seen a decade of slow economic growth -- 1 or 2 percent per year.

"A lot of our growth has come from the growth of federal dollars to the economy. It's not from growth in fishing or timber or oil," he said.

A gas pipeline to the Lower 48 could change everything, he said.

"But when you look at the next couple of years, short of a big project or a wild card, I don't see that changing," he said.

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