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Alaska Could Become An Early Victim Of The Oil Price War

Alaska

Alaska, the U.S. state most dependent on taxes and other income from the oil and gas industry, could be in for a severe budgetary headache after the oil price crash following the break-up of the OPEC+ alliance last week.  

Alaskan officials admit that the oil price collapse will impact state revenues and constrain spending options, but they see the oil market rout as a short-lived bump in the road. Analysts, however, are not so optimistic and warn that the fallout could be worse than just a blip.

In December 2019, Alaska expected Unrestricted General Fund (UGF) revenue to total $2.1 billion in FY 2020 and $2.0 billion in FY 2021. The revenue forecast was based on an annual average Alaska North Slope (ANS) oil price of $63.54 per barrel for FY 2020 and $59.00 per barrel for FY 2021.

On Thursday, the price of ANS was in the $30s.

“If low oil prices persist, it is likely to have a negative effect,” Timothy Little, director of U.S. public finance at S&P Global Ratings, told Bloomberg.

If oil prices stay at current levels for longer, they could cost Alaska’s economy some $300 million in revenue, according to Alaska Public Media.

Commenting on the oil price crash, Alaska Gov. Mike Dunleavy told a news conference on Monday:

“I would say this is definitely a momentary bump in the road for Alaska. Our oil patch is in it for the long haul.”

Oil and gas revenues account for around 90 percent of Alaska’s state revenues, while the crash in stock markets in recent days is also depreciating the value of the Alaska Permanent Fund.

Even before the Saudi-Russia oil price war, the fund had lost $2.8 billion of its value as of the beginning of March, due to declining oil prices and markets because of the coronavirus outbreak, Anchorage Daily News reported.

Texas, Oklahoma, and North Dakota also rely on the oil and gas industry for state income, but their share of oil income for the state budget is lower than in Alaska.

By Tsvetana Paraskova for Oilprice.com

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