Alaska’s Oil Industry May Be On Its Last Legs

By Felicity Bradstock - Aug 26, 2021

Last week a judge halted the latest Alaskan oil project following a year of disappointment due to the Covid related drop in oil demand and the cancellation of project after project as the green transition takes hold. It’s hard not to be concerned over the future of Alaskan oil. As locals say they need Alaskan oil for jobs and income, Biden and other forces seem insistent on curbing production in the oil-rich region. 

Just last week, a U.S. judge rejected approvals for a large oil project on Alaska’s North Slope, already approved by ex-President Trump’s administration in 2020, largely due to environmental concerns. ConocoPhillips’ Willow Project in the National Petroleum Reserve-Alaska previously approved development included three drill sites, associated processing facilities, gravel roads, and pipelines on the North Slope, with the potential for further development in the future. 

The project was expected to produce as much as 160,000 bpd of oil, meaning a total of around 590 million barrels over three decades. In addition, the project would have created around 1,000 construction jobs and 400 long-term operations jobs. 

Is it for this reason that many locals are battling it out against environmentalists and international agencies to keep the state’s oil and gas industry running for as long as possible. With an economy largely built on energy, many believe that halting oil and gas developments will leave Alaska with high levels of unemployment and significantly reduced revenue levels.

Alaskan oil and gas has already been hit hard by the Covid-19 pandemic, which left thousands unemployed and saw the lowest levels of Alaskan oil production in over 40 years. In 2020, Alaska lost around 3,000 oil and gas jobs, a reduction from 10,000 employed in the industry to fewer than 6,900, representing the lowest employment rate in the industry in 30 years. 

This is a trend that looks set to continue following the inauguration of President Biden in January this year, who made his stance on climate change and his intended shift away from oil and gas clear; as well as recent landmark reports on the need to replace fossil fuels with renewables over the next decade by both the IEA and the IPCC. 

This August, Biden has once again been bashed for his movement away from national oil, as several complain that it’s costing both jobs and the national economy, while the U.S. continues to rely on foreign oil to meet its needs. 

Biden was criticized by U.S. and Canadian oil supporters earlier this month when he plead with Saudi Arabia and OPEC+ to increase output in order to stabilize international oil prices. Oil majors and politicians suggested that North America would not be in this situation if new projects had been carried out, and output had returned to pre-pandemic levels. After Biden’s request was denied earlier this month, much of the public reiterated this sentiment, as millions of Americans are currently facing ever-rising gasoline prices in the wake of a global pandemic. 

The Governor of Alaska, Mike Dunleavy, sent out a strong message to Biden and the federal judge on their decisions to move away from fossil fuel production in the oil-rich Alaskan region. Dunleavy stated, “Make no mistake, today’s ruling from a federal judge trying to shelve a major oil project on American soil does one thing: outsources production to dictatorships & terrorist organizations”. “This is a horrible decision. We are giving America over to our enemies piece by piece. The Willow project would power America with 160,000 barrels a day, provide 1000s of family-supporting jobs, and greatly benefit the people of Alaska.” 

Related: House Democrats Seek More Oil Drilling Bans

However, the mismanagement of oil revenue in Alaska cannot be overlooked. Despite establishing the Alaska Permanent Fund in 1976 as a means of investing a percentage of the state’s oil revenue in investments in bonds, stocks, real estate, infrastructure, and private entities for the future of the economy, the Alaskan government and big oil operators have been repeatedly criticized for spending on shareholder interests rather than giving oil revenue back to Alaskans themselves. 

In addition, Alaskan oil revenue had been declining long before the pandemic hit, with the government facing a deficit of $1.5 billion at the beginning of 2020. With the largest oil field discovered in North America, Alaskan oil boomed in the late 1960s and following decades. However, it has been in a state of decline since its peak in 1988, falling from a production level of 2 million bpd to under 1 million bpd in 2002. By 2020, Alaska was producing around 460,000 bpd of oil.  

So, while we can blame Biden and environmentalism for the recent loss in Alaska’s oil economy and its rising unemployment levels, Alaska must respond to the decades of decline that came before. It may still have a few years left in it, with existing production remaining relatively steady, but one thing is sure, Alaska must invest more heavily in its non-oil sector if it hopes to thrive once again.  

By Felicity Bradstock for Oilprice.com