Falling Oil Prices Crush Alaska Budget

Walker warned in an op-ed published by the Alaska Dispatch News that Alaska’s budget, which depends on the oil industry to provide 88 cents of every dollar spent by state government, was unsustainable.

“Imagine your family’s biggest source of income plummeting by 80 percent in one year. At today’s oil prices, that’s Alaska’s situation. The state’s oil and gas production tax is expected to bring the state $524 million in the current fiscal year, a shocking drop from the $2.6 billion collected last year,” Walker wrote.

As dire as that scenario is, Walker explained it is made even worse by Alaska’s tax credits to oil and gas companies that for the first time in history will result in negative returns to the state.

“The Alaska Department of Revenue projects the state will pay $625 million to producers through various oil and gas production credits. Subtract that from $524 million in production tax revenue, and we’re about $100 million in the red. Next year, the problem is expected to worsen, with the state netting negative $400 million on what has traditionally been our biggest source of unrestricted revenue,” Walker wrote.

“I have learned these bitter facts over the past few weeks, and I feel obliged to tell Alaskans the hard truth.”

But just as with the current budget dilemma, even if Alaskans figure out how to cut off the flow of tax revenue to the oil and gas industry, state politicians are still cowering under a Sword of Damocles because Alaska’s oil industry is doomed.

The price of Alaska crude hit a four-year low of $60.80 a barrel in mid-December 2014, just a couple of weeks before Walker penned his first warning of impending disaster.

Falling production in Alaska’s oil fields is adding to the crisis.

This is not a new problem. Alaska's production from 1988 until 2011 fell at a rate of approximately 61,000 barrels per day on a yearly basis, according to the U.S. Energy Information Administration.

Assuming crude prices of $100 a barrel, this represents a $2.228 billion decrease in yearly income, the financial web newsletter Seeking Alpha reported.

At the state's present rate of decline, that means the state will stop producing in roughly the year 2021.

When will the end of Alaska’s oil industry come? Even if Alaska produces about a billion barrels a day for the foreseeable future, Seeking Alpha predicted, Alaska's crude production will last only until 2062.

And that is the best-case scenario.