How petroleum has transformed the Alaska economy: many underestimate extent of oil's contribution.

• Author: Goldsmith, Scott
• Position: OIL & GAS

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Everyone agrees petroleum is an important driver for the Alaska economy, but most Alaskans do not realize how different our economy would be without petroleum. Recent research at the Institute of Social and Economic Research of the University of Alaska Anchorage has produced some surprising new indicators that quantify the role petroleum has played in the growth and development of the Alaska economy.

Two-thirds of the growth of the economy since statehood can be traced to the petroleum industry. The economy would be about half of its current size if the petroleum resources of the Cook Inlet and North Slope had not been developed. One-third of all jobs can be traced, directly and indirectly, to petroleum production and the public revenues it produces. And finally, nearly the entire State general fund operating budget has been financed by petroleum revenues for 30 years.

It is critical that Alaskans understand the role that petroleum has played in the transformation of the economy since statehood and its importance today, because production peaked 20 years ago and has now fallen to only one-third of that level. Expansion of some other economic drivers--mining, tourism and air cargo--has offset a small part of the decline. But it has mostly been good fortune--the run-up in the price of oil and other commodities, a decade long boom in federal spending and a booming U.S. economy--that has served to temporarily shield our economy from the consequences of that precipitous decline in production.

Those booms have now passed, revealing that in spite of attempts to diversify the economy, we are still highly dependent on petroleum. If we are to maintain the strong economic performance we have grown to expect, the petroleum industry will need to play an important role.

Although high oil prices, federal spending and a booming world economy have diverted our attention from declining production, there are two other reasons why Alaskans tend to underestimate the contribution of petroleum to the economy.

First, unlike tourism or commercial fishing, most petroleum exploration, development and production takes place in the remote northern part of the state, far from the population centers, so we just do not see it. Second, most Alaskans have no memory of a time when petroleum was not driving the economy, so we have no basis for judging how much difference it has made in our economic lives.

ONE-THIRD OF JOBS FROM PETROLEUM PRODUCTION AND REVENUES

The oil companies directly employ only about 3 percent of the total work force, but more than 40,000 Alaska jobs are supported, directly and indirectly, by their spending. They purchase billions of dollars of services and materials from other Alaska businesses that provide everything from transportation to construction, to camp support services to the oil companies. In...