Oil prices soared by over 8 percent on Thursday, with Brent crude hitting over $105 a barrel for the first time since 2014, and Alaska crude oil prices expected in the same range. The price of Alaska North Slope crude is published a couple of days behind the other major oil markets.
The price surge came after Russia launched a widespread attack on Ukraine, where ports in the Donetsk region ship out commodities, including grain, steel, and gas from Russia to the European Union. The pressure on energy, with oil prices now at levels not seen since early 2014, adds to already extraordinary inflation in the United States, Europe, and around the world.
Russia on Wednesday launched the multi-prolonged attack on Ukraine by air, land, and sea, and captured the mothballed-but-toxic Chernobyl nuclear power plant.
What does the Russia-Ukraine war mean for the State of Alaska’s budget, now that the state is two-thirds of the way through the current 2022 fiscal year?
The Russian invasion means oil and gas commodities will remain high for months to come and that the State of Alaska budget this year will end up with a significant surplus. For 2022, the revenue forecast was based on $75.72 oil and $71 per barrel for Fiscal Year 2023. The prices were said to stay in the $60 range through 2030.
Will this mean the Legislature will act on the governor’s supplemental budget, which proposes to pay Alaskans the rest of last year’s Permanent Fund dividend — about $1,200 more than the half-dividend that was paid in October?
This is not a certainty, since many in the Legislature don’t want to set a precedent of giving Alaskans their full share of the oil wealth. But those who have argued that the money is not there for full dividends now have no argument to stand on. This is also an election year for all but one member of the Legislature, and they will be hearing about high fuel prices from their constituents.
What will high oil prices — say, extended periods of over $100 a barrel — mean for the 2023 fiscal year budget that is now being shaped by House and Senate Finance committees? If the past is any indicator, the pressure will be on to spend more, expand programs, and increase government worker wages and benefits.
In play now, for example, is a bill that would create a defined benefit package for Alaska State Troopers, police officers, firefighters and correctional officers — a plan that may lead to decades of increased state spending. House Bill 55 passed the House last year, 25-5, and is now in onto the Senate last year on a 25-5 vote. It would cost the state about $6 million more a year. There could be many more nickel-and-dime increases put into the state budget under the cover of having surpluses.
If prices remain in this ballpark, just from value of royalties alone, there will be an additional $1 billion deposited into the Permanent Fund this year.
The Department of Revenue published an update on prices on Feb. 15, before the conflict broke out in Eastern Europe.
That document is here.
Will the Legislature repay the borrowing from the Constitutional Budget Reserve? The Legislature owes at least $12 billion to the Constitutional Budget Reserve. That is supposed to be paid back, but nothing forces the Legislature to actually do that. It’s not likely that this Legislature, in an election year, will see that as a high priority.
Can the governor just give out an energy rebate like Gov. Palin did? The increase in oil prices, just like 2005-2014, is great for treasury of the State of Alaska, but now, as then, it is a punishing economic hardship for Alaskans who fuel up and who heat with heating oil. During the administration of Gov. Sarah Palin, Alaskans got a historically high dividend, and an energy rebate check as well. But this Legislature is not the same as the one that approved the energy rebate in 2008, when Palin approved the expenditure and then was given credit for it.
Gov. Mike Dunleavy cannot give the people anything without the authorization of the Legislature. The current Legislature will not want to give a rebate that would make Dunleavy look good during his re-election season.