Condon: Oil prices higher, production lower

Posted: Wednesday, November 27, 2002

JUNEAU (AP) -- North Slope oil is expected to fetch a higher price per barrel over the next several years than previously expected, state Revenue Commissioner Wilson Condon said Tuesday, meaning less of a strain on the state's budget.

Alaska North Slope crude oil is projected to average $25.94 per barrel this fiscal year ending June 30 before settling down into a long-term average price of $22 per barrel, Condon said.

But with oil production still expected to remain below 1 million barrels per day for several years, the state's budget gap is just as imposing, he said.

Condon made his remarks while unveiling the state Department of Revenue fall forecast, a voluminous document meant to guide the next governor and Legislature in crafting a budget. Gov.-elect Frank Murkowski takes office on Monday and is expected to submit a budget to the Legislature by Dec. 15.

Breaking from several years of dour predictions about North Slope oil prices, Condon's estimates this year are more closely aligned with OPEC targets.

The revenue department had been predicting that North Slope crude would remain below $21 per barrel this year. But since the beginning of this fiscal year in July, Alaska North Slope oil has averaged $26.43 per barrel.

It's important news because oil royalties and taxes make up about 80 percent of the state's revenue. Equally as important to the state is oil production.

Condon said oil production topped 1 million barrels per day in fiscal 2002, which ended June 30, but isn't expected to return to that level for another six years without future development.

Alaska has a chronic budget deficit that has been filled in past years from the $2 billion Constitutional Budget Reserve.

But in recent years the Knowles administration has worried that the reserve account will run dry. The slightly brighter oil forecast unveiled on Tuesday gives the budget reserve account another eight months of life.

The state's budget reserve is expected to be depleted by June 30, 2005 if the revenue department's estimates hold true, the report said. The state's budget deficit is expected to be more than $1 billion that same fiscal year, the report said.

Democrats and moderate Republicans who pushed for new revenue measures to lessen the state's dependence on oil fear when the account is finally exhausted the Legislature will be forced to make deep cuts in state services.

Lawmakers approved $738 million draw from the surplus account last year to fill the state's budget shortfall and are expected to be asked for another $747 million this year, Condon said.

Condon, who leaves office next Monday when Democrat Gov. Tony Knowles steps down, said the state still needs to find new revenues.

Murkowski will begin a Republican administration after Knowles is gone. Murkowski won election campaigning for more resource extraction and pledges to fight new taxes.

Republicans who control the Legislature said they hope to make changes in the state's regulatory climate to spur increased production and exploration at existing and satellite fields.

Sen. Gene Therriault, R-North Pole, who will become the new state Senate president when the Legislature returns in January, criticized past revenue department predictions as being too conservative. The result is a more gloomy fiscal picture for lawmakers considering ways to craft a state spending plan without new taxes.

''There's been some suspicion over a number of years that they have picked a lower number than what reality had indicated it would be,'' Therriault said.

The state Department of Revenue had been estimating that oil prices would average about $17.50 per barrel in the coming years. But OPEC has demonstrated an ability to prop up world crude prices within its own target ranges over the past three years, Condon said.

OPEC's target range for crude oil is between $22 and $28 per barrel, state revenue officials said. A recovering U.S. economy and the prospects of war with Iraq have kept oil prices toward the upper OPEC range, the department said.

War with Iraq could drive the average price of North Slope oil to $27.94 per barrel this fiscal year with a post-war dip to below $21 per barrel, the department said.

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