Jessica Shepherd
Back in late March, when Alaska was reporting its first spate of Covid-19 cases, Reuters published a synopsis of the state’s economy. In the article Alaska State Senator Natasha von Imhof, co-chair of the Senate Finance Committee, was quoted as having said, “We are being hit on all sides with the stock market crash, oil prices plummeting and the tourism and fishing season all but idle.” To see the original article see here.
Now, nearly six months later, we wondered how Alaska was faring based on the parameters von Imhof used to measure the state’s economic resiliency. Following is an assessment of the oil industry, the Alaska Permanent Fund, tourism, and the seafood industry for mid-August. The picture is grim, but perhaps not as dire as it looked back in March.
On March 23rd, due to a Covid-induced stall-out in all things travel-related, oil prices plummeted from a high of $69 a barrel at the first of the year to just $23 a barrel. This equated to an overnight loss to Alaska’s treasury of some $500 to $700 million dollars. Given that the industry break-even cost of production is $39 a barrel, it was cheaper to leave oil in the ground. But the worst was ahead of us. In late April oil briefly dropped to below zero due to a glut on the market. In response, ConocoPhillips, Alaska’s biggest oil producer, announced plans to reduce production by 2,000 barrels per day and institute layoffs for 250 staff. This was followed shortly thereafter by Doyon’s announcement of 300 layoffs. As we all know, oil drives Alaska’s economic engine. As of this writing, on August 10th, oil is back up to $45 a barrel. Still well below the price at the beginning of the year, but significantly better than the March-April outlook.
Then there was the stock market dive, which sent the Permanent Fund in a tailspin. In two weeks, the fund declined by 10% to a value of $58.7 billion. Today, even after paying out a $992 dividend in July to all eligible Alaskans, the fund is back up to $64.7 billion. The stock market, which has been oddly resilient during the pandemic, has, to date, spared the fund from a sustained loss.
The tourist season was all but on hold in the spring as cruise ship companies canceled summer sailings and Canada closed the boarder to independent travelers. As a result, it’s been a quiet summer in Alaska’s tourist destinations. Restaurants remain closed or subsist on a subdued cliental of locals and in-state travelers. Alaska’s usually clogged highways are pleasantly uncongested, and towns like Cooper Landing, Telkeetna, and Skagway are eerily quiet. And the skies over communities like Homer are oddly still now that RavnAir has folded. There’s something to be said for uncrowded sidewalks and ample parking at the grocery store, but the loss in tourist dollars has many small business owners spooked. Even with relief funding and small business loans, places like the Alaska SeaLife Center in Seward, the Egan Center in Anchorage, and Chena Hot Springs Resort outside of Fairbanks, along with hundreds of bed and breakfasts, hotels, restaurants and shops have laid off staff and cut expenses to the bone, and they still aren’t making ends meet. Recovery, when it comes, will take a long time, and many of our favorite small businesses may no longer be there.
Finally, the seafood industry, which, as the second largest revenue stream in the state, contributes 5.2 billion dollars to the economy annually, faced a shortage of processing plant workers early in the season due to travel restrictions placed on the non-U.S. citizens who make up a large percent of seasonal workers. Citing concerns about Covid-spread among small, medically-underserved villages, local lawmakers in the Bristol Bay region went so far as to ask the governor to cancel the fishing season this year. In response, the state mandated a 14-day quarantine for out-of-state workers, and still, cases erupted aboard fishing vessels and at processing plants in Cordova, Whittier, Seward and Kodiak. In fact, the majority of non-residential cases in Alaska have been among seafood workers. Read more about Alaska’s fishing industry and Covid-19 cases here. Salmon runs in Bristol Bay were respectable, but the initial price came in at just 60 cents a pound, compared to $1.54 last year. And in Kodiak, Prince William Sound and Cook inlet sockeye runs were disappointing. Read more about Alaska’s 2020 salmon harvest here.
One indicator von Imhof did not take into account during her March economic assessment pertains to the state’s population. Alaska’s population has decreased for three consecutive years, declining from an all-time high of 741,456 on July 1 2016, to 731,545 on July 1, 2019. Figures for 2020 will come out later this month, but given the downturn in oil revenue and jobs, tourism, and, to a lesser degree, in fisheries, it’s likely the downward trajectory will continue.
So what do we make of this information? Alaska has ridden out the first six months of the Covid-19 pandemic a little better than expected, thanks to the whims of the stock market and oil prices. Unfortunately, the private sector hasn’t fared as well, and as we approach the fall and winter with no further federal support in sight, the difficulty of keeping small businesses afloat until next year may be prove to be too much for many shops, restaurants and other service industries. They will only survive to the degree that we, as consumers, support local businesses rather than relying on Amazon.com and Walmart. Please think on that the next time you shop.