Alaska cannot count on oil prices staying at $30-plus per barrel

Nearly lost in the wildfire smoke this week was the news that the state of Alaska has ended the fiscal year with a financial surplus. Really, you ask? The important story got crowded off the front page of this newspaper by the fires scouring the Fairbanks area and other parts of the Interior, so some people may have missed it.

It's worth reading, for the implications are great.

Oil prices that have averaged about $32 a barrel for the past 12 months are the reason for the change in fortune that has, according to preliminary figures, put the state in the black by about $40 million to $50 million. That's quite a change from the circumstances at the time the budget for the just-concluded fiscal year was being assembled. Back then, the state's leaders were speaking of a shortfall approaching $400 million.

If anyone needs a reminder of oil's role and influence in this state, this is it. The soaring prices have undercut what had been a rising sense of urgency, to Alaska's benefit, that the state government's out-of-whack financial regime needs some realignment. The deflated urgency in Juneau is unfortunate but expected. And the fact that the ''Why worry now?'' reaction was expected is itself unfortunate.

Alaska's political institutions seem to prefer reacting when crisis is imminent. Certainly there are individual members and former members of the House and Senate who over the years have tried to find a fiscal solution regardless of whether the state was looking at a surplus, a small deficit or a large shortfall. And the present occupant of the governor's mansion has indicated he believes the urgency remains.

It's a belief that all Alaskans should share. Regardless of high oil prices, Alaska still has a fundamental problem in its long-term outlook. Oil prices simply cannot remain in the range of the upper $30s to $40 or more per barrel for years on end. Those levels reflect not only a tight supply due to strong demand but also the terrorist threat to oil fields, particularly in the Middle East. Analysts say that oil should be trading at about $30 a barrel when considering only supply and demand. And that's where the problem exists for Alaska.

The state Department of Revenue's oil price forecast from April, one of two forecasts issued annually, says North Slope crude should average $28.35 for the 2005 fiscal year, which began Thursday. That's about $4 lower than the average price for the fiscal 2004. And with each $1 change in the per barrel price equaling about $65 million in revenue for the state, the swing could total about $260 million if the prediction holds.

And that is why Alaska needs to fix its finances.

Fairbanks Daily News-Miner

July 3