Friday, December 23, 2011

Alaska’s economy expected to muddle along in 2012

Tim Bradner
Alaska Journal of Commerce

Alaska’s economy is doing OK, muddling along, but here are key things to watch for in 2012:

• Oil prices. State Department of Revenue petroleum economists expect prices to remain strong through 2012 and 2013 at about the current $100 per barrel-plus, but continued weakness in the U.S. and world economy could bring softer prices.

That’s good for consumers – especially at the gas pump – but bad news for the state treasury. Declining oil production is expected to cause a $700 million decline in state revenues next year even if oil prices remain at current levels, and any softening of prices will cause the slide in revenues to accelerate.

Oil pays for about 90 percent of the state budget, and directly and indirectly accounts for a third of the state’s economic activity, according to University of Alaska studies.

Oil industry activity is expected to remain stable, although new projects in the existing producing fields will be down. This should be offset to some degree by expanded exploration drilling this winter, however. The industry will watch closely possible actions in the state Legislature in early 2012 in making adjustments in the state oil production tax. If changes are made it would stimulate activity in the large producing fields.

• State of Alaska. State spending is a major driver in the state’s economy and despite some uncertainty over oil revenues, the state operating and capital budgets are expected to be at ranges similar to the current year. Gov. Sean Parnell’s proposed capital budget released Dec. 15 reflects a $600 million reduction from the current year capital budget, but Parnell said he has “left room” in the capital budget for the Legislature to make additions, which it will surely do.

The capital budget usually totals several billion dollars and is spent mainly on construction. It is important to the state’s construction industry.

• Federal cuts. The federal government accounts for about a third of Alaska’s economy, and federal installations and programs are expected to be hit with budget reductions as Congress tries to rein in spending and reduce massive deficits.

• Mining activity. Minerals development is expected to remain strong, although metals prices – particularly for metals like gold, silver and zinc now produced in Alaska – may be volatile amid continued weakness in the economy. Alaska’s major producing mines are producing at expected levels and several new mines are in advanced stages of development.

Mining developments to watch include the large gold project at Donlin Creek being developed by Donlin Gold, a joint venture of Barrick Gold and NovaGold Resources; the International Tower Hills gold project near Livengood, north of Fairbanks; the large Pebble copper/gold project near Illiamna, southwest of Anchorage; and the Niblack multi-metals project near Ketchikan, in Southeast Alaska.

The Donlin Gold partners are expected to file for long-planned environmental permits in April 2012. A key factor will be a source of energy for the project. The current plan is for a natural gas pipeline to be built from Southcentral Alaska. Donlin Gold project is on land owned by Calista Corp. and The Kuskokwim Corp.

International Tower Hills is now finalizing a pre-feasibility study for its Livengood gold project, an important milestone. If the project moves to development it would be a large surface mine similar.,, and possibly larger, than the Fort Knox gold mine northeast of Fairbanks, which is now producing. Power supply is important to International Tower Hills also, and the current plan is for a long-distance electrical transmission line to be built to the mine from Fairbanks along the Elliot Highway.

Golden Valley Electric Association, the Interior electric cooperative, would supply power to the Livengood mine as it does to Fort Knox.

Pebble project partners Anglo American and Northern Dynasty Minerals are engaged in planning and continued environmental studies. At Niblack, project developers are in advanced stages of exploration to expand the base of confirmed resources. If that mine moves to development, it would be similar to the producing Greens Creek Mine near Juneau.

• Fisheries. This sector continues to be an important, traditional industry for Alaska. The annual salmon harvest always has surprises, but the estimates now are for the big Bristol Bay harvest to be similar to 2011; upper Cook Inlet to be better, and Southeast harvests, mainly of pink salmon, to be lower that this year.

The big groundfish offshore fisheries are generally stable. The Bering Sea pollock harvest is expected to be about the same as this year, and Bering Sea cod catches will be up. In the Gulf of Alaska pollock catches will be up. The winter snow crab fishery will see a nice bump in allowable catches to the highest allowable harvests in years.

Halibut catches will be down statewide as regulators restrict harvests to help the biomass rebuild, although the Southeast allowable catch will be up a little from this year. The restrictions will affect commercial harvesters as well as sports fish charter operators for whom halibut fishing is a big draw for clients.

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