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State surplus forecast

Posted: Wednesday, December 13, 2000

ANCHORAGE -- The recent high price of oil means the state should produce a budget surplus this year, according to the fall forecast released Tuesday by the state Department of Revenue.

The department predicts an average price for North Slope crude of $30.70 per barrel for this fiscal year ending June 30, said Revenue Commissioner Wilson Condon. If the predictions are accurate, that will help state government earn $116.5 million more than it spends.

The state last produced a surplus in fiscal year 1997. To make up the difference between income and spending, the Legislature since then has authorized spending from the Constitutional Budget Reserve, the state's main savings account.

The earnings abundance this year is expected to be short-lived. Condon said the department predicts oil prices will average $24.28 per barrel next fiscal year. At that price, the state will again have to draw from the Constitutional Budget Reserve to cover the cost of public services.

''We see prices trending down back to the long-term average where they've been since the price crash at the end of 1985 and the beginning of 1986,'' Condon said.

Condon said the Constitutional Budget Reserve contains $2.7 billion. Any surplus by law must be deposited into the reserve.

The department predicts a $514 million draw from the reserve in fiscal year 2002 and a $716 million draw in 2003.

Based on the forecast Tuesday, the department predicts the reserve will run dry in December 2005.

As high oil prices extend the life of the reserve, pressure has dropped on legislators to develop a long-term spending plan.

In fiscal year 1999, North Slope oil averaged just $12.70 per barrel and almost half of the state's $2.4 billion budget came from the reserve -- almost a third of the account.

The main reason revenue has diminished is the drop in production. Condon said production is expected to hold steady at about 1 million barrels per day, about half of what it was when the Prudhoe Bay field was at its peak production in 1998. Production continues to drop at the Prudhoe Bay and Kuparuk fields but is being supplemented by new fields and satellite fields.

The forecast does not estimate any revenue from North Slope natural gas production or oil development in the Arctic National Wildlife Refuge.

It also does not forecast revenue from new taxes.

Oil prices reached $35.62 in September, the highest price since it exceeded $40 per barrel in the early 1980s.

Department of revenue forecasters believe North Slope oil prices will remain above historical levels for the next four years before settling at about $17 per barrel.

The price of North Slope crude closed at $24.93 per barrel Tuesday in spot market trading in New York.

Condon said prices will fall as the world's oil supply moves more into line with demand and as speculation in the market subsides.



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