After two years of volatility, including some of the lowest oil prices on record, Alaska’s North Slope crude has been over $100 a barrel since March. High oil prices are associated with increased oil revenue and economic activity in the state — but how much do individual Alaskans feel those benefits? We spoke to state economist Sara Teel to find out.
Teel says the recent highs follow a long period of uncertainty in the industry.
The following transcript has been lightly edited for clarity.
Sara Teel: We have definitely seen those kinds of lows and those kinds of highs. In March/April of 2020, we saw prices plunge into the negative territory. And that was for a number of reasons. We had a price war that was going on between Russia and Saudi Arabia. And then we had that rapid drop in demand, because we had people that were staying at home and enacting the mitigation tactics that we were using due to COVID. And then within two years, it shot up to well over $100. And now we’re hitting $120. And that’s just a massive increase in price. It creates a lot of volatility.
Kavitha George: And the most recent increase has also been influenced by Russia’s invasion of Ukraine, correct?
ST: Yes, we’ve seen a marked increase in oil prices since that happened.
KG: As well as increased demand as the pandemic has kind of abated.
ST: Exactly, at the same time. And then we’ve also been having supply bottlenecks. And so we have a disconnect between supply and demand. And so that’s one of the reasons we’re seeing high oil prices right now.
KG: Alaska was still recovering from a recession when the pandemic hit in 2020. Can you talk about where oil and gas jobs were around that time when the pandemic started, and how have jobs numbers changed since then?
ST: Well, before the pandemic hit, we were seeing an increase in the number of oil and gas jobs. In fact, we finally broke the 10,000 mark for the first time in several years. And then when COVID hit, and we lost a lot of jobs, we lost about a third of our jobs.
Since then we’ve had roughly an increase of about 12%. So a 12% recovery.
KG: Got it. So when oil prices are high, does that necessarily translate to more jobs? Whether directly in oil and gas or in related activities?
ST: That is a complicated question. It depends on what industry we’re talking about. It also depends on where. Oil projects in Alaska tend to be very expensive. And they tend to take a long time. And so when there’s fluctuations in oil prices, it just creates more risk. And so we don’t always see an immediate increase in the number of jobs even when oil prices go up. It takes time.
KG: How are oil companies responding to the volatility we’re seeing?
ST: One aspect of that I don’t think I’ve ever heard of happening before is that for publicly traded oil companies, there is additional pressure on them to be restrained in how they’re spending with their capital budgets. So with their projects that they invest in. In the past, when oil prices have been high, oftentimes, oil companies will produce under the mantra “drill, baby drill.” So they just go crazy with their drilling, but it doesn’t always pan out. And so even though oil prices are quite high, the publicly traded oil companies are not acting like they did before this happened, they’re restrained with their spending.
KG: Do you think that hiring has been similarly cautious since the pandemic low in 2020?
ST: It’s hard to say. They certainly have not hired on like they did before, but that could be a combination of not finding staff or they’re not spending as much money. At least from my position, I’m not sure yet. I’m going to have to wait to see.
KG: What do higher oil prices mean, for Alaska’s economy as a whole? I think there are some obvious benefits like increased oil revenues for the state, presumably more economic activity. But at the same time, Alaskans are also feeling the effects of inflation and high gas prices at home. So, is $120 a barrel crude a reason for Alaskans to get excited?
ST: I think that might be very individual specific. It’s really two sides of the same coin. So we definitely are going to see an increase in revenue to the state itself. And then we can see that when they divvy out their funds, for example in schools [and other services]. But at the same time, because it’s higher oil prices, we have to pay higher out of pocket for pretty much everything.
It’s going to take time for the benefits, but the costs are going to probably come a little bit sooner. It’s a double edged sword.