Alaska estimated each $1 rise in oil prices above its spring forecast would add $45 million to state revenue this year, the Alaska Department of Revenue’s deputy commissioner said.
The extra revenue gives the state more money for public spending and payments to residents. But higher fuel bills absorb those benefits unevenly, especially in remote communities dependent on heating oil.
Bloomberg Television’s “Inside Alaska’s Oil Paradox,” published Nov. 7, described how higher oil prices during the Iran war have increased Alaska’s income while raising household costs.
Brett Watson, a natural resource economics professor at an Anchorage university, put heating oil prices in some communities at $10 to $20 a gallon. Deliveries by barge leave residents facing those prices through winter.
“The prices that they’re paying today are what they should expect to pay for the rest of the winter,” Watson said. The next barge arrives in spring.
The department’s spring forecast assumed oil at $75 a barrel. Alaska collects royalties, payments for extracting its resources, ranging from 12.5% to 16.6%, depending on when and where it issued leases.
Between 25% and 50% of those royalty receipts goes into the permanent fund, which invests resource income for the state. Another 0.5% goes to a public school trust, with the remainder entering the general fund.
The department also collects a 35% production tax based on net profits and a 9.4% corporate income tax. Higher company revenue from increased production and oil prices can therefore increase state receipts through several channels.
Alaska paid residents a $1,000 dividend this year and an additional $200 energy rebate. The extra payment arrived in early October.
The state’s budget provided for an unexpected $200 million to go to education and another $200 million to increase dividend payments. A further energy supplement remained a possibility for discussion when lawmakers reconvene in January.
Higher household costs around Anchorage were roughly offset by government payments, while residents in more remote areas could face a shortfall. Whether the state fully compensates residents depends on spending decisions.
Alaska’s oil production peaked in 1988 and declined for decades. Steve Wackowski, president and chief executive of the Alaska Oil and Gas Association, credited tax incentives with supporting older fields and attracting new producers.
He pointed to Hilcorp’s work at Milne Point and investment by Santos and Repsol in Pikka, where production began this summer. Alaska projects take years to develop, limiting producers’ ability to respond quickly to higher prices.
Wackowski called for tighter permitting deadlines and better coordination among agencies. He said approval for Willow’s satellite production and processing facilities took more than three years.
“We’re not celebrating war,” Wackowski said, quoting testimony about the financial benefit of higher commodity prices. He acknowledged that families still struggle to pay for gasoline and heating oil.
