Spring production forecast: ‘Catastrophic’ drop predicted by Walker

Friday, the 88th day of the legislative session, will be historic, but not in a good way:

Income taxes: Rep. Paul Seaton of Homer will introduce income tax legislation onto the House floor for a vote. Democrats will insist HB 115 is needed to patch the fiscal gap. It will likely pass the House on a caucus vote after Republicans state their lengthy objections.

Oil taxes: Senate Resources is hearing HB 111, the House Democrats’ plan to scrape more taxes out of oil companies in Alaska.

Catastrophic oil prediction: But neither the income tax nor the oil tax hold a candle to what’s happening in Senate Finance.

The 2018 oil production forecast (Revenue Sources Book) will be presented by the Walker Administration, and legislators are now hearing that the Revenue Department predicts an unheard-of 12 percent drop in throughput in the Trans Alaska Pipeline System (TAPS) in 2018.

No one that Must Read Alaska spoke to tonight could ever recall such a year-over-year reduction in production.

“It’s a catastrophic prediction,” said one industry insider. “I don’t know how they could arrive at that number.”

The Walker Administration is predicting that Alaska oil production will drop to its lowest point in history.

Senate Finance convenes at 9 am, and at the microphone will be Department of Natural Resources Commissioner Andy Mack, and Revenue Commissioner Randall Hoffbeck.

The two will be presenting a forecast that predicts an actual swing of 14 percent in production from fiscal year 2017, which ends in July.

This is the second forecast produced in-house by the Department of Natural Resources. Prior to last July, it had been done by a third party contractor.

In 2016, the department predicted a 7 percent drop for fiscal year 17. The actual production is up by 2 percent, which means the department missed by 9 percent.

“What’s remarkable is that they were already several months into the fiscal year when they were forecasting that, and they still missed by 9 percent,” said one long-time analyst.

Now, the spring forecast for next fiscal year has a reduction never before seen in the history of the pipeline.

Kara Moriarty of the Alaska Oil and Gas Association was doubtful.

“We don’t expect to see that kind of drop and we will be keen to see what they are basing their prediction on,” she said.

OIL PRODUCTION HAS BEEN GOING UP

The first quarter for 2017 has been promising, with a four percent increase in production over the first quarter of 2016.

This month, throughput actually hit 570,000 barrels per day at one point. Yesterday, the throughput was 557,708 barrels.

In fact, the lowest throughput in the history of TAPS was in 2014, when oil production dropped to 513,441 barrels. That’s when Senate Bill 21 was passed and companies began investing again.

Now, the Walker Administration is predicting production at 459,000 barrels a day, nearly 100,000 barrels fewer than today’s production.

There are a couple of ways this radical forecast can be explained: Either the Department of Natural Resources doesn’t have good modeling capabilities, or it is cooking the books to show less revenue in order to push through HB 115 and HB 111, income taxes and higher oil taxes.

“This is part of a Walker pattern to manipulate the public consent and outrage, with numbers that literally defy reality,” one analyst said. “I remember when under ACES decline was 4-6 percent, and people were freaking out. Now it’s 12 percent? This is a political forecast, not an oil forecast.”

In just nine years, according to Walker’s forecast, the pipeline will need to be shut down because the flow of oil will be too low to move it safely.

Any amount below 350,000 barrels a day is thought to be untenable, and could lead to breakages in the portions of the line that are underground, due to pressure from frost heaves.

Must Read Alaska will be posting new information as it becomes available, so check back.