Saturday, October 18, 2014

Things worth reading ...

Two recent articles in Foreign Policy are worth reading.  The first, "When the Petrodollars run out," analyzes the ability of various global petrostates -- and let's not kid ourselves, Alaska is one of those -- to withstand what the writer views as a prolonged decline in global oil prices.   Unfortunately, Alaska is never directly mentioned in these sorts of articles, but normally I am able to come up with numbers for Alaska that enable me to place it in the analysis.

This article focuses on three factors to determine vulnerability -- percent of government revenue derived from oil, percent of GDP derived from oil and the size of the government's sovereign wealth fund.  The higher the first and second, and lower the third, the more vulnerable the government.

Alaska is off the charts in terms of percent of government revenue derived from oil.  At 90+%, Alaska easily ranks among the Top 5 in the world -- on a par (and actually, a little ahead) of Libya, Brunei, Kuwait, Saudi and Bahrain.

Alaska is somewhat better positioned in terms of of percent of GDP derived from oil -- although Alaska's number is a little misleading.  According to the most recent data from the Bureau of Economic Analysis, Oil & Gas Extraction represents "only" (remember that we are comparing this to other petrostates) roughly 25% of Alaska's current GDP, relatively low among its peers.

The challenge with Alaska, however, is that oil-related dollars also drive a number of other economic sectors, which if included, would make the number much higher.  For example, state and local government accounts for another 8% of GDP.  Because a large part of the revenues driving those activities are derived from oil, one could make a case for accounting for a significant part of that percentage in the oil column as well.  But that may be the case also for some other petrostates and so, rather than divert off on what could become a days -- if not weeks -- long exercise attempting to make certain everything is stated on an apples to apples basis, I am good with continuing to think of Alaska as somewhere in the middle of the pack on this criteria.

Alaska is also relatively well positioned in terms of the size of our sovereign wealth fund.  While not as large as Saudi's ($743 billion) or Kuwait's ($410 billion), at $50 billion Alaska's fund is larger than most of the rest.  Interestingly, on the three factors discussed in the article, Alaska most (and in fact, closely) resembles ... Libya.  That's not a good thing.  Read more here.

The second article from earlier this month, "Oil Prices Are Falling, Not Oil Regimes," somewhat examines the same issue, though more from the standpoint of budget issues.  Again, Alaska is not mentioned but can be inserted into the story.  Alaska's current budget has a breakeven price of $117/barrel, not the highest in the world -- Iran's is estimated to be $130 -- but, as with the percent of government revenue derived from oil -- in the Top 5 globally.  As the article points out, that is not a good place to be -- at all -- at this particular moment in history.  Read more here.