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Alaska Oil Rides High

Posted on: Monday, 8 August 2005, 12:00 CDT

Aug. 6--Alaska's oil price hit another milestone Friday, closing above $60 per barrel for the first time.

It was less than 10 months ago that Alaska oil topped $50.

North Slope crude oil for delivery to West Coast refineries settled Friday at $60.26, up 93 cents from the day before.

The lofty oil price is not a record when factoring in inflation. In the early 1980s, a time roiled by the Iran hostage crisis and the Iran-Iraq war, Alaska oil brought more than $70.

Several factors rattled oil markets and encouraged traders to bid up oil prices Friday, including refinery breakdowns around the country. A U.S. Department of Energy report this week also showed declines in gasoline inventories, raising worries of whether refineries can keep up.

High oil prices are a mixed blessing for Alaskans. On one hand, state coffers are growing fatter on higher-than-expected oil tax and royalty collections. But pump prices for gasoline and diesel are running well above $2 a gallon in urban Alaska just as they are in states with no Prudhoe Bay.

Alaska oil revenue might be even higher were it not for recent dips in North Slope production. So far this month, daily production is running at about 700,000 barrels, about 200,000 barrels shy of normal. A contributing factor is equipment maintenance at Milne Point, crimping output from one of the Slope's big fields.

Last year, unexpectedly high oil prices yielded about $1 billion in extra state oil revenue, enough for lawmakers in Juneau to balance the budget and boost spending for education, roads and other projects.

With oil prices running so high, some lawmakers are pushing legislation to increase oil taxes. They say oil companies are walking away with too much profit on Alaska oil.

Two of the biggest producers, ConocoPhillips and BP, reported making $1.8 billion each in profit on Alaska oil production in 2004, and their profits might be even stronger this year.

Dan Dickinson, special projects director for the state Department of Revenue, said Friday he'd heard of no plans afoot for spending what is shaping up as another big oil surplus this year. But wish lists likely are forming, he said.

"Can you say Knik Arm bridge? There's going to be lots of demands on that money. That'd be one of them," he said.

The state might also use the money to buy a share of a planned pipeline to carry the North Slope's long-stranded natural gas bonanza to the Lower 48. The project is expected to cost up to $20 billion, depending on how long the pipeline runs, and Dickinson and other state officials are locked in intense negotiations with energy companies now on a contract to spell out tax and other terms should someone decide to build the project.

To balance the state budget, the average daily oil price for the year must be about $46.

Friday's closing price is much higher than that, but whether the price will stay in record territory is a complex question, said Michael Williams, the Revenue Department's chief economist.

The world is not running short of oil, he said.

Rather, oil traders are reacting to an array of worries -- political instability, tight refining capacity, whether a hurricane will knock out oil platforms in the Gulf of Mexico.

"The traders are very nervous. They perceive it doesn't take much to throw things out of whack," Williams said.

He doubts the Alaska oil price can hold at $60 for the rest of the year, but adds: "I'm already surprised by what's happened."

Longer term, he believes world oil prices are likely to go down.

"The seeds are being sewn for a steep decline," he said. People and businesses struggling with high fuel prices are demanding more fuel-efficient cars and airplanes, for instance. Meantime, drilling worldwide has greatly intensified.

When consumption goes down and new oil flows into the market, that's a recipe likely to depress oil prices, Williams said.

The Associated Press contributed to this story.

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COP, BP,

Source: Anchorage Daily News

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