ALASKA PIPELINE REPORT

ii

ALASKA PIPELINE REP RT Alaska's Economy,.

Oil and Gas Industry Development, and the Economic Impact of Building

and Operating the Trans-Alaska Pipeline

by

Arion R. Tussing George W. Rogers & Victor Fischer

with

Richard Norgaard & Gregg Erickson

(Study prepared for the Secretary, U.S. Department of the Interior)

Institute of Social, Economic and Government Research University of Alaska

Library of Congress Catalog Number 79-175625 Series: ISEGR Report No. 31

Published by Institute of Social, Economic and Government Research Fairbanks, Alaska 1971

PREFACE

Oil was discovered on Alaska's arctic coast in 1968. The strike, which appeared significant from the start, caused great excitement and expectation in Alaska and elsewhere. Planning began immedi­ately for construction of a trans-Alaska pipeline to carry arctic crude oil overland to the ice-free port of Valdez on the Gulf of Alaska. But these pipeline plans came into conflict with pending Native land claims and clashed with the environmental consciousness newly emerging in Alaska and the nation as a whole. After almost three years of delay, many problems have been solved and objectives have been met. Other issues remain to be resolved.

A major remaining hurdle for the pipeline project is approval under the National Environmental Policy Act of 1969. That act, besides stating a general policy of environmental enhancement, re­quires every federal agency to file an environmental impact state­ment before taking any action which may significantly affect the environment. Hearings on the Interior Department's January 1971 draft impact statement made it clear that environmental effects of the proposed pipeline had to be evaluated in the context of a clear understanding of the project's economic impact. As a result, the United States Department of the Interior arranged with the Institute of Social, Economic and Government Research of the University of Alaska to prepare a study of the pipeline's likely economic impact on the state. The report would then be used by the Secretary of the Interior in making his final review of the proposed project.

The Alaska Pipeline Report is the report prepared by the Institute of Social, Economic and Government Research (ISEGR) for the In­terior Department. While it has been edited and updated for publica­tion, it contains all the information contained in the original report. The study deals strictly with ascertainable facts and objective analyses and projections. There is no intent to pass judgment on the

vi

pipeline project as a whole. Rather, the purpose of the report is to provide an up-to-date analysis of Alaska's economy and project the impact of pipeline construction on that economy.

This ISEGR report was prepared under the direction of Arlon R. Tussing, who is its principal author. Co-authors are George W. Rogers and Victor Fischer. Assistance was provided by Richard Norgaard of the University of California's Giannini Institute and by Gregg Erickson, currently staff economist of the Joint Pipeline Impact Committee, Alaska State Legislature. Prime responsibility for manu­script preparation rested with Sandy Betts; Jennifer Christian edited the report and performed helpful rewriting. To make the text as readable and informative as possible, references and footnotes, some of which are extensive, have been included as "Technical Notes" at the end of each chapter. The reader should be aware that much important statistical information and substantive analyses are con­tained in these technical notes.

Valuable help was provided ISEGR by many individuals in both government and private organizations. Key among them were Harry Morrison and James T. Mccutcheon of the Western Oil and Gas Association; M.J.K. Savage, BP Alaska, Inc.; Bradford Tuck, Alaska Methodist University; Robert Snyder of the ISEGR staff; and John Post and Gary Klockenteger, Alaska Department of Labor. The manuscript was reviewed by Paul Bradley of the University of British Columbia; Walter Mead of the University of California at Santa Barbara; and a number of Alaska state officials, particularly Homer Burrell, Director of the Division of Oil and Gas, and Eric Wohlforth, Commissioner of Revenue. Additional contributions to the report and to better understanding resulted from reviews of the final draft by the Western Oil and Gas Association's Committee of Economists, by top officials and specialists of the state Division of Oil and Gas and the Department of Revenue, and by a cabinet level group of state officials.

Victor Fischer Director, ISEG R

August 1971

TABLE OF CONTENTS

PREFACE

CHAPTER I: INTRODUCTION

Alaska Pipeline Report Assumptions, Estimates and Projections

CHAPTER II: ALASKA'S POPULATION AND ECONOMY

Population and Workforce Sources of Income Patterns of Employment Regional Differences Seasonal and Cyclical Fluctuations Unemployment Native Unemployment and Underemployment High Unemployment with High Employment Prices and Costs Land Ownership

TECHNICAL NOTES

CHAPTER III: THE OIL AND GAS INDUSTRY IN ALASKA

History and Description Petroleum Mining Employment Alaska Petroleum and Natural Gas Reserves

V

1

1 7

8

8 9

14 16 16 19 21 22 24 26

29

49

49 50 55

viii

CONTENTS

Proprietorship and the Operation of the Leasing System 58

Wellhead Price Determination 60 Demand for Alaska Petroleum 60

TECHNICAL NOTES 62

CHAPTER IV: IMPACT OF THE PIPELINE AND PRUDHOE BAY PRODUCTION UPON THE ALASKA ECONOMY 69

Methodology and Assumptions 69 Income from Royalties and Taxes on

North Slope Crude Oil 7 3 State of Alaska 73 Individual Leaseholders 75 Alaska Natives 75

Direct Employment and Payrolls in Petroleum-Related Activities 80

Secondary and Indirect Impacts 83 Effect on Prices and Costs 87 Alaska Consumption of North Slope Oil and Gas 88 The Timber Industry in Interior Alaska 89 Mining 90 Availability and Cost of Capital 91

Costs to State and Local Government Directly Related to Petroleum 92 Transportation and Communication 92 Surveillance of Oil Fields, Pipeline and Terminal,

and Administration of Leases 94 Other Direct State Costs 95 Impact on Communities 97

TECHNICAL NOTES 102

BIBLIOGRAPHY 127

LIST OF TABLES

1-1 Summary, Economic Impact of North Slope Petroleum Development Production and Transportation 3

11-1 Workforce Characteristics-1961 and 1970 10

11-2 Personal Income by Major Sources, Alaska, 1959 and 1970 15

11-3 Comparison of Anchorage Family Budget Costs With U.S. Averages, Spring 1970 25

II-Al Estimates of Total Alaska Resident Population and Components of Change, 1950-1970 29

II-A2 Alaska Population Characteristics 1970 Census 30

11-B Industrial Sources of Personal Income and Estimated Composition of Economic Base, Alaska 1970 35

11-C Personal Income by Major Sources, Alaska, 1959-1970 37

11-D Total Employed Workforce-State of Alaska-1939-1970 39

11-E Seasonal Fluctuations in Employment in Selected Industries and in Unemployment, Alaska 40

11-F Employment Status of Native Population Lower Yukon-Kuskokwim Region, Alaska, March 1969 41

11-G Distribution of Alaska Natives by Size of Place, 1970 42

X

TABLES

II-H Selected Industries-Seasonal Indices of Employment 43

II-J Relative Change in Consumer Price Index, Anchorage and United States, 1960-1971 44

II-K Status of Lands in Alaska, 1968 45

III-1 Summary of Alaska Petroleum Industry Mining Employment by Standard Industrial Classification 52

III-2 Alaska Petroleum Industry (Non-Marketing) Number of Firms, Employment and Payrolls 53

III-A Summary of Alaska Petroleum Industry Mining Employment-by Major Occupation-Fourth Quarter 1969 62

III-B Summary of Alaska Petroleum Industry Mining Activities Employment by Region and Area 63

III-C Summary of Alaska Petroleum Industry Mining Payrolls by Standard Industrial Classification 64

III-D Summary of Alaska Petroleum Industry Mining Payrolls by Region and Area 65

III-E Percentage Increases (Decreases) in Average Man-Year Mining Payrolls 65

III-F Summary of Alaska Petroleum Industry Manufacturing Pipeline, Gas, Wholesaling Employment and Payrolls 66

IV-1 Alyeska Pipeline Service Company Projected Schedule of Pipeline Capacity and Hypothetical Schedules of Pipeline Capacity, Conservative and Accelerated 72

IV-2 Royalty and Production Tax Revenue to the State of Alaska Calendar 1975-2000 74

IV-3 State Revenues Directly Attributable to North Slope Petroleum Operations 76

IV-4 Royalty Income From Prudhoe Bay Oil Production to Natives Under Claims Settlement 79

IV-5

IV-6

Employment in Prudhoe Bay Development and Production and in Construction and Operation of Transportation System 1970-1980

Trans-Alaska Pipeline Facilities Construction Direct Employment by Source of Workers

IV-7 Total Income, Employment and Population Attributable

IV-8 Expenditures Imposed on State Government Directly Attributable to North Slope Petroleum Activities

IV-9 Workforce and Dependents Attributable to Arctic Slope Oil Production and Related Industries and Net Annual Population Change

IV-A Projected Prudhoe Bay Related Mining Employment by Occupation

IV-B Trans-Alaska Pipeline and Facilities Construction Employment by Major Occupation Class

IV-C Payrolls From Prudhoe Bay Petroleum-Related Activities 1971-2000

IV-D Additions to Total Payrolls Directly Attributable to Arctic Slope Oil, Production, Transportation, Processing

IV-E Employment Directly Attributable to Arctic Slope Oil Production, Transportation, Processing

xi

TABLES

81

84

97

99

109

110

111

112

113

LIST OF FIGURES

I-1 Economic Impact of North Slope Petroleum Development, Production and Pipeline Transportation on Population, Employment and Unemployment 4

I-2 Economic Impact of North Slope Petroleum Development, Production and Pipeline Transportation on Personal Income Payrolls and State Revenues 5

II-1 Annual Changes in Department of Defense and Contract Construction Employment and Annual Net Migration --Alaska 1950-1969 11

II-2 Structural Comparison of Alaska and United States Economies 13

II-3 Seasonality: Average Employment and Unemployment by Months, Alaska 17

II-4 Employment in Petroleum-Related Activities, and Unemployment, Kenai-Cook Inlet Labor Market Area, 1965-1970 20

II-5 Employment and Unemployment in Alaska, 1965-1970 23

II-A Four Major Alaska Regions 33

II-B Land Selections and Existing General Federal Withdrawals 47

III-1 Indices of Alaska Petroleum Industry Mining Activities 51

CHAPTER I

INTRODUCTION

Alaska Pipeline Report

This report has been written principally to identify the expected economic consequences, through the year 2000, of constructing and operating a 48-inch pipeline to carry crude oil from Prudhoe Bay to the port of Valdez. The report has three main parts: (1) a survey of the structure and dynamics of Alaska's economy; (2) a review of the recent history and role of the petroleum industry in the state; and (3) an appraisal of the impact of the pipeline as part of North Slope petroleum development and production on the Alaska economy.

The proposed trans-Alaska pipeline has become the subject of na­tional and international controversy. At issue are adverse environ­mental changes, some of which are unavoidable, and others which may be prevented from occurring during the building and operation of the pipeline. As a prerequisite to issuing permits for the construc­tion of the pipeline across public lands in Alaska, the Secretary of the Interior must consider these adverse environmental impacts as well as private and public benefits of the project.

Section 102(c) of the National Environmental Policy Act requires the Department of the Interior to examine "the relationship between local short-term uses of man's environment and the maintenance and

2

enhancement of long-term productivity ... "* The Alaska Pipeline Report provides a part of the information needed to assess the economic benefits of building the pipeline. On the basis of the infor­mation presented here and in other reports from government agen­cies and contractors, the Secretary will weigh the economic benefits against potential environmental disruption in deciding whether to issue the permit.

The Alaska Pipeline Report projects increases in the level of Alaska's economic activity, particularly income and employment, which can be attributed to pipeline construction. Most of the income generated in Alaska from this phase would go directly to individuals as payrolls. Once the pipeline is completed, the major and long­lasting impact would come from royalties and taxes collected from petroleum production by the state government, and from the secon­dary effects of spending and respending these funds within the state's economy.

Once the Prudhoe field is in full production, direct income to the state government is expected to be on the order of $360 million per year from royalties and production taxes, with another $15 to $20 million per year in income and in other tax receipts. As the state spends its revenues, it will generate further income and labor de­mand. Therefore, fiscal decisions by the state will powerfully influ­ence the nature and extent of long-range benefits from oil income.

The projections presented here indicate that the direct and secon­dary effects of construction and operation of the trans-Alaska pipe­line will increase personal income originating in the state by an amount equal to one-fourth the 1970 level; that employment and payrolls will increase by about one-fifth of the 1970 level; and that the state's population will increase by about one-sixth of the 1970

*The National Environmental Policy Act of 1969 (PL91-190) also requires that all federal agencies, before taking any action which may significantly affect the environment: (a) consider the environmental impact; (b) determine what adverse effects are unavoidable; ( c) ascertain what irreversible commitments of resources are required; and (d) examine alternatives to the proposed action.

3

level, all by the time of peak construction. Table I-1 and figures I-1 and I-2 summarize the principal projections of direct and secondary impacts., The major part of these gains is expected to be permanent, at least over the period of the projections. Some temporary decline in Alaska employment and personal income can be expected for one or two years following the peak pipeline construction activity. But after this pause the effects upon the state's economy from spending

TABLE 1-1

SUMMARY ECONOMIC IMPACT OF NORTH SLOPE PETROLEUM DEVELOPMENT

PRODUCTION AND TRANSPORTATION

Employment Petroleum-Related Secondary Effects

Total

Population Petroleum-Related Secondary Effects

Total

State Finances

Peak Peak Year Values 1975 1980 1990 2000

1972-73 1982

1972-73

1972-73 1982

1981-82

(annual average -- thousands)

20.9 22.8 27.7

37.7 43.3 51.7

8.1 13.0 21.1

2.9 22.2 25.1

(thousands)

19.6 24.7 44.3

8.9 42.1 51.0

(million dollars)

2.1 18.7 20.8

6.6 35.5 42.0

1.6 14.3 15.9

4.9 27.2 32.1

Revenues 2000 397.9 121.0 302.5 383.9 397.9 Petroleum-Related

Outlays 1974 11.9 7.5 4.0 3.9 3.9

Petroleum-Related Payrolls 1973 341.3 125.0 53.2 53.2 53.2

Alaska Personal Income 2000 499.9 318.1 434.3 485.1 499.9

Note: The figures in this table, and all those following which are not specifically referenced as to source, have been calculated by the authors according to methods explained in the text or in the technical notes.

4

z 0

~ _J

40

35

ir 30 0 0.

20

10

5

FIGURE 1-1

ECONOMIC IMPACT OF NORTH SLOPE PETROLEUM DEVELOPMENT, PRODUCTION AND PIPELINE TRANSPORTATION ON POPULATION,

EMPLOYMENT AND UNEMPLOYMENT

EMPLOYMENT• SECONDARY EFFECTS

550

500

450

400

350 (/) a:: <l .J .J 0

300 C

LL. 0

(/) z 0 250 ::i .J

~

200

150

100

50

FIGURE 1-2

ECONOMIC IMPACT OF NORTH SLOPE PETROLEUM DEVELOPMENT, PRODUCTION AND PIPELINE TRANSPORTATION ON PERSONAL

INCOME, PAYROLLS AND STATE REVENUES

NORTll SLOP ~~ - ATTRIBUTABLE TO

(,0 ,+

STATE REVENUES: PETROLEUM-RELATED

PAYROLLS, PETROLEUM-RELATED

5

6

of petroleum royalties and taxes should just about offset the decline of construction and field development activity.

The composition of labor demand, however, will change substan­tially between the construction and operation phases, resulting in an aggravation of Alaska's chronically high unemployment rates. The behavior and present structure of Alaska labor markets give little hope of substantial reductions in unemployment rates even during the peak levels of pipeline construction. To the contrary, the abso­lute number of unemployed will almost certainly grow.

Among the popularly anticipated indirect effects of Prudhoe Bay petroleum activities is the stimulation of logging and mining activity by virtue of transportation facilities "opening up" Interior and nor­thern Alaska. Our examination does not support these expectations. Metallic mineral exploration, however, will probably be a major beneficiary, along with service industries, of Alaska's better position in national capital markets; the improved availability of both loan and venture capital is already evident throughout the state's economy. Despite the prospective boom, it is likely that price differentials between Alaska and the rest of the United States will continue to narrow in response to the increase in the size of markets and to more adequate support services. However, costs of construc­tion services and, in some communities, housing may undergo addi­tional inflation during the period of pipeline construction.

From the beginning of World War II until the discovery of the Prudhoe Bay field, Alaska's economy was based largely on federal government expenditures. Further, Alaska always has had a small and widely dispersed population and harsh climate. These factors have combined with other lesser ones to make economic activity in Alaska unstable and high cost. The petroleum industry's activities will in­creasingly broaden Alaska's economic base. Moreover, the state government, by its decisions of how and where to spend its petro­leum revenues, will have an unprecedented influence over the shape and pace of future economic growth.

7

Assumptions, Estimates and Projections

The projections in this report do not try to predict the total level of economic activity in Alaska in future years; they refer only to changes in the state's economy associated with the production and transportation of Prudhoe Bay petroleum. The anticipated changes listed here-increases in Alaska personal income, employment and population-may be substantially reinforced or offset by influences from other economic ism and mining, or by a reduction in military forces.

Furthermore, the long-term impact of North Slope oil will come mainly from production revenues. It is not correct, therefore, to attribute all or most of the projected growth to the proposed pipe­line as such; the bulk of the gains to the state would occur whatever route were chosen to transport the crude oil to markets. Moreover, the numerical projections rest on factual and methodological assump­tions which are sometimes by necessity arbitrary or oversimplified. In interpreting or using these projections, the reader should pay care­ful attention to the assumptions on which they are based. The tech­nical notes also include further in-depth information and analyses on topics covered more generally in the text. Finally, although some estimates and projections presented here may be usable in benefit­cost analysis, this report is not such an analysis; none of the series here-income, employment, state revenues-is to be regarded as a net benefit either to Alaska or to the United States.

CHAPTER II

ALASKA'S POPULATION AND ECONOMY

Population and Workforce

In the past two decades, Alaska's population has grown substan­tially faster than the national average. The annual rate of population growth between 1950 and 1960 was 4.8 percent, and from 1960 to 1970 it was 3.3 percent; in addition, the growth rate fluctuated sharply within these periods. Natural increase in the resident popula­tion accounts for 71 percent of the net change over the entire 20 year period.1 Natural increase rates have been high because the Native as well as the non-Native Alaska populations have age profiles heavily biased towards childbearing ages and have relatively high birth rates.

While natural increase has dominated over the long term, migra­tion has determined the year-to-year changes in number of people.2 For example, in 1952, net immigration equalled 16 percent of the state's total population, and in 1958, net emigration was equal to almost one-tenth of the total. The results of this high rate of turn­over are exceptional: the 1960 Census of Population: Migration Between State Economic Areas showed that 46.6 percent of the 1960 population of Alaska had not resided in Alaska in 1955. Also, the 1960 Census revealed that 31.4 percent of Alaska's 1955 popula­tion lived outside the state at the time of the 1960 Census. This contrasts with the 1960 Census results for the United States as a whole, in which only 13.0 percent of the population had moved from state to state in the five year period.

9

Although the extreme fluctuations in population movements of the 1950's did not continue in the 1960's, Figure II-1 suggests that net migration to and from Alaska over the 20 year period has corres­ponded closely with varying levels of employment in the Department of Defense, both military and civilian, and of employment in con~ tract construction, predominantly federal projects. Since 1967-68, the oil and gas industry has significantly affected employment levels and has joined govemment as a major determinant of population change.

Table II-1 shows several of the distinctive characteristics of Alaska's population, workforce, and employment. Among these are exceptionally high labor force participation rates, reflecting an age­sex mix of the population favoring economically active compon­ents.* Other notable features are chronically high unemployment rates and a high proportion of government employment.

Sources of Income

Personal income for the State of Alaska in 1970 was estimated3 at $1,400 million or .18 percent of the national total.t Thus, Alaska's economy is roughly one-fifth of one percent as large as the national economy.

In the 11 yeax intexval between 1959 and 1970, Alaska personal income increased from $555 million to $1,400 million, an increase of 152 percent, at an annual rate of 8.8 percent. The corresponding increase for the U.S. as a whole was 110 percent, at an annual rate of 6.9 percent.

*The high overall labor force participation rate prevails despite very low rates for rural Natives, as indicated in the figures for southwest Alaska and in Table II-F.

tThe 1970 Census gave Alaska a population of 302,173, or .15 percent of the national population. The Alaska personal income per capita of $4,590 should not be compared with the national figure of $3,919 to imply that per capita material welfare in Alaska is superior to the national average. The 17 percent per capita income differential in favor of Alaska is certainly less than the cost of living differential, however measured. See section on Prices and Costs.

f-1 TABLE 11-1 0

WORKFORCE CHARACTERISTICS-1961 AND 1970

C8I.END8B YE8B J96J C8I END8B YE8B 19'.ZO Total South South South North Total South South South North State east central west ern State east central west ern

(thousands of persons) Total Population (July 1} 236.7 37.4 122.4 16.1 60.8 304.6 43.3 173.0 18.4 69.9 Total Workforce (includes

military personnel) 108.0 16.2 59.7 3.8 28.2 148.5 21.2 87.5 5.4 34.4 Rate of Labor Force Participation 45.6% 43.3% 48.8% 23.6% 46.4% 48.7% 49.0% 50.5% 29.3% 49.2%

Total Civilian Workforce 75.5 15.6 40.2 2.9 16.7 116.8 20.6 67.5 4.4 24.4 Total unemployment 7.5 1.7 3.2 0.5 2.0 12.0 1.6 6.5 1.0 2.9 Unemployed Civilian Workforce 9.9% 10.9% 8.0% 17.2% 12.0% 10.3% 8.0% 9.7% 21.7% 11.7%

Total EmQlo:yed Civilian Workforce 68.0 13.9 37.0 2.4 14.7 104.9 18.9 61.0 M 21.6 Self-employed, agricultural, etc. 10.9 1.9 6.2 0.6 2.2 12.4 2.2 7.8 0.4 2.0

Wage and Sala!X 2 Non-agricultural 57.1 12.0 30.8 1.8 12.5 92.5 16.7 53.2 3.1 19.6 Government ( civilian) 23.8 4.6 13.8 0.6 4.8 35,6 6] 19.3 1.3 8.1 Commodity producinga 10.6 3.0 4.8 0.7 2.1 17.7 4.2 9.2 1.0 3.3 Distributiveb 22.7 4.4 12.2 0.5 5.6 39.2 5.6 24.7 0.8 8.2

(Percentage of Total Employed Civilian Workforce)

Wage and Salary_, Non-aEJ.!:fcultural 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Government ( civilian) 42 38 45 33 38 38 -41 36 ~ -;rr Commodity 6roducin!f1, 19 25 16 39 17 19 25 17 32 17 Distributive 40 37 40 28 45 42 34 46 26 42

aMining, contract construction, manufacturing.

bTransportation, communication, public utilities, trade, finance, insurance, real estate, services, miscellaneous. SOURCE: Adapted by G.W. Rogers from Alaska Department of Labor data.

11

FIGURE 11-1

ANNUAL CHANGES IN DEPARTMENT OF DEFENSE 8 AND CONTRACT CONSTRUCTION EMPLOYMENT AND ANNUAL NET MIGRATION-· ALASKA 1950-1969

( thousands of persons)

28

24

DEP RTN NT DEF NSE ND ONT CT ENP OYNE T

10

8

6

4

2

.. 0 0 z " 2 .. :, 0 :c 4 ...

6

8

10

12

14

16

18

20

22

1950· 51- 52- 53- 54- 55· 56- 57· 58- 59- 60· 61- &2- 63- 64- 65· 66· 67- 68-51 52 53 54 55 56 57 58 59 60 61 62 63 64b 65b 66 67 6e• 69c

12

NOTES TO FIGURE 11-1

alncludes military personnel and civilian employees of Department of De­fense.

bDistortion in normal migration due to 1964 Alaska earthquake and 1965 recovery (temporary evacuation and return).

cReflects North Slope "mining" activities in 1968-1969.

SOURCE: Alaska Department of Labor, Workforce Estinwtes and Current Population Estimates.

Federal government activities have been the biggest contributor to Alaska's economy every year since statehood. Federal outlays in 1970 were still more than half of the state's economic base.4 The rate of growth in Alaska personal income has been accelerating, re­flecting in part an accelerating growth of federal spending. Alaska personal income grew about 3 percent per year in 1960-63, 9 percent in 1963-66, and 12 percent in 1966-70. The federal government's direct contribution to personal income increased at about 1 percent per year in 1960-63, 6 percent in 1963-66, and 10 percent in 1966-70.5

The growth of the oil and gas industry in the state has had a substantial impact on the state's economy since the mid-1960's. However, in 1970 the direct contribution to Alaska personal income from military payrolls was more than four times that from the petro­leum industry wages and salaries. The absolute increase in military payrolls in the state since 1965 has been about twice the increase in personal income from oil and gas payrolls over the same period.6 We have noted the influence of the federal presence in Alaska on popula­tion movement, employment and personal income. Shifts in federal spending have clearly been the main cause of economic fluctuations in the state's overall economy.

General categories of industrial composition of Alaska personal income for 1970 are compared with those of the entire U.S. in Figure II-2. Despite a population increase of about one-third in the period since statehood, Table II-2 demonstrates that there has been little change in the proportion of income coming from various sec­tors of the economy. 7 During the period since 1959, the oil and gas industry grew to provide about 3 percent of total income, replacing

FIGURE 11-2

STRUCTURAL COMPARISON OF ALASKA AND UNITED STATES ECONOMIES

Industrial Origin of Income Received by Persons for Participation in Production, 1970

ALASKA UNITED STATES

MANUFACTURING 27.8%

SOURCE: Personal income from military wage and salary disbursements (Survey of Current Business, August 1971, tables 4 and 62A) has been added to estimates of industrial sources of civilian income received by persons for participation in current production (loc. cit., Table 70). The division between income from federal government civilian activities and state and local government was derived from the respective proportions of each in personal income by major sources (loc. ill,,. tables 4 and 62A). All income in "other industries" in Alaska was assumed to originate in fishing.

f-' C;.:)

14

about half of the loss of relative weight by military payrolls; 5 to 6 percent of total income from government services shifted from the federal to the state and local levels. Other changes included the vir­tual disappearance of mining other than oil and gas, and a substantial increase in professional, social and related services.

Patterns of Employment

The patterns of employment in Alaska over time and among indus­tries are influenced by the same forces that determine the pattern of personal income.8 The pre-World Wai· II Alaska economy was under­developed with a specialized dependence on employment in gold mining and salmon canning. Employment between 1950 and 1969 was dominated by the Department of Defense and civilian govern­ment employment, which combined accounted for more than half the total employed workforce: 53.1 percent in 1950, and 50.3 per­cent in 1969.

Total employment increased during the fifties primarily because of a rise in defense employment. Since 1960, other sectors of the econ­omy have gained strength. A large part of the growth during the 1960's can be interpreted as an expansion in the support sector in response to gains made in the economic base sector during the pre­vious decade. "Import substitution" proceeded in the distributive and other service industries. This included expansion of state and local government as Alaska assumed full statehood.

Despite the stability of defense employment in the 1960's, total employment rose from 100,700 in 1960 to 136,200 in 1970.9 There were continuing increases in employment in commodity producing industries-from 12,800 in 1960 to 19,000 in 1970-but the major increases came from the distributive industries, which employed 21,400 workers in 1960 and 38,200 in 1970.

Between 1960 and 1970, employment in the Department of De­fense declined from 41.5 percent of the total employed workforce to 28.6 percent; commodity producing industries rose from 12.5 per­cent to 14.0 percent; distributive industries from 21.4 percent to 28.0 percent; and government (other than defense) rose from 14.2

15

TABLE 11-2

PERSONAL INCOME BY MAJOR SOURCES, ALASKA, 1959 and 1970

1959 1970 percentage

PERSONAL INCOME 100.0 100.0 WAGE AND SALARY DISBURSEMENTS 82.5 84.1

Farms a a Mining 1.6 3.5

Coal mining .5 .1 Crude petroleum and natural gas .5 3.2 Mining and qUal1"ying except fuel .7 .2

Contract construction 8.6 7.6 Manufacturing 3.8 4.3

Durables 2.0 Nondurables 2.3

Wholesale and retail trade 8.3 9.4 Finance, insurance and real estate 1.4 2.0

Banking .7 .8 Other finance, insurance and real estate .5 1.2

Transportation, communications and public utilities 7.4 7.6 Railroad transportation .2 .4 Highway freight and warehousing 1.1 1.3 Other transportation 4.0 3.2 Communications and public utilities 2.2 2.7

Services 4.5 7.3 Hotels and other lodging places .5 .6 Personal services and private households .7 .6 Business and repair services 1.1 1.6 Amusement and recreation .2 .1 Professional, social and related services 1.8 4.1

Government 45.9 41.7 Federal, civilian 19.0 13.9 Federal, military 20.4 15.6 State and loci! 6.1 12.3

Other industries .9 .4 OTHER LABOR INCOME 2.0 3.1 PROPRIETORS INCOME 7.0 5.1

Farm .4 a Nonfarm 7.2 5.1

PROPERTY INCOME 6.1 5.6 TRANSFER PAYMENTS 4.0 5.5 LESS PERSONAL CONTRIBUTIONS FOR SOCIAL INSURANCE 2.5 3.4

aless than 0.05 percent

bincludes fisheries

16

percent to 20.6 percent. Thus, the total rate of growth in Alaska's economy has been steadily upward during the 1970's, but this move­ment reflects a composite of forces, most advancing though at dif­ferent rates, yet some remaining stagnant or even declining.

Regional Differences

The composition of the workforce differs among the four maJor regions of Alaska. Table II-1, above, shows the contrasting structures and differing growth rates of the various regions. The southeast and southwest regions (the two smallest in terms of population and em­ployment) have significant commodity producing elements. Only the southeast region has a minor defense element; in the other three, a quarter to half of the workforce is employed in the Department of Defense. On the other hand, the state capital is in the southeast region, and government there employs a significant proportion of the workforce. The southcentral and southwest regions had the greatest change in industrial composition between 1961 and 1969. The population-workforce ratios are also important indicators of regional differences. The southwest region has an abnormally low labor force participation rate due to the large rural Native population.*

Seasonal and Cyclical Fluctuations

Figure II-3 displays the seasonal profile of employment and un­employment in Alaska from 1966 to 1970.10 Average total employ­ment in the peak month (July) is typically more than 25 percent higher than that of the lowest month (Janua1y). In contract con­struction, the peak is two and one half times the trough; and in food

*See section on Native Unemployment and Underemployment, below.

U) 0 z <l U)

=>

100

50

20

~ 10 I-

5

2

D

FIGURE 11-3

SEASONALITY: AVERAGE EMPLOYMENT

AND UNEMPLOYMENT BY MONTHS, ALASKA

September 1966-September 1970, Adjusted for Trenda

(Semi-log Scale)

SERVI ES (bl

GOVER MENT

F M A M J J A s 0 N

17

D J

18

NOTES TO FIGURE 11-3

al968 average employment and unemployment were adjusted to average 1966-70 seasonal pattern as follows. Employment monthly average data for September 1966 to September 1970 are from Alaska Department of Labor, Employment Security Division, Statistical Quarterly; Unemployment from Alaska Department of Labor Workforce Estimates. Trend adjustment is by divi­sion of exponential trend rate into ratio between geometric means of figures for successive calendar months. Resulting ratios were applied to 1968 annual average employment or unemployment to give trend adjusted averages.

bservices includes Transportation, Communication and Public Utilities;

processing, the ratio is more than four to one.* These two seasonal industries alone directly account for more than half the total em­ployment fluctuation in the state; undoubtedly they also contribute heavily to seasonality in the support sectors, pai'ticularly transpor­tation. t

Government and oil and gas industry employment appear relative­ly stable in Figure II-3. It is true that direct employment in these two sectors is relatively unaffected by seasonal considerations. However, as has been discussed, the Defense Department has been a major source of non-seasonal fluctuation in employment.** Moreover, government has historically been, and the petroleum industry now promises to be, the biggest purchaser of heavy construction services, which ai·e prone to large fluctuations, both seasonal and cyclical.

The unstable nature of petroleum-related employment can be seen in the 1965-70 boom and recession in the Kenai-Cook Inlet area. The climax of development drilling there coincided with the construction of a gas liquefaction plant, a natural gas fed ammonia-urea plant, a

*The leading subgroups in each of these categories (highway and heavy con­struction contractors and fish canning, respectively) have even more severe seasonal swings. Also, the employment figures understate the seasonal fluctua­tion in each industry; because of overtime wage payments, the ratios between the peaks and troughs in payrolls are substantially higher than those in Figure II-3.

t Other highly seasonal industries include logging, lumber and pulp (the fluctuation is concentrated in logging; pulp mill employment is seasonally stable), and tourist services, which cannot be separated from other transporta­tion, lodging, etc., activity in the employment series.

**See Figure II-1.

19

small new refinery and an addition to another refinery. Average petroleum-related employment, including construction, increased from less than 200 in the early months of 1965 to a peak of almost 3,000 in September 1968. It then fell steadily and finally leveled off at slightly more than 1,000 throughout 1970. Figure II-4 describes the rise and fall of petroleum-related employment in Kenai during this period. The figure also points up the seeming independence of unemployment from the level of employment, at least during the growth phase of the cycle.

Unemployment

Official unemployment rates in Alaska are consistently much higher than national averages. The statewide annual average un­employment rate from 1966 through 1970 ranged from 8.7 to 11.4 percent,11 while national averages were 3.5 to 4.9 percent.12 How­ever, interpretation of the difference is not simple. On the one hand, much of the difference can be accounted for by the fact that a substantial proportion of the Alaska "unemployed" at any particular time are not permanent members of the state's labor force. More­over, seasonal factors account for a very large portion of total un­employment; in the calendar month of lowest unemployment in Alaska the state unemployment rate is typically only about two percentage points above the national figure.

On the other hand, the difference between Alaska and U.S. un­employment rates would be even greater if all rural joblessness were counted as unemployment in official state reports. Lack of work among rural Natives, for example, now largely appears only as low labor force participation rates.

A specific evaluation of the contribution of seasonal and other fluctuations to unemployment would require a complex analysis that is inappropriate here. Yet it is known that the annual swing in total employment is about twice the average number of unemployed, and amounts to more than four times the difference between the greatest and smallest monthly number of unemployed.

Because of the exceptionally large role of transients and the large turnover in labor force, the relationship between employment and unemployment is not one-to-one, nor is it symmetrical for increases and decreases in employment. The greatest number of unemployed is

1,000

800 ...J ct I-0 I-

600 i-: z w :!: >-0 400 ...J Q_

:!: w z 200 ~

0 200

FIGURE 11-4

EMPLOYMENT IN PETROLEUM-RELATED ACTIVITIES, AND UNEMPLOYMENT KENAI-COOK INLET LABOR MARKET AREA, 1965-1970

MONTHLY AVERAGE ANNUAL AVERAGE

~

400 600 800 1000 1200 1400 1600 1800 2000 2200 2400 2600 2800

EMPLOYMEN~ PETROLEUM RELATED

SOURCE: Alaska Department of Labor, Employment Security Division.

3000

t,.:) 0

21

typically recorded in June, which is also a high employment month, because of the influx of transients to Alaska and the entrance of vacationing students and graduates (many of them in tum transients or immigrants) into the labor market. October unemployment levels are typically lower than those for July, despite much lower levels of employment, because students and many of the transients leave the Alaska labor market.

Native Unemployment and Underemployment

The low rate of labor force participation by Alaska Natives is indirectly reflected in Table II-1, above.13 This characteristic is com­pounded by a high rate of unemployment on the part of those Natives counted in the labor force.14

Undoubtedly there is some institutional discrimination against Natives in employment, and there may be aspects of their cultural patterns which inhibit labor force commitment or otherwise make many Natives "unemployable." The most important measurable in­fluences on Native unemployment, manifest and disguised, are their location outside the principal areas of economic activity15 and their low level of educational achievement.

While there are large regional differences, Alaska Natives lag sub­stantially behind whites in their level of educational attainment. According to the 1960 census, the median education of white Alaskans was 12.4 years, while the median education of Native Alaskans ranged from 1.6 to 7 .0 years in census districts in northern and western Alaska and from 8.2 to 9.0 years in districts in south­eastern Alaska.16 Since the number of Native graduates from both high school and college has risen substantially in the last ten years, 1970 census figures will probably indicate gains in level of Native educational attainment. These gains result from the increased num­bers of Native students who attend high school. Special orientation programs for Native college students are increasing the number of Native college graduates. In addition, recent legislation has made it possible for Alaska Natives to obtain more state government jobs, and new types of positions have been created which require only completion of special college training programs. However, these improvements will in the near future still not enable the majority of

22

the Alaska Native population to obtain the educational prerequisites for available employment.

High Unemployment with High Employment

Perhaps the most significant inference from the employment­unemployment relationship is that increased employment does not consistently mean fewer unemployed. In the long run particularly, the growth of employment has little effect on unemployment; the correlation, if any, is weakly positive (probably reflecting the in­creased frictional employment component).17 Employment and unemployment figures for Alaska from 1965-70 (Figure II-5) point up the lack of consistent interrelation.

The lack of an inverse correlation between changes in employment and unemployment is not surprising. Job opportunities in Alaska have an attraction throughout a nationwide labor force of 80 million. The Puget Sound area alone has about as many workers now un­employed as there are jobs in Alaska. Oil and gas development in Alaska can draw on a force of perhaps 200,000 former oil industry workers not now employed in the industry because of workforce reductions in the older oil-producing states.

As a consequence of the above considerations:

1. Direct reduction of unemployment in Alaska is generally not a reasonable expectation from (nor a realistic objective of) growth of the oil and gas industry or other industry in the state.

2. In the long run, net changes in employment in Alaska will approximately be matched by changes in the size of the labor force reflecting net migration.

3. The immediate effect of employment increases on total or resident unemployment is difficult to predict, depending in part upon the number of job seekers immigrating in response to their impressions of employment opportunities in the state.

Cl) 0 z ~ 15 ::, 0 :r I-~ 10 1-z u.J :!: >-0 5 ...J Q. :!:

FIGURE 11-5

EMPLOYMENT AND UNEMPLOYMENT IN ALASKA, 1965-1970

MONTHLY AVERAGE

ANNUAL AVERAGE

Jan.•s5 Jan.'66

u.J z ::, o":;"~~::-~~::--~----::--~----:~~~~~~~~~~~~~~~~~~~~~~_J

60 65 70 75 80 85 90 95 100 105 110 115 120

EMPLOYMENT (THOUSANDS)

SOURCE: Alaska Department of Labor, Employment Security Division.

t-.:i Ci;)

24

4. Without further complex analysis, it is not possible to pre­dict whether the growth of the oil and gas industry as a proportion of the state's economic base will increase or decrease the relative amplitude of seasonal fluctuations in employment, taking into account the induced demand for construction and transport services. Seasonality in con­struction appears to be diminishing somewhat; but if there is no great permanent progress in dealing with the environ­rnental and institutional causes of seasonal fluctuations in construction activity, petroleum-induced economic growth in Alaska will surely increase the absolute amplitude of seasonal employment variation.18 A continuation of this pattern will perpetuate annual unemployment rates that are higher than national averages.

Prices and Costs

Almost everything costs more in Alaska than it does in the "lower 48." The size of the Alaska-U.S. price differential varies widely among places in the state, with the lowest differential occurring in the Anchorage area. The most severe differential, with costs in some cases two or three times national averages, are in the remote northern and western regions. The differential also varies by commodity. The cost of housing and all construction is considerably further above average than are the prices of manufactured goods. Table II-3 sum­marizes 1970 family budget costs for three levels of living in Anchor­age, as a proportion of the U.S. urban average, and of the U.S. non-metropolitan average.* Housing alone accounted for most of the difference between Anchorage and the U.S. urban average: 55 per­cent in the lower budget, 57 percent in the intermediate budget and 61 percent in the higher budget.

*The non-metropolitan average might be regarded as a more appropriate comparison because Anchorage is not a Standard Metropolitan Statistical Area (SMSA).

25

TABLE 11-3

COMPARISON OF ANCHORAGE FAMILY BUDGET COSTS

WITH U.S. AVERAGES, SPRING 1970

Lower Intermediate Higher Budget Budget Budget

TOTAL BUDGET COST Anchorage $10,783 $14,535 $20,301 All non-metropolitan areas, U.S. 6,512 9,600 13,459 U.S. urban average 6,960 10,664 15,511

(U.S. non-metropolitan average = 100)

ANCHORAGE BUDGET COST 166 151 151

(U.S. urban average= 100)

ANCHORAGE BUDGET COST 155 136 131

Total Family Consumption 149 132 126

Food 121 116 113 Housing 205 160 148 Transportation 172 128 116 Clothing and personal care 119 118 115 Medical care 157 157 156 Other family consumption 95 95 96

Personal Income Taxes 231 175 159

SOURCE: U.S. Department of Labor, Bureau of Labor Statistics.

Alaska living costs are steeply biased against low income families. The total cost of a "high standard" budget in Anchorage in 1970 was 31 percent higher than its U.S. average urban counterpart, but the cost of a "low standard" budget was 55 percent higher. Differentials are greatest in the lowest budget level in almost every expenditure category, but the most extreme contrasts are in housing costs. The Anchorage cost of housing was 105 percent higher than the national

26

urban level at the lower budget level and only 48 percent at the higher.

Economists do not completely agree on the causes of Alaska's high prices, but the extreme climate and transportation costs are only a part-possibly a minor part-of the explanation.19 The small size of Alaska market limits competition and minimizes the gains from scale economies. Small markets also reduce the potential returns from innovations ment. Severe seasonal fluctuations in production and sales inflate the costs of fixed plant per unit of output, recruitment and termination costs, and inventory to sales ratios. Abrupt changes in government and industrial activity reverberate throughout the economy, alter­nately creating bottlenecks and oversupplies. All these combine to build high implicit charges for risk into the returns to both labor and capital.

The price and cost differentials, at least between the Anchorage area and the other states, have declined somewhat in recent years as population and income growth have expanded the economic infra­structure and the support sector.20 Since 1961, the Anchorage Con­sumer Price Index has advanced only 20 percent, compared to an increase of 35 percent for the U.S. urban average. This means that the cost of living in Anchorage for a family on an intermediate budget is now 32 percent higher instead of 48 percent higher than the national urban average. Significantly, over half of the fall in the differential has occurred in the last three years, during a time in which Anchorage has experienced very rapid growth and a construc­tion boom.

Land Ownership

The federal and state governments together hold title to 99.8 per­cent of Alaska lands. The state currently holds 3.2 percent, while only .2 percent is privately owned. 21 Almost three-quarters of

27

Alaska land is apparently* vacant and unreserved public domain under jurisdiction of the Bureau of Land Management.

State, 22 municipal and privately owned lands are economically more important than their proportion of the total acreage would suggest. Non-federal lands include most land in and around the state's two main urban concentrations; rights-of-way along the major highways; almost all the land suitable for intensive agriculture; and­significantly here-most of the petroleum-producing areas of the Cook Inlet basin and the entire Prudhoe Bay field. The most import­ant known commercial resource still principally in federal title is national forest timber.

Important changes in land ownership will result from the resum p­tion of state land selection t under the Alaska Statehood Act, 23 and the grant of title to Native (American Indian, Eskimo, Aleut) individ­uals and groups under legislation pending before Congress.** Under the Statehood Act and a Native claims settlement, substantial land areas surrounding almost all the state's smaller settlements, all the most promising onshore acreage for petroleum exploration not al-

*The qualification apparently is necessary because, to the extent that pending Native claims against these lands are valid, they are not "vacant and unreserved."

tThe Statehood Act gave Alaska the right to select 102.55 million acres of "unreserved, vacant and unappropriated" public land as a general land grant, and 400 thousand more acres of such lands and 400 thousand acres of "vacant and unappropriated" national forest land for community expansion. The state government is thus permitted to select up to 28.3 percent of the total area of Alaska.

** At least five different bills to settle the Native claims are presently (August 1971) before Congress. They include S. 35, similar to a proposal passed by the Senate in the 91st Congress, an administration proposal (H.R. 7432, S. 1571), a proposal by the Alaska Federation of Natives (H.R. 7039, S. 835), one by the chairman of the House Committee on Interior and Insular Affairs (H.R. 3100), and one by the House Subcommittee on Indian Affairs (H.R. 10367). There are substantial differences among these bills; the unrestricted land grants to Natives vary from about one million acres to sixty million. It is noteworthy that even the smallest proposed grant would more than double the acreage (not the value, however) of private land in Alaska.

28

ready designated as federal reserves, and substantial amounts of coastal and river frontage, can be expected to pass out of federal ownership.* Lesser changes in land ownership will result from opera­tion of the general mining laws, the Homestead Act, and several other settlement laws that apply to federal lands in Alaska.

At present, federal land transfers to the state and other parties are generally blocked by the protests of Native groups claiming title to the lands because of aboriginal occupation and use. An overall resolu­tion of these protests in the courts is unlikely, and the Alaska "land freeze "24 will continue in some form on at least some lands until the Native claims are settled by legislation. t

*This result can be expected regardless of the size and structure of the land grant in legislation settling Native claims. The state government and Native groups will have very similar objects in selecting land: territory for community expansion and support, and prospective commercial resources, particularly minerals. Since the total acreage of serious interest to both is much less than the state's remaining selection right, those apparently valuable lands not in federal reservations and not taken by the Natives will generally be taken by the state (and vice versa).

tEven upon a legislative resolution of the present deadlock, the interaction of the Alaska Statehood Act, the native claims settlement, and the general land laws will raise serious economic and environmental complications.

29

TECHNICAL NOTES

1Table II-Al, "Estimates of Total Alaska Resident Population and Compon­ents of Change, 1950-1970;" Table II-A2, "Alaska Population Characteristics 1970 Census;" and Figure II-A, "Four Major Alaska Regions."

--- -- ------~~~~~-----~~-~--~

TABLE II-Al

ESTIMATES OF TOTAL ALASKA RESIDENT POPULATION AND COMPONENTS OF CHANGE, 1950-1970

Population Compositiona Components of Changeb

Total Natural Net Migration July 1 Population Military Civilian Total Increase Military Civilian

(thousands of persons) (thousands of persons)

1950 138 26 112 8 2.5 (4) 9.5 1951 164 38 126 26 2.8 12 11.2 1952 196 50 146 32 3.8 12 16.2 1953 212 50 162 16 5.0 11.0 1954 218 49 169 6 6.1 (1) 0.9

1955 221 50 171 3 6.4 1 (4.4) 1956 220 45 175 (1) 6.5 (5) (2.5) 1957 228 48 180 8 6.7 3 (1.7) 1958 213 35 178 (15) 6.5 (13) (8.5) 1959 220 34 186 7 6.5 (1) 1.5

1960 228 33 195 8 6.3 (1) 2.7 1961 235 33 202 7 6.3 0.7 1962 243 33 210 8 6.4 1.6 1963 251 34 217 8 6,5 1 0.5 1964 256 35 221 5 6.5 1 (2.5f

1965 267 33 234 11 6.3 (2) 6.7c 1966 272 32 241 5 5.8 (1) 0.2 1967 278 33 245 6 5.5 2 (1.5) 1968 285 33 252 7 5.4 1.6 1969 295 32 263 10 5.3 (1) 5.7d

1970 304.6 31.7 272.9 5.6 5.4 (0.3) 0.5

aEstimates are 12 month moving averages centered on July 1.

bDecreases and net out-migrations shown in parentheses.

cReflects effects of 1964 earthquake and 1965 reconstruction.

dReflects North Slope oil boom. SOURCES: 1950-1966 U.S. Bureau of the Census, Current Population Beports, Series

P-25; 1967-1970: Alaska Department of Labor, Current Population Estimates, Alaska.

uJ 0

TABLE II-A2

ALASKA POPULATION CHARACTERISTICS 1970 CENSUS

Total South-b Total State Southeast a central Southwest Northern State S.E. s.c. s.w. North.

(percentage)

TOTAL POPULATION 302,173 42,565 171,849 18,434 69,325 100.0 1()0.0 100.0 100.0 100.0 Native 51,604 8,354 11,909 15,070 16,271 17.1 19.6 1.9 81.8 23.5 Non-Native

White 238,412 33,200 152,579 3,175 49,458 78.9 78.0 88.8 17.2 71.3 Negro 8,985 201 5,747 107 2,930 3.0 .5 3.3 .6 4.2 Other 3,172 810 1,614 82 666 1.0 1.9 .9 .4 1.0

DEPARTMENT OF DEFENSE & DEPENDENTS

Military Personnelc 31,700 700 20,000 1,000 10,000 10.5 1.6 11.6 5.4 14.4 Civilian Employees & Dependents 41,500 900 28,400 700 11,500 13.7 2.1 16.5 3.8 16.6

TOT AL DEFENSE 73,200 1,600 48,400 1,700 21,500 24.3 3.8 28.2 9.2 31.0

POPULATION IN PLACES OF:d More than 15,000 172,197 -- 126,333 -- 45,864 57.0 --- 73.5 --- 66.2 10,000 - 15,000 23,597 23,597 ----- --- --- 7.8 55.4 4,000 - 9,999 11,055 4,205 6,850 ---- -- 3. 7 9.9 4.0 2,000 - 3,999 16,858 4,071 5,782 2,416 4,589 5.6 9.6 3.4 13.1 6.6 1,000 - 1,999 14,025 1,050 8,312 1,147 3,516 4.6 2.5 4.8 6.2 5.1 less than 1,000 64,441 9,642 24,572 14,871 15,356 21.3 22.6 14.3 80.7 22.2

SOURCE: Adapted from U.S. Bureau of the Census data by G.W. Rogers.

a

31

NOTES TO TABLE II-A2

The four regional units used here and illustrated in Figure II-A are as follows:

Southeast Region (land area 37,566 square miles, 1970 population 42,565) set off from the rest of the state by the Malaspina Glacier and the St. Elias Range, comprises the many islands of the Alexander Archipelago and a strip of the mainland extending along the northwest corner of British Columbia.

Southcentral Region (land area 99,799 square miles, 1970 population 171,849) comprises the coastal area of Alaska south and east of the arc of the Alaska Range extending through the Aleutian ls!amls. It includes the Susitna Kiver basin, Copper River basin, Cook Inlet and its tributaries, Kodiak Island, Alaska Peninsula, Aleutian Islands and other islands in the Gulf of Alaska.

Southwest Region (land area 137,302 square miles, 1970 population 18,434) includes the Bristol Bay drainage, Kuskokwim River basin and the lower Yukon River basin (south of 64 degrees North), and the islands of the Bering Sea.

Northern Region (land area 311,773 square miles, 1970 population 69,325) includes the balance of the Yukon River basin, the Tanana, Koyukuk and Kobuk River basins, the Seward Peninsula and the Arctic or North Slope.

The four-region scheme used here is adapted from a five-region division presented first and most fully in a publication of the AlaskaDivision of Planning (Rogers and Cooley, 1963).

This division was updated in three recent publications: Alaska Statistical Review (1969 and 1970); (Rogers, 1967). For a broader discussion of the application of several different concepts of regions to Alaska, see Federal Field Committee (1968a), pp. 9-34. The regions used there differed from the above through inclusion of Bristol Bay in the southcentral region.

bPublished characteristics adjusted for undercounting in Anchorage census district (estimated).

cEstimates.

d"Places" include main centers and immediate environs as one unit.

2see Table II-Al above.

3The personal income estimates of the U.S. Department of Commerce (Sur­vey of Current Business, August of each year) are probably the best indicators of the relative amount and composition of economic activity in Alaska. Bradford H. Tuck has estimated "Alaskan Gross Product" (AGP), a concept comparable to gross domestic product, by industrial origin for the years 1960 to 1969, (Tuck, 1967 and 1971a). AGP is shown increasing from $748.6 million in 1960 to $1,654.3 million in 1969. These estimates were calculated by expanding state

32

~~'

t

I

/ /

/

I I

I

~ ', .',,

/

I I

I

) I

/

\ • .

1- · .• i

\ ·.i

~

<J> 0 1 ~ ...

..J ~

,ti

~ ~

9

.', ,!1

'\l

{7

33

payroll data with national coefficients relating value added to payrolls. This procedure results in a severe underestimation of value added in crude petroleum and natural gas (Tuck's estimate for 1967 is $97 .5 million, compared to a Census of Mineral Industries figure of $219.1 million), and in a complete absence of fishing activity (where labor compensation does not generally take the form of wages) from the statewide product figures. Generally, great differences can be expected in the labor intensity of production between an industry's Alaska operations and those in other states, seriously distorting both the aggregate product estimates and their components. Accordingly, Tuck's estimates are probably less adequate as measures of aggregate economic activity than tlw Department of Commerce personal income figures.

However, the personal income estimates understate value added within the state as a proportion of U.S. gross domestic product because of the relatively small equity of individual Alaskans in Alaska industry; in petroleum particularly, only a small portion of value added turns up as personal income of residents. The difference between value added in the state and the state personal income includes net factor payments to non-residents, depreciation and depletion, royal­ties and other leasehold payments to state and federal governments, production taxes, and corporation and other business taxes.

Some indication of the relative weight of the oil and gas industry in Alaska can be obtained by comparing data for 1967 from the Census of Mineral Indus­tries with the personal income estimates. The relevant Census categories are Crude Petroleum and Natural Gas (SIC 1311) and Oil and Gas Field Services (SIC 138) for the Pacific Division less California. The wage and salary figures from the two sources are the same ($27 and $27.1 million, respectively), about 12 percent of value added in mining in the industry ($219.1 million). In the U.S. oil and gas industry (SIC 1311 and 138) as a whole, wages and salaries (Census) were 14 percent of value added in mining, and personal income from wage and salary disbursements was 17 percent of value added. By contrast, in the whole national economy, wage and sala1y payments were 53 percent of the gross national product, and personal income was 79 percent of GNP.

Assuming that the 1967 ratio of payrolls to value added in Alaska oil and gas prevailed in 1969, value added in oil and gas mining activities in the latter year was $404 .2 million. Bonuses paid on presently producing leases are in principle included in this estimate, but it can be argued that the state's 1969 bonus income from the North Slope lease sale is a factor payment that should be reflected somehow in value added in mining in that year. If so, the entire sum should not be attributed to only one year, but to the life of the lease. Using the (minimum) term of 10 years and an 8 percent return over four months, 1969's share of the 1969 bonuses and their earnings would be $54 million. Our estimate for value added in crude petroleum and natural gas in 1969 would then be about $460 million. (Tuck's estimate is $211.3 million.)

34

4Table II-B, "Industrial Sources of Personal Income and Estimated Composi­tion of Economic Base, Alaska, 1970" (following) presents a more detailed approximation of personal income by industrial origin and isolates "economic base" components on the basis of the authors' judgment. The reservations in technical note 3 above regarding the understatement of the oil and gas industry's contribution should be observed in interpreting these estimates.

5see Table II-C, "Personal Income by Major Sources, Alaska, 1959-1970," following.

6See Table II-C.

7 See Table 11-C.

8Table II-D (following) summarizes employment data for 1939, 1950 and 1960-70. Standard Industrial Classifications were grouped into three main sec­tors: commodity producing industries (oil and gas, other mining, contract con­struction, canneries, wood products, other manufacturing), distributive indus­tries (transportation, communication and public utilities; wholesale and retail trade; finance, insurance, and real estate services), and government (federal, state and local). Civilian employees of the Department of Defense were deducted from federal government and added to estimates of military personnel stationed in Alaska to arrive at a total Department of Defense category. A "non-wage and non-salary employment" (agricultural workers, fishermen, unpaid family workers, self-employed, etc.) category was added as presented in the annual estimates of total workforce from which the table was drawn. This discussion and all the employment-payroll analysis in this report are in terms of the format, classification, and definitions used in regularly published U.S. and Alaska Departments of Labor reports and statistics on non-agricultural wage and salary employment, total workforce estimates, unemployment and population esti­mates.

9Rapid increases in military payrolls, noted above in the discussion of per­sonal income, reflect an upgrading of forces stationed in Alaska and substantial military pay increases. Thus, more money was allocated to a nearly unchanging number of people. Bowen, 1971. See Table 11-D.

35

TABLE 11-B

INDUSTRIAL SOURCES OF PERSONAL INCOME AND ESTIMATED COMPOSITION OF ECONOMIC BASE, ALASKA 1970a

Estimated Personal Income Personal Income Originating Originating in "Economic

in Named Industry Base" Sector

millions of percent millions of percent current dollars of total current dollars of total

.288 100.0 720 100.0

Farms _1 _._1_ 0 Fishing 21 .lQ_ 21 2.9 Mining 54 4.2 49 6Jl

Coal mining 1 -.1- 0 Crude petroleum and natural gas 49 3.8 49 6.8 Other mining 3 .2 0

Contract construction 119 9.2 52 7.2 General building contractors 36 2.8 9 --.-6-

Highway and heavy construction contractors 61 4.7 46 6.4

Special trade contractors 22 1.7 2 .3 Manufacturing 68 5.3 38 5.3

Food processing 18 TI 18 2.5 Logging, lumber and pulp 17 1.3 17 2.4 Chemicals 3 .2 3 .4 Other 30 2.4 0

Wholesale and Retail 150 11.6 16 2.2 Wholesale trade ~ TI 11 TI Eating and drinking places 27 2.1 5 .7 Other retail trade 91 7.1 0

Finance, Insurance, and Real Estate 35 2.7 0 0 Banking 14 To 0 Other Finance, Insurance

and Real Estate 21 1.6 0 Transportation 2 Communications,

Public Utilities 120 9.3 20 2.8 Railroad transportation 6 A 0 Highway freight and warehousing 20 1.6 0 Water transportation 9 .7 0 Air transportation 38 3.0 12 1.7 Other transportation 4 .3 0 Communications 33 2.6 8 1.1 Electric, gas and sanitary services 10 .8 0

Services 130 10.1 13 1.8 Hotels and other lodging places ~ -.8-

} Personal services 10 .8 Business services 24 1.9 13 1.8 Repair services 5 .4 Amusements and recreation 3 .2 Professional, social and

related services 74 5.7 Government 590 45.8 507 70.4

Federal military 219 17 .0 219 30A Federal civilian 197 15.3 197 27.4 State government 98 7.6 10 1.4 Local government 7G 5.9 8 1.1 Transfer payments (77)b 73 10.1

36

NOTES TO TABLE 11-B

aEstimates for broad industrial categOl'ies (underlined items, except government) are from Survey of Cui-rent Business, August 1971, Table 70, "industrial sources of civilian income received by persons for participation in current production." Military wage and salru·y disbursements were added from Table 62A and other industries were assumed to hP composed entirely of iishing. E~-ti1nates for the broad industrial categories were subdivided, where possible, according to the proportion of wage and salary disbursements in each category from Table 62A. Further subdivision was proportional to 1970 payroll figures in Alaska Department of Labor, Statistical Quarterly.

The economic base was estimated as follows: all production in fisheries; mining of crude petroleum and natural gas; food processing (principally fish); logging lumber and pulp; and chemicals (principally ammonia and urea), were assumed to be for export from the state. One-third of wholesale trade was included, as being integral part of "basic" industries like petroleum and heavy const1·uction. All federal government wage and salal·y disbursements, 95 percent of transfer payments,10 percent of state and 5 percent of local wage and salary disbursements were assigned to the economic base on the grounds that they are directly funded by the federal government on the basis of decisions made outside the state. Seventy­five percent of highway and heavy construction, and 10 percent each of general building contracting and gpecial trade contracting was included in the base on the assumption that they represent purchases with federal funds or investment outlays by outside corpm·ations. One-third of air transportation, one-half of the services of hotels and other lodging places, one-fifth of services of eating and drinking places, and 10 percent of other services were included, on the assumption that these services are sold to tourists 01· to transients not employed in Alaska (e.g., international airline personnel and passengers). One-fourth of communications services was included in the base to account for dil'ect defense contractors (DEW line, etc.) and services to tourists and transients.

bNot included in total.

TABLE 11-C

PERSONAL INCOME BY MAJOR SOURCES, ALASKA, 1959-1970

1959 1960 1961 1962 1963 1964 1965 1966 1H67 1968 1969 1970

(millions of dollars)

PERSONAL INCOME .5.fili_ ..fill.2 -62.8 -6.5.6... .1Jl4. ...1fill ...8.51. -9.20.. .J...Q2.9.. l..,.1.3.6.. .1..2.5&. 1..,Ml!l.

Wage and Salary Disbursements 458 528 516 538 584 665 716 764 B50 941 1,064 1,177

E_arms .1!. ~ ..A. ..A.. --1. .....1. -1. ....1. ....1. ....1. _a.. ..a. Mining .lL ......!L .1.!l. .1.!l. ..12... ..l.2... ..l.2.... .1.1. 21- ...3.2. ..li.,1 .fill..

Coal mining 3 2 2 2 2 2 3 3 3 2 1 1 Crude petroleum and natural gas 3 3 4 5 8 8 8 12 23 33 50 45 Mining and quarrying except fuel 4 4 3 3 2 2 2 2 2 2 2 3

Contract construction _j&_ ~ .a .M.. M. .2.2. .Th .1.£. JU. ...8.5. .1..0.1. J.Jl1 Manufacturing ...2l.. ...2.1 ..28.. ..2.5.. ...fill ..3..3.. ...31 ...38... -41.. .A6. ..5.2. ...li1.

Durables b b b b 11 12 14 16 21 22 24 28 Nondurables b b b b 20 20 23 22 21 24 28 32

Wholesale and retail trade .±6... M .lili... JU. fil. .Ji2. ...13.... .1lL _ill!_ _ill!_ ll.!l. ll2.. Finance, insurance and real estate _a_ ---9.. -1.0... ..1.2.. .J.1.. ll ...li. .18... .18... ..20.. ...23.... --2..8..

Banking 4 5 5 6 5 6 7 7 8 8 9 11 Other finance, insurance

and real estate 3 4 5 5 7 8 10 10 10 11 13 17 Trans2ortation, communications

and Qublic utilities 41 .fil.. .ill!.. ..filL ...M... _.§JL .fil.. ....fili.. . ..1.Z.. .IL ~ 106 Railroad transportation 1 1 1 2 2 2 2 2 3 3 4 5 Highway freight and warehousing 6 6 7 7 7 8 10 8 10 11 16 18 Other transportation 22 24 22 22 21 22 23 24 29 31 41 45 Co mm unic atio ns and

public utilities 12 19 31 29 27 27 29 31 31 33 35 38

c,,:, -.J

c,.:,

TABLE 11-C (Continued) 00

PERSONAL INCOME BY MAJOR SOURCES, ALASKA, 1959-1970

1959 1960 1961 1962 1963 1964 1965 1966 1"67 1968 1969 1970 --

(millions of dollars)

~ ~ _ill_ ...3.2_ ....3.£ .M__ _il_ Jili. . .filL fil__ .:IB_ ..fill. 102 Hotels and other lodging places 3 4 4 4 4 4 6 7 7 7 8 9 Personal services and

private households 4 5 4 4 7 7 7 7 8 9 9 9 Business and repair services 6 8 9 12 10 12 14 14 17 22 25 23 Amusement and recreation 1 1 1 1 2 1 2 2 2 2 2 2 Professional, social

and related services 10 13 14 14 22 25 27 30 33 38 44 58 Government 255 283 279 297 322 363 379 405 .1A8 493 ~ _lifili_

Federal, civilian 103 102 105 108 123 139 140 143 155 167 180 194 Federal, military 113 138 120 121 122 140 141 154 75 190 199 219

Total federal disbursementsc 244 257 246 250 267 298 307 326 .l62 395 421 470 State and local 34 44 54 68 78 84 97 108 118 136 148 172

Total state and local disbursementsc 32 48 58 71 80 86 100 111 1 23 140 153 178

Other Industriesd ..!?_ 2 ~ _§_ ___.Q. _Q _5 --2. ~ _.Q. ...Ji. ..Ji.

Other Labor Income 11 13 15 15 18 20 23 26 29 31 38 44 Pro12rietors' Income 42 46 47 51 53 48 50 66 78 80 71 71 Pro12ertv Income 34 38 39 41 38 46 51 53 59 65 70 79 Transfer Pa:,ments 22 23 28 28 30 32 35 38 42 50 57 77 Less Personal Contributions

for Social Insurance 16 16 16 17 18 22 23 26 29 31 41 48

aLess than $500,000.

bNot available.

cincome disbursed directly to persons by federal and state and local government comprises wages and salaries (net of employee contributions for social insurance), other labor income, interest, and transfer payments.

dincludes fishing.

SOURCE: Survey of Current Business, August issues, 1960-70.

TABLE 11-D

TOTAL EMPLOYED WORKFORCE -STATE OF ALASKA -1939-1970

1939 1950 1960 1965 1966 1967 1968 1969 1970

(thousands of persons, monthly average, calendar years)

TOT AL EMPLOYED WORKFORCE 29,0 78.5 100.7 115.1 116.4 121.0 U,1Ji 130.9 136.2

Wage and Sali\ry Em12Joym~nt

Der:iartment of Defensea _Q,._§_ 32.0 41.5 39.5 39.7 40.4 39.4 39.0 39.0

Commoditv Producing Industries .1.Q...±. 13,9 12.8 .l.3Jl.. UJL U&.. J..M 17.2 19.0 Mining

Crude petroleum and natural gas --- 0.5 0.4 0.7 1.0 1.6 2.2 3.2 2.6 Other 4.5 1.4 .7 .4 .4 .4 .3 .3 .4

Contract Construction 1.3 6.3 5.9 6.4 5.9 6.0 6.0 6.7 6.9 Manufacturing 4.6 5. 7 5.8 6.3 6.6 6.6 6.9 7.0 7.8

Food processing 4.2 4.4 2.8 3.0 3.4 3.1 3.3 3.2 3.7 Wood products 0.1 0.6 2.2 2.3 2.3 2.6 2.5 2.5 2.8 Other (including petroleum) 0.3 .7 .8 1.0 .9 .9 1.1 1.3 1.3

Distributive Industries .Q.JL 12.2 ll..::L 27.0 .£!1± _3M 32.2 36,0 ..31!.4 Transportation, Communications Public Utilities 2.0 3.7 6.8 7.2 7.3 7.5 7.8 8.8 9.1

Air transportation 0.5 0.9 2.0 1.9 2.0 2.2 2.5 3.1 3.1 Other 1.5 2.8 4.8 5.3 5.3 5.3 5.3 5.7 6.0

Wholesale and Retail Trade 2.5 4.9 7.7 10.0 10.8 11.8 12.5 14.0 15.4 Services and Miscellaneous 1.0 3.6 6.9 9.8 10.3 11.2 11.9 13.2 11.5

_!:iovernment (non-defense)b -3..lL ~ ~ ~ ~ ~ --2.M ~ ~

Other Employment (self-employed, family workers, agriculture) __J;!a 10 7 .li!&. ll...6. .il..2. lL2.. lL2.. 11 9 12,0

alncludes military personnel and civilian employees of the Department of Defense.

bEstimatcd by G.W. Rogers based on regional models in Alaska's Manpower Outlook, 1970's, Publication No. 4.

SOURCE: 1939: Based on 1939 Census and 1940 covered employment data. 1950-1969: Alaska Department of Labor, Workforce Estimates, b.)l Industrv. 1970: Alaska Department of Labor, Statistical Quarterly. c,.,

c.o

40

10Table II-E, "Seasonal Fluctuations in Employment in Selected Industries and in Unemployment, Alaska."

TABLE 11-E SEASONAL FLUCTUATIONS IN EMPLOYMENT IN SELECTED INDUSTRIES

AND IN UNEMPLOYMENT, ALASKA

Difference Between Peals and Low Month

Peak Month Low Month Absolute Ratio

TOTAL EMPLOYMENT July January 20,886 1.27

Crude Petroleum and Natural Gas April October 305 1.11 Contract Construction August January 5,678 2.49 Logging, Lumber & Pulp August January 1,382 1.82 Food Processing July February 5,665 4.20 Services August February 8,247 1.27 Government August September 2,649 1.09

UNEMPLOYMENT June September 4,553 1. 71

NOTE: Based upon 1966-1970 data for seasonal patterns and 1968 data for absolute levels; adjusted for trend. See notes to Figure II-3 for sources and method of calculation.

llworkforce Estimates.

12Monthly Labor Review.

13The low labor force participation on the part of Natives shows up strongly in the Table II-1 figures for the southwest region, that part of the state with the highest proportion of Natives (see Table II-A2). The 1960 Census showed a 37 percent statewide labor force participation rate for Natives 14 years and over; the comparable figure for the total population of Alaska was 69 percent and for the U.S. 55 percent. See also Table 11-F.

14The structure of Native joblessness is indicated in Table II-F, which sum­marizes the labor force and employment status of the Native population in the most economically depressed part of Alaska. Only 7 .8 percent of working age

41

males in the region were permanently employed at the time of the survey. Table II-F, "Employment Status of Native Population Lower Yukon-Kuskokwim Re­gion, Alaska, March 1969."

TABLE 11-F

EMPLOYMENT STATUS OF NATIVE POPULATION LOWER YUKON-KUSKOKWIM REGION, ALASKA, MARCH 1969

Total Resident Native Population

Under 16 Years

Working Age (16 Years and Over) 16-19 20-24 25-34 35-44 45-64 65 and over

Labor Force Employed

Permanent (more than 12 months)

Temporary (incl. persons out of region on seasonal work)

Unemployed (actively seeking work) (Percent of Labor Force)

Fully or Partially un­employed (sum of two

items above) (Percent of Labor Force)

Not in Labor Force Disabled, Retired,

Institutionalized Students (over 16 years

of age, incl. those at school out of region)

Others Women with children

Number of Persons

Total Male Female

12,083

6,171

5,912 1,184

914 1,227 1,058 1,225

304

1,943 1,035

389

646

908

1,554

3,969

646

1,062 2,261

977

6,347

3,229

3,118 526 487 657 501 704 183

1,494 712

242

470

782

1,252

1,624

284

557 783

5,736

2,942

2,794 658 427 570 497 521 121

449 323

147

176

126

302

2,345

362

505 1,478

977

Percentage of Working Age Population

Total Male Female

100.0 20.0 15.4 20.7 17.8 20.7

5.1

32.9 17 .5

6.6

10.9

15.3 (46.7)

26.2 (80.0)

61.7

10.9

18.0 38.2 16.5

100.0 16.9 15.6 21.1 18.0 22.5

5.9

47.9 22.8

7.8

15.1

25.0 (52.3)

40.2 (83.8)

52.1

9.1

17.9 25.1

100.0 23.5 15.3 20.4 17.8 18.6

4.3

16.1 11.6

5.3

6.3

4.5 (28.1)

10.8 (67 .3)

83.9

13.0

18.1 52.9 35.0

SOURCE: Bureau of Indian Affairs. Data rearranged for maximum comparability with 1960 Census figures. Compiler evaluated the reliability of these data as "reasonably accurate" to "unsatisfactory." Region includes Bethel, Kuskokwim and Wade Hampton Census Districts. Adapted from Tussing and Arnold, 1969.

42

15Table II-G, "Distribution of Alaska Natives by Size of Place, 1970."

TABLE 11-G

DISTRIBUTION OF ALASKA NATIVES BY SIZE OF PLACE, 1970

Cumulative Totals

Total Size No. of Native No, of Native of Place Places Population

a Places Population

25-99 50 2,842 50 2,842 100-199 65 7,755 115 10,597 200-299 32 6,136 147 16,733 300-399 23 5,021 170 21,754 400-499 18 5,226 188 26,980 500-599 3 663 191 27,643 600-699 1 37 192 27,680 700-799 3 652 195 28,332 800-899 2 522 197 28,854 900-999 1 567 198 29,421 1000-1499 14 1,870 212 31,291 1500-1999 7 2,253 219 33,544 2000-2999 9 6,457 228 40,001 3000-4999 7 2,016 235 42,017 5000-9999 9 3,466 244 45,483 10,000-19,999 2 1,718 246 47,201 20,000-49,000 2 3,684 248 50,885

aln Alaska, Aleuts and Eskimos are considered together with Indians as the native Alaska population. However, the 1970 Census first count combines Aleuts and Eskimos with Chin· ese, Japanese, and Filipinos as the other specified ,·aces. In order to estimate the population of Aleuts and Eskimos from the other specified races, it is assumed that the populations of Chinese, Japanese and Filipino change at the same rate as the white between 1960 and 1970. The 1970 population for Chinese, Japanese, and Filipino is estimated by multiplying the 1960 population for Chinese, Japanese, and Filipino by one plus the rate of population change of the white between 1960 and 1970. The number of Aleuts and Eskimos is then estimated by subtracting out the estimated 1970 population of Chinese, Japanese and Filipino from the other specified races.

SOURCE: Estimated from the 1970 Census of Population, first count.

43

16Federal Field Committee for Development Planning in Alaska, 1968b, p. 63; figures from 1960 Census of Population.

17 Tussing, et al. (in press) shows a lack of long term relationship between employment in wood products in five Southeast Alaska labor market areas, fish processing in the Kodiak and Bristol Bay areas, and government in the Juneau area (the principal component of the economic base in each labor market area) and unemployment in each area.

18Table II-H, "Selected Industries-Seasonal Indices of Employment."

TABLE 11-H

SELECTED INDUSTRIES-SEASONAL INDICES OF EMPLOYMENT (Not Adiusted for Trend, 12 Month Average = 100)

Food Processing Logging, Lumber and Pulp Contract Construction

1960 1969 1960 1969 1960 1969

January 50.0 56.3 72.7 64.0 37.3 53.7 February 50.0 50.0 86.4 64.0 39.0 52.2 March 42.8 53.1 100.0 76.0 42.4 58.2

April 57 .1 56.3 113.6 108.0 64.4 77.6 May 96.4 96.9 122.7 116.0 96.6 100.0 June 167.9 153.1 122.7 124.0 139.0 117.9

July 253.6 228.1 113.6 124.0 157 .6 119.4 August 203.6 190.6 113.6 128.0 171.2 138.8 September 89.3 118.8 104.5 124.0 162.7 140.a

October 64.3 75.0 104.5 112.0 135.6 135.8 November 53.6 59.4 95.5 100.0 89.8 109.0 December 53.6 59.4 72.7 84.0 62.7 88.1

12 Month Total 2,800 3,200 2,200 2,500 5,900 6,700

Percentage of Total Civilian Employment 4.1% 3.2% 3.2% 2.5% 8.7% 6.8%

SOURCE: Alaska Department of Labor, Workforce Estimates.

44

19The two existing studies of Alaska costs and price differentials are Tussing et al. (1969), and Massell and Massell (1971). The former emphasizes the "inflationary" impact of government disbursement procedures, and the latter emphasizes "real" causes-environmental factors, small and isolated markets, etc.

20Table II-J, "Relative Change in Consumer Price Index, Anchorage and united States, l::Jti0-1:11 l.

May-Oct. 1960 May-Oct. 1961 May-Oct. 1962 April-Oct. 1963 April-Oct. 1964 April-Oct. 1965 October 1966 October 1967 October 1968 Average 1969 Average 1970 April 1971

TABLE 11-J

RELATIVE CHANGE IN CONSUMER PRICE INDEX, ANCHORAGE AND UNITED STATES, 1960-1971

Consumer Price Index (1961=100)

Anchorage United States Anchorage Family Budget Cost

Urban Average (U.S. Urban Average=lOO)

99 100 100 101 101 102 106 108 111 114 118 120

99 100 100 102 104 105 109 112 116 122 129 135

148 148 147 147 144 144 144 143 142 139 137 132

SOURCE: Thomas and Tussing (in press), from U.S. Department of Labor, Bureau of Labor Statistics, Consumer Price Indexes, and Annual Costs of an Intermediate Budget for a 4-person Family, 1969.

45

21 Acreages in this section are estimated as of the end of fiscal year 1968.

Because of the Alaska "land freeze" (see technical note 24) there has been little change in land status since that time. Calculations are adapted from Tussing, et al. (in press). Table II-K, "Status of Lands in Alaska, 1968."

TABLE 11-K

STATUS OF LANDS IN ALASKA, 1968

Total Land Area of the State (approximate) Privately Owned Lands State and Municipal Lands Federally Owned Lands

Department of the Interior Bureau of Land Management

Vacant and Unreserved Lands Classified or Rese1·ved Lands Naval Petroleum Resei·ve

Fish and Wildlife Se1·vice National Park Service Alaska Powe1· Administration Bm·eau of Indian Affairs

Department of Agriculture Forest Service Other

Department of Defense Army (other than Corps of Engineers) Corps of Engineei·s Air Force Navy (other than petroleum reserve)

Department of Transportation Coast Guard Federal Railway Administration Federal Aviation Administration

Other Agencies Overlapping Jurisdictions

*less than 500 acres

tless than 0.05 percent

Land Area (Thousands of Acres)

365,482 898a

11,744b 352,840~ 330,847 d 301,234d 273,011

5,232 23,000e 18,623

6,911 5

4,065

20,735 20,735

* 2,560e 2,266

53 134 107

111 41 38

* 10

( 1,423)

Percentage of Total

100.0 0.2 3.2

96.6 90.5 82.4 74.7

1.4 6.3 5.0 1.9

1.1

5. 7 5. 7

t

1.0 0.6

t t t

t t t t t

46

NOTES TO TABLE 11-K

aSum of federal patents up to end of fiscal year 1968 and state land contracts in effect at end of calendar 1967 plus half the ac1·eage of state land sale contracts executed in calendar 1968. Federal patents estimated by Theodore Bingham, Alaska state office, Bureau of Land Management; state land sales from State of Alaska, Department of Natural Resources, Division of Lands, 1969 Annual Report. The figme above does not include an estimated 254 thousand acres of unperfected private claims and entries under federal land law. This latter figure is the total of estimated claims and entries by region in Chapter 5 of Froeral Field Committee for Development Planning in Alaska, AliiSll:a Natives and .. the Land (Washington: U.8. Government Printing Office, 1968).

bThe sum of lands patented to the state and state selections tentatively approved fo1· patent less state land sales. All figmes are acreage for end of calendar 1967 plus half of 1968 addition. This total does not include approximately 10 million acres of unprocessed state selections.

cUnless otherwise indicated, data for federal agencies are from Department of the Inte1·io1·, Bureau of Land Management, Public Land Statistics, 1969; additional detail is provided from One Third of the Nation's Land A Report to the President and to the Congress by the Public Land Law Review Commission (Washington: U.S. Government Printing Office, 1970), Appendix F; pp. 327-330. The sum of acreages under the jurisdiction of different federal agencies will be greater than the total of federally owned land because of concmrent jurisdiction and ove1-lapping withdrawals. The figure here for total federally owned land is calculated as a residual afte1· deduction of pl'ivate, state, and local holdings from the estimated total land area of the state.

d Acreage under the Bureau of Land Management jurisdiction, and vacant and unreserved land under the Bureau's jurisdiction are calculated as residuals from total of federally owned lands, after deduction of acreage under the jurisdiction of other agencies, less overlaps among these agencies.

eNaval Petroleum Reserve No. 4 is classified here as under Bureau of Land Management jurisdiction. That Bureau lists the Reserve at 23 million acres, while the Department of Defense gives a total of 23,680,000 acres.

22state lands here are considered to include those selected by the state and "tentatively approved" for transfer by the Department of the Interior, lacking only final survey for grant of patent.

See Figure II-B, "Land Selections and Existing General Federal Withdrawals," following.

FIGURE 11-B

LAND SELECTIONS AND EXISTING GENERAL FEDERAL WITHDRAWALS

~

'

fj ,.,,.

~ 'O'.l,Cl,-... '--::::9..,_ 0

a•..: ;9P~--

-iS::D -STATE SELECTIONS TENTATIVELY APPROVED

WITHDRAWAL$ 8 RESERVATIONS

STATE SELECTIONS PATENTED

""" -l

48

23 72. Stat. 339, secs. 5 and 6.

On national defense grounds, state selection of land north of the so-called Porcupine -Yukon-Kuskokwim (PYK) line requires presidential sanction. This review authority has been delegated to the Secretary of the Interior, who has never denied a state selection under it. However, the entire PYK region is now segregated for classification by the Department of the Interior.

the public land order of former Secretary Udall (Public Land Order 4582, Depart­ment of the Interior, Janua1y 17, 1969), which withdrew all the public lands of Alaska from most forms of appropriation until the end of 1970 ( extended to June 30, 1971) or until Congress enacted a claims settlement. The second land freeze was the refusal of the Bureau of Land Management beginning in 1966 to process mineral lease offers or land transfers in the face of the Native protests, pending determination on the merits of those protests. And, at bottom, there is a possible obligation of the federal courts, under terms of the Organic Act of 1884 and of Section 4 of the Alaska Statehood Act, to preserve the status quo wherever a Native claim hasprima facie plausibility. (Tussing, 1970; see also U.S. Senate Committee on Interior and Insular Affairs, 1970, pp. 46-66.) The Ninth Circuit Court of Appeals, and the Supreme Court, by denying certiorari, has held that a Native protest cannot be summarily overridden. (State of Alaska v. Stewart L. Udall, Secretary of the Interior, et al., in the U.S. Court of Appeals for the Ninth Circuit, No. 23603; State of Alaska v. Native Village of Nenana, Intervenor, in the U.S. Court of Appeals for the Ninth Circuit, No. 23597 .) See Tussing, 1969 and 1970b.

CHAPTER Ill

THE OIL AND GAS INDUSTRY IN ALASKA

History and Description

The oil and gas industry became a significant fixture of the Alaska economy in the late 1950's. The U.S. Geological Survey had several years earlier decided that petroleum offered great near-term develop­ment potential in Alaska.1 The Survey's study, entitled Possible Petroleum Provinces of Alaska2 pointed out the geological attractive­ness of--Alaska's several sedimentary basins. The oil industry followed up the study with limited but systematic exploration efforts directed at locating and drilling the most likely prospects in Cook Inlet, in the Gulf of Alaska and on the Alaska Peninsula.

Oil was found at Swanson River in the Cook Inlet basin in 1957. Ten years later, 15 oil or gas fields had been discovered in the same general area. The oil and gas industry's administrative, logistical sup­port and service activities settled into nearby Anchorage and Kenai.3

A small chemical and processing industry developed north of Kenai near the Cook Inlet fields. The Collier Carbon and Chemical Company, a subsidiary of Union Oil Company of California, in assoc­iation with a Japanese firm, has operated a facility producing am­monia and urea at this location since 1968. There is a facility for liquefying natural gas for transport to Japan and two small refineries that produce heating oil and jet fuel for local consumption with a combined throughput of 32,500 barrels per day. An asphalt plant is

50

associated with one of the refineries. The crude gasolines produced by the refineries are either shipped to California for further refining, or blended with imported products to produce motor fuels.

Natural gas production began in 1961 with the completion of a gas pipeline from the Kenai Peninsula to Anchorage. Total gas produc­tion in 1970 was 219,043,877 thousand cubic feet (MCF). Of this, 33 percent was reinjected into wells to aid in petroleum recovery, 5 percent was used to power oil field machinery or otherwise used at the production location, 16 percent was flared and 46 percent was sold for utility or industrial use. Consumers of this latter portion, in order of importance, are nearby chemical and liquefaction plants, the Anchorage gas utility, and several small power generation facilities.*

Oil and gas mining activities, which include exploration, develop­ment and production, expanded rapidly between 1960 and 1969, as seen in Figure III-1 and Table III-1. Exploratory drilling activity had peaks three, four and six times the 1960 level in 1962, 1966 and 1969; each was followed by an immediate decline. The first two peaks occurred during exploration of the Kenai-Cook Inlet area and the third during North Slope exploration. Development drilling fol­lowed a general U-shaped curve between 1960 and 1968, all in the Kenai-Cook Inlet area. Crude oil and natural gas production rose steadily, then took a sharp jump in 1968 and 1969 to levels ten and twelve times the 1961 level.

Petroleum Mining Employment

Table III-2 summarizes calendar year 1970 employment and pay­roll data for companies that comprise the Alaska oil and gas industry. The Alaska industry is here defined to include only those firms en­gaged in the exploration, development, production, processing and transporting of Alaska crude oil and natural gas. Marketing of petro­leum products within the state is excluded.

* Alaska Department of Natural Resources, Division of Oil and Gas.

100

50

20

10

5

2

FIGURE 111-1

INDICES OF ALASKA PETROLEUM INDUSTRY MINING ACTIVITIES

(Semi-log Scale)

.0310) l.1680) (.3753) _:.a;; __ ---- ---·

CD O> 0

CD O> N

<D O> (J1

iii O> (J)

CD O> <D

51

SOURCE: Alaska Department of Natural Resources, Division of Oil and Gas, Annual Report; Alaska Department of Labor, Statistical Quarterly, 19GO-Hl70.

52

TABLE 111-1

SUMMARY OF ALASKA PETROLEUM INDUSTRY MINING EMPLOYMENT BY STANDARD INDUSTRIAL CLASSIFICATION

SIC 13 SIC 131 SIC 1381 SIC 1382 SIC 1389 nn WPH FiPld

Year Total Producers Drilling ExQloration Services

(12 month averages)

1965 661 233 190 199 39

1966 942 260 374 236 74

1967 1,603 382 783 227 211

1968 2,153 525 998 344 286

1969 3,220 706 1,641 515 358

1970 2,649 926 1,121 298 304

(percentages)

1965 100.0 35.3 28.7 30.1 5.9

1966 100.0 27.6 39.7 24.8 7.9

1967 100.0 23.8 48.8 14.2 13.2

1968 100.0 24.4 46.3 16.0 13.3

1969 100.0 21.9 51.0 16.0 11.1

1970 100.0 35.0 42.3 11.2 11.5

SOURCE: Alaska Department of Labor, Statistical Quarterly, 1960-1970.

TABLE 111-2

ALASKA PETROLEUM INDUSTRY (NON-MARKETING)

NUMBER OF FIRMS, EMPLOYMENT AND PAYROLLS (Calendar Year 1970)

Number Monthly

53

SIC Primary Activity Units Employment no. per-

persons cent

Total Payroll thousand percent

dollars of total

MINING 1311 Crude petroleum and natural gas

operators of field properties 30 926 138 Oil and gas field services

contractors 119 1,723

MANUFACTURING 281 Industrial and

291 295

461 492

inorganic chemicals Petroleum refining Paving and roofing

material

TRANSPORTATION, UTILITIES Pipeline-petroleum Gas companies and systems

WHOLESALE TRADE 5084 Wholesaling of oil and gas

field tools and equipment

1 4

29

10* 185

203*

28.2 17,571

52.6 29,615

5.5

1.6

0.3 5.6

6.2

3,111

849

125* 2,272

2,428*

31.4

52.9

5.6

1.5

0.2 4.1

4.3

TOTAL 191 3,280 100.0 55,971 100.0

*Data estimate.

SOURCE: Calculated by G.W. Rogers from Alaska Department of Labor data.

54

Most petroleum exploration and development work in Alaska, as elsewhere, is conducted by contractor and service firms. During the peak exploration year of 1965, more than three-fourths of all per­sons engaged in non-marketing petroleum industry activities in the state were employed by such firms.

All major oil firms active in the state have established their region­al headquarters in Anchorage. Many small companies that supply

and construction ser­vices are distributed between Anchorage and Kenai. Those more directly concerned with development and production activities are concentrated in Kenai-close to the producing fields. Other small companies have headquarters at the regional transportation, com­

munications and financial center-Anchorage. The occupational mix in petroleum employment varies between regions; the region which includes Anchorage employs more professional, technical, managerial and clerical workers than does the northern region both in absolute numbers and proportionately. 4

Levels of total employment in the mmmg component of the Alaska petroleum industry during the last decade have reflected the increase in oil- and gas-related activities.* With the exception of one minor drop between 1964 and 1965, oil and gas company employ­ment rose steadily throughout the decade. As development progress­ed, there were significant annual variations in the relative composi­tion of employment within the "mining" component of the industiy. During the first half of the 1960's, employment in crude oil and natural gas production accounted for about 35 percent of the total mining employment. During the latter half of the 1960's, exploration and development occupied more workers, and production employ­ment fell steadily to 21.9 percent in 1969. In 1970, production regained its 35 percent level. Employment in firms contracting both exploratory and developmental well drilling services rose from 28.7 percent in 1965 to 51.0 percent of the total in 1969, and declined to 42.3 percent in 1970. Oil and gas field exploration and other field

*See Table III-1.

55

services employment fell in relative importance from 30.1 percent of total employment in 1965 to 11.2 percent in 1970.

Frenetic North Slope activity altered the statewide distribution of oil and gas employment. Until 1969, Anchorage employment in administration and support services and Kenai-Cook Inlet employ­ment in exploration, development and production together account­ed for approximately 90 percent of statewide mining employment. The 196 9 rush to the North Slope shifted this balance radically. The two southcentral areas employed only 56.1 percent of the total in 1969.5

As employment in oil and gas mining activities increased, so did payrolls. 6 Other industries, whose growth was generated by oil and gas mining, are counted in general oil and gas industry growth.

Alaska Petroleum and Natural Gas Reserves

The American Petroleum Institute conservatively estimates "proved oil reserves"* in Alaska at 10,148.8 million barrels with 548.8 million in the Cook Inlet basin and the remainder at Prudhoe Bay. 7 To this must be added about 70 million barrels of proved reserves in Naval Petroleum Reserve No. 4 (not considered in the API figures), giving a grand total of about 10.2 billion barrels.

Proved gas reserves in the Cook Inlet basin, according to conserva­tive estimates by the American Gas Association, are 6,130,751,000 thousand cubic feet (MCF) and in the Prudhoe Bay field 25 billion MCF. 8 The Prudhoe Bay reserve contains enough gas to supply the entire U.S. for over one year.9 These figures will increase as develop­ment chilling extends and defines the limits of the Prudhoe Bay reservoir.

*Estimates of "proved reserves" are the most conservative estimate of the amount of oil now available for recovery. They are not an estimate of oil that could be ultimately recovered, nor of the amount of oil actually present in the formation.

56

Looking beyond conservative estimates of proved reserves, it is reasonable to assume that more billions of barrels will eventually be produced in northern Alaska. Some of the reasons for this assessment follow:

1. As Prudhoe Bay field development nears completion, the proved reserve estimates will rise.IO

2. Large petroleum accumulations of the Prudhoe Bay variety have never been known to exist in isolation. They are typi­cally associated with a group of smaller accumulations.

3. Exploration activity on the arctic slope has been directed as much by the administrative vagaries of land classifica­tion as by geological expertise; many areas with as much a priori geologic favorability as that of the Prudhoe Bay field remain unleased.

4. Large structures of Prudhoe Bay magnitude are known to exist elsewhere in the province.11

5. Firms with access to specialized geologic information and expertise have bid large sums for undrilled tracts far from existing discoveries, indicating they believe that further discoveries are extremely likely.

Factors other than geologic ones will affect the probabilities of further discovery and development. These factors include:

1. Future Exploration Investment. Future investment de­pends to a large extent on economic factors exogenous to Alaska, including world and U.S. demand for petroleum products and their prices,* and the relative availability and

* A general trend away from petroleum as an energy source would have the indirect effect of reducing exploration and activity in Alaska and elsewhere.

57

attractiveness of drilling prospects elsewhere.* If Alaska Native land claims are left unresolved, or if the state and/or federal governments decide not to lease any more acreage, further exploratory drilling would come to a standstill. Probably the single most significant factor is the maintenance of current domestic oil price levels, which depend on continued restrictions on the flow of foreign oil into U.S. markets.t The necessary combination of these factors reqmred to cut off exploration totally will be un­likely to materialize, but the actual level of investment is very uncertain.

2. Developments in Technology. Most prospectively oil­bearing onshore acreage in Alaska can be reached and drilled with existing technology. Advances in drilling or oil finding techniques would not change Alaska oil field development efficiency vis-a-vis other land areas. Certain transportation system improvements could, however, improve Alaska's position by disproportionately lowering costs. The development of the attractive prospects on Alaska's continental shelf, however, depends directly on the development of technology to meet the environmental rigors of the Arctic Ocean and the Bering Sea.12

3. Existing Geological Knowledge. Most of Alaska has akeady been eliminated from consideration in petroleum explora­tion. Those areas with the geologic characteristics of petro­leum accumulation have been divided by geologists into six possible petroleum provinces: the Arctic Slope, the Yukon-Koyukuk, the Yukon-Porcupine, Bristol Bay, the

*For example, construction of an oil pipeline up the Mackenzie River valley would tend to encourage exploration investment in the Canadian Arcti~ possibly at the expense of similar activity in northern Alaska. Federal offshor~ leasing in other states will also have a competitive impact on the demand for wildcat acreage in Alaska.

tsee section on Demand for Alaska Petroleum.

58

Alaska Peninsula-Cook Inlet, and the Gulf of Alaska or Pacific margin province. Of these, only the Cook Inlet area has been explored with any completeness. Even there, a land ownership dispute between the federal and state governments has held up exploratory activity. The south­ern half of the basin, which contains half to three-quarters of the region's favorable structures, has yet to be tested with the drill. Only about 5 percent of the onshore and accessible portion of the Gulf of Alaska province has been fairly extensively drilled; the remaining 95 percent is virgin.

No one knows what proportion of the arctic slope province has been explored, because the offshore boundaries of prospective acre­age are uncertain. The U.S. Geological Survey has identified struc­tures off the arctic coast which are similar in size and other geologic characteristics to the Prudhoe Bay discovery structure.13 Needless to say, a "structure" is not equivalent to an oil field just awaiting dis­covery; the likelihood of a major commercial discovery on any parti­cular structure is not high.14

Proprietorship and the Operation of the Leasing System

Alaska is unique in that all significant oil industry developments have taken place on federal- and state-owned lands.* Most oil and gas industry activity and interest has heretofore been focused on state lands. The fact of public, rather than private, ownership may have significant implications for the state's future policy toward petro­leum development and taxation. There is no substantial lobby of resource-rich private landowners pressuring government to keep oil taxation at a low level, or to place legal restrictions on output from highly productive wells in order to protect marginal oil producers. This fact will certainly affect the future pattern of state and oil company revenues from North Slope production.

*See section on Land Ownership.

59

Disposal of the 1ight to produce petroleum resources from state lands is by either competitive bid or "non-competitive" drawing. However, state policy requires that lands of any significant potential (including all state holdings on the North Slope) be leased competi­tively to the highest bidder. All bidding so far has been on the basis of cash "bonuses." In the 24 lease sales held since statehood, the state has received just over $1 billion in bonuses; nine-tenths of this sum was received in the North Slope lease sale of September 196 9.

High bidders are awarded a five or ten year lease, with leases in the more accessible Cook Inlet basin being granted only for the shorter period. The lessees are required to pay the state, in addition to the bonus, an annual rental of $1 per acre until production begins. Leases on which oil or gas is being produced are automatically re­

newed. Revenue to the state from rentals was $3.2 million in 1969. Further income to the state comes from a 12112 percent royalty, payable on the gross wellhead value of oil or gas production from the leasehold. The royalty rate for onshore federal leases is the same. The state, under terms of the Mineral Leasing Act of 1920 and the Alaska Statehood Act, receives 90 percent of federal bonuses and royalties.

In addition to royalty, the state also levies a production tax on the remaining value of the produced oil or gas at a rate that varies from 3 to 8 percent depending on the level of daily production as follows: 15

Daily Quantity Per Well:

0- 300 barrels per day 300-1,000 barrels per day

1,000-2,500 barrels per day above 2,500 barrels per day

Tax:

3 percent 5 percent 6 percent 8 percent

While the royalty rate is a matter of contractual agreement between producer and landowner, the production tax is unilaterally variable by the state and has, in fact, been increased four times since state­hood. This tax also applies to oil produced from federal and private (if any) lands.

60

Wellhead Price Determination

State royalties and production taxes on oil produced in Alaska are calculated from the value of crude oil as it emerges from the well. At

the present time, a long standing dispute between the state and Cook Inlet producers on price determination in the field remains unresolved. Disputes over this type of calculation will no doubt face state and industry in determining the wellhead value of North Slope crude.16

Over 80 percent of Cook Inlet crude oil production is shipped directly to the states of California and Washington, with refineries in the Los Angeles area receiving the largest share.17 Major oil industry corporations frequently own subsidiary producers, shippers, and re­finers; the prices posted for transactions among subsidiaries may or may not reflect actual supply-demand relationships. As a conse­quence, an indirect method of valuation called "netback" is used to determine royalty and production tax. liabilities to the state. Netback is the result of subtracting the costs of transportation from the Los Angeles price of crude oil having similar weight and quality. Trans­portation costs include pipeline tariffs, storage and loading costs, and ocean tanker transportation charges.

Demand for Alaska Petroleum

Alaska oil, other than the small amount consumed within the state, has been marketed exclusively within the U.S.; this pattern will certainly continue so long as the federal government tightly restricts imports of foreign petroleum. Such restrictions, in the form of mand­atory import quotas,18 together with restrictions on domestic out­put imposed by the states of Texas and Louisiana by market demand prorationing,19 have resulted in a domestic price for crude petro-

leum one-third to one-half greater* than could be expected to prevail

*Recent domestic and foreign price increases have narrowed the percentage spread substantially, while maintaining approximately the same absolute dollar differential.

61

under free trade. 20 Decreases in domestic crude oil prices could mean a lower return from oil production in Alaska, and would shift the relative attractiveness of domestic and foreign markets for Alaska oil.

The impact of large quantities of North Slope crude on domestic prices depends upon futme import policy, the rate of increase in U.S. oil consumption, the level of production from the other states, and the timmg and quantity of Alaska production. Additional Alaska discoveries of Prudhoe Bay magnitude, rapid development of these and existing discoveries, and a relatively slow increase in the rate of domestic petroleum consumption could bring about a modest decline in the price of domestic crude, including Alaska oil. Marginally pro­ductive wells would then be shut down and output in the older producing states would contract. The volume of Alaska oil produc­tion would for the most part be unaffected because of its relatively low delivered cost. However, the producing companies and the state would find their per unit revenue reduced. Also, declining domestic prices might, as noted above, reduce the amount of oil exploration in Alaska.

62

TECHNICAL NOTES

1see Gyrc, et al. (1964) for an account of the U.S.G.S. role.

2Miller, Payne and Gyrc, 1958.

3Chatterton, 1963; Loll, 1964; and Erickson, 1968.

4Table III-A, "Summary of Alaska Petroleum Industry Mining Employment-By Major Occupation-Fourth Quarter 1969."

TABLE Ill-A

SUMMARY OF ALASKA PETROLEUM INDUSTRY MINING EMPLOYMENT -BY MAJOR OCCUPATION - FOURTH QUARTER 1969

As Percent of Relative Total South. North. State Totals Composition

State Region Region Southern Northern Southern Northern

(monthly average employment) (percent)

Professionala 480 357 123 74.4 25.6 21.7 9.5 Technicians 337 235 102 69.7 30.3 14.3 7 .8 Managerial 97 50 47 51.5 48.5 3.1 3.6 Clerical 408 238 170 58.3 41.7 14.5 13.0

Sub-total 1,322 880 442 66.6 33.4 53.6 33.8

Services (camps) 132 62 70 47.0 53.0 3.8 5.4

Skilled, semi-skilled Petroleum trades 995 505 490 50.8 49.2 30.7 37.5 Other trades 502 196 306 39.0 61.0 11.9 23.3

Sub-total 1,497 701 796 46.8 53.2 42.6 60.8

TOTAL 2,951 1,643 1,308 55.7 44.3 100.0 100.0

aEngineers, geologists, chemists.

SOURCE: Alaska Department of Labor, Alaska's Manpower Outlook, 1970's, Publication No. 4 (corrected by George W. Rogers).

63

5Enormous North Slope increases alone account for the distribution shift since employment in the Anchorage area grew steadily throughout the decade. The Kenai-Cook Inlet area experienced a fivefold increase in employment between 1965 and 1968, then a sharp and continuing fall as development was completed. Fairbanks employment did not expand proportionally to the large increases on the North Slope, but remained at a modest level because that city's support role for North Slope activities is minor compared to Anchorage.

TABLE 111-B

SUMMARY OF ALASKA PETROLEUM INDUSTRY MINING

ACTIVITIES EMPLOYMENT BY REGION AND AREA

Southern No1·thern

Calendar Anchor- Kenai~ North

~- Total ~- Cook Inlet Other Total Fairbanks Slope

(12 month averages)

1965 591 362 212 17 70 33 37 1966 897 447 415 35 45 n.a. n.a. 1967 1,553 557 917 80 50 n.a. n.a. 1968 2,040 778 1,099 163 113 17 96 1969 2,016 839 967 210 1,202 81 1,121 1970 1,686 ()10 649 127 963 33 930

(Percentage distribution)

1965 89.4 54.7 32.1 2.6 10.6 5.0 5.6 1966 95.2 47.4 44.1 3.7 4.8 1967 96.9 34.7 57.2 5.0 3.1 1968 94.8 36.1 51.1 7.6 5.2 0.7 4.5 1969 62.6 26.1 30,0 6.5 37.3 2.5 34.8 1970 63.7 34.4 24.5 4.8 36.4 1.2 35.1

SOURCE: Alaska Depai·tment of Labor, Statistical Quarterly, 1960-1970.

64

6Total annual payrolls classification, region, and areas are summarized in tables III-C and III-D. Annual changes in average compensation reflect not only continuing rises in rate of pay, but variation in occupational mix and relative importance of overtime during different stages in the progress of a field from e~ploration through development to production. Table III-E summarizes annual percentage increases and decreases in average man-month payrolls.

TABLE 111-C

SUMMARY OF ALASKA PETROLEUM INDUSTRY MINING PAYROLLS BY STANDARD INDUSTRIAL CLASSIFICATION

(thousand dollars)

SIC 13 SIC 131 SIC 1381 SIC 1382 SIC 1389 Calendar Oil and Gas Well Field Other Field

Year Total Producers Drilling Exploration Services

1965 8,331 3,156 2,788 1,907 480 1966 12,48G 3,902 5,482 1,999 1,103 1967 24,195 6,073 12,806 2,234 3,082 19G8 34,302 8,574 17,049 3,827 4,852 1969 52,672 12,G04 28,046 6,25G 5,766 1970 47,185 17,571 20,641 3,869 5,105

(Total Annual Payrolls+ Annual Average Monthly Employment)

1965 12,604 13,545 14,674 9,583 12,308 1966 13,225 15,008 14,G58 8,543 14,905 1967 15,094 15,898 16,355 9,841 14,607 1968 15,932 16,331 17,083 11,125 16,965 1969 16,358 17,853 17,091 12,148 16,106 1970 17,812 18,975 18,413 12,983 16,793

SOURCE: Alaska Department of Labor, Statistical Quarterly, 1960-1970; Table IIl-2.

TABLE 111-0

SUMMARY OF ALASKA PETROLEUM INDUSTRY MINING PAYROLLS BY REGION AND AREA

(thousand dollars)

Southern Northe1·n

Kenai-

65

No1-th Calendar Year Total Anchorage Cook Inlet Fairbanks Slope

1965 1966 1967 1968 1969 1970

1965 1966 1967 1968 1969 1970

7,538 4,471 2,882 185 793 312 11,889 5,601 5,798 490 507 n.a. 2:l,475 7,7R2 14.R71 1 .1 720 32,310 11,303 18,289 2,715 1,996 334 32,596 13,081 16,195 3,320 20,077 1,042 29,930 16,848 10,928 2,154 17,254 511

(Total Annual Payrolls+ Annual Average Monthly Employment)

12,755 12,351 13,594 10,882 11,329 9,455 13,254 12,530 13,971 13,580 13,600 IL a. 15,116 13,918 15,907 14,400 14,400 !LR. 15,838 14,529 16,642 16,657 17,664 19,647 16,169 15,591 16,748 15,810 16,703 12,864 17,752 18,514 16,838 16,961 17,917 15,485

481 n.a.

1,662 19,035 16,743

13,000 n.a. n.a.

17,313 16,980 18,003

SOURCE: Alaska Department of Labor, Statistical Quarterly, 1960-1970; Table III-1.

TABLE 111-E

PERCENTAGE INCREASES (DECREASES) IN AVERAGE MAN-YEAR

MINING PAYROLLS

1965-66 1966-67 1967-68 1968-69 1969-70

SIC 13 10.5 11.4 10.6 10.3 10.9

SIC 131 11.1 10.6 10.3 10.9 10.6 SIC 1381 (10.1) 11.2 10.4 0.1 10.8 SIC 1382 (10.9) 11.5 11.3 10.9 10.7 SIC 1389 12.1 ( 2.0) 11.6 ( 5.1) 10.4

NORTH 10.4 11.4 10.5 10.2 11.0 SOUTH 12.0 10.6 13.0 9.5 10.7

1st Quarter 10.8 11.3 11.4 ( 1.6) 10.8 2nd Quarter 10.1 11.5 11.2 10.2 11.0 3rd Quarter ( 0.7) 12.3 10.2 ( 1.9) 10.7 4th Quarter 11.0 10.6 ( 1.3) 11.3 11.2

66

Since these activities are not included in employment statistics under SIC 13, they are included elsewhere in aggregate data. Care should be taken to avoid double counting. See Table III-F "Summary of Alaska Petroleum Industry Manufacturing Pipeline, Gas, Wholesaling Employment and Payrolls."

Calendar Year

1965 HHi6 1967 1968 1969 1970

1965 19(i6 Hl67 1968 1969 1970

TABLE 111-F

S!T\l\1 Of' T,,\SK;\ PETROLf'TTM TND11STRY \!;\NllF/\CTllRTNG

PIPELINE, GAS, WHOLESALING EMPLOYMENT AND PAYROLLS

S.I.C. 281 Industrial Chemicals ----

33 33 46 87

172 181

347 379 436

1,156 2,994 3,111

s.r.c. 29 Petroleum s.r.c. 461 * s.r.c. 492 Refinery & Pipeline Gas Companies

Related Industry Petroleum and Systems

(12 month average employment)

25 9 28 9 28 9 25 12 32 10 52 10

(total payrolls in thousands of dollars)

260 283 325 414 619 849

80 93

128 144 155 185

786 899

1,376 1,578 1,812 2,272

s.r.c. 5084* Wholesaling,

Oil Field Tools, Equipment

154 203

1,953 2,428

*Data estimated

SOURCE: Estimates based on data in Alaska Department of Labor, Statistical Quarterly, Hl65-1970; S.I.C. 5084: Tuck (1971b).

7The estimates published by the American Petroleum Institute-American Gas Association (API-AGA) of "proved reserves" are the elaboration of a concept originally developed to provide bankers with a measure of the size of loan that could safely be secured by a given petroleum property. The concept closely parallels that of working inventories in other industries, and is defined as " ... the estimated quantities of crude oil which geological and engineering data demonstrate with reasonable certainty to be recoverable from llnown reservoirs under existing economic and operating conditions" (API-AGA, 1969; emphasis

67

added). The API-AGA numbers assume no further discovery, "extensions" (ad­ditions to knowledge to already developed fields), or "revisions" (increases in the recoverability of petroleum in known deposits), no change in the price of oil (or the costs of producing it) and no progress in technology. In other words, the API counts as proved reserves only that oil which is accessible now without any further drilling or other development of the field.

8 AGA news release, March 31, 1971. See technical note 7.

9 AGA news release, March 31, 1971.

lOTypically, the additions to API proved reserves in any year from extensions and revisions are five or six times the increase accounted for by new field discoveries (Lovejoy and Homan, 1965). In a study of Alberta experience, Bradley (1971) found that ultimate figures for recoverable reserves averaged more than nine times the volume originally announced.

It is misleading to generalize from these ratios to assume that the ultimate recoverable containment of the Prudhoe Bay field is five or nine times the 1970 API year-end estimate. That figure was not the "year of discovery" estimate for the Prudhoe Bay field, which was discovered in 1968 and had experienced extensive development drilling by the beginning of 1971. Unlike the typical first reserve estimate of a new field, the current API reserve estimate is much closer to actual ultimate reserves than might be inferred from average experience. However, the ultimate reserves of the field and nearby discoveries can be ex­pected with some confidence to sustain the maximum schedule of pipeline throughput assumed in Chapter IV, and that inference is adequate for the pro­jections of this report.

llGryc, et al. 1964.

12National Petroleum Council, 1967.

13George Gyrc in Alaska Construction and Oil Report, March 1970, p. 94.

14The Colville structure, which is larger than the Prudhoe structure, has been tested by a number of exploratory wells. To date none has been successful.

15 A.S. 43.55.010.

68

16 Alaska Construction and Oil Report, March 1970, pp. 95-98.

17 Ibid.

18cabinetTask Force, 1970,pp. 2-17.

19Lovejoy and Homan, 1967.

20Burrows and Domencich, 1970; Cabinet Task Foree, 1970.

CHAPTER IV

IMPACT OF THE PIPELINE AND PRUDHOE BAY PRODUCTION UPON THE ALASKA ECONOMY

Methodology and Assumptions

This section projects incremental effects on Alaska's economy of building and operating a crnde oil transportation system based upon a single 48-inch pipeline with a maximum capacity of two million barrels per day (bpd)* on the proposed Alyeska route from Prudhoe Bay to Valdez.

The economic effects of North Slope petroleum-related activities are considered here in three categories: direct, secondary and in­direct. Construction of a pipeline with associated facilities, field development and petroleum production will affect the state's econ­omy directly through payrolls of the operating companies, their con­tractors and suppliers, as well as through royalty and tax payments. A portion of these income flows will be spent and respent within the Alaska economy, generating further income and labor demand; these latter impacts are here termed secondary effects. There will also be a

*Provision of oil or gas transportation capacity and corresponding producing facilities above two million bpd are regarded as a separate set of investment and public policy decisions and are not here evaluated quantitatively.

70

number of indirect effects upon Alaska's economy that must be mentioned but which cannot be quantified with confidence; an ex­ample is the effect of economic growth upon prices and costs. Numerical projections are provided for the direct and secondary impacts. Indirect impacts are noted only qualitatively.

In developing the set of projections below, it is necessary to make a series of assumptionsl about prices, costs and the policies of gov­ernment and industry. None of the assumptions is to be regarded as a prediction of the actual course of events. Nor does the departure of any other published projections from those presented here indicate that we regard the others as incorrect.

What follows is a list of general assumptions upon which our pro­jections are based. Additional specific assumptions are introduced as they become appropriate.

1. Pipeline Construction and Field Development. Legal and administrative obstacles to pipeline construction are as­sumed to be cleared during the second half of 1971. Actual construction is assumed to commence in 1972 and be completed in the middle of 1975. Quantitative projec­tions begin with calendar year 1972 and end with 2000. Initial construction of the pipeline and associated facilities is assumed to cost $1.75 billion2 in 1971 dollars, calcu­lated as of 1971.3

Alyeska Pipeline Service Company's official plans for increase of capacity include starting pipeline operation at 600,000 bpd, building up to a full capacity of two million bpd by the fourth year.* The schedule of capacity and throughputs implicit in these plans presents feasibility problems.4 Accordingly, for the sake of illustration, two

*This schedule was presented in the testimony by E.L. Patton, before Alaska State Legislature-Joint Pipeline Impact Committee, April 3, 1971, and sub­sequently confirmed in correspondence with the authors.

71

hypothetical schedules, one conservative and one acceler­ated, are shown together with the Alyeska schedule as Table IV-1. The conservative case corresponds approxi­mately to industry projections of the "deficit" in District V (the West Coast, Alaska and Hawaii) over the period in question. 5 The accelerated case assumes a startup at the full two million bpd capacity. These alternatives effective­ly bracket the range of plausible alternatives.6

In both the Alyeska schedule and our conservative projection, the first phase of pipeline activity will include the construction of 800 miles of pipeline, three receiving tanks of 210,000 ba1Tels each at the Prudhoe Bay origin station, five pumping stations, and facilities at the Valdez terminal capable of handling the initial throughput (three tanker docks, 15 crude oil storage tanks of 510,000 barrels each, three 430,000 barrel ballast water tanks, an API separator and a chemically assisted air flotation treatment plant).

The conservative schedule adds pumping capacity at a rate of 200,000 bpd annually to a maximum capacity of two million bpd. The accelerated schedule assumes that the initial pumping capacity is two million bpd. Some of our projections are dependent on the rate of buildup; some are not. As appropriate, we have used one, two or all schedules, or an arithmetic mean. 7

2. Total Recoverable Reserves, Additional Discoveries and Production. Field development is assumed to keep pace with the growth of pipeline capacity, and the volume of recoverable reserves ultimately proved in the Prudhoe Bay field and in nearby structures8 is assumed to be sufficient to utilize the two million bpd maximum capacity of the

Calendar Year

1975 1976 1977 1978 1979 1980 1981 1982

1983-2000 2001

TABLE IV-1

Al YESKA PIPELINE SERVICE COMPANY PROJECTED SCHEDULE OF PIPEL E CAPACITY AND

HYPOTHETICAL SCHEDULES OF PIPELINE CAPACITY, CONSERVATIVE AND ACCELERATED

(barrels per day)

Pro2osed Alyeska Schedule Conservative Schedule Accelerated Schedule

Full Capacity Full Capacity Full Capacity Year-end Throughput Year-end Throughput Year-end Throughput Capacity During Year Capacity During Year Capacity During Year

600,000 350,000 700,000 350,000 2,000,000 1,000,000 1,200,000 900,000 900,000 800,000 2,000,000 2,000,000 1,200,000 1,200,000 1,100,000 1,000,000 2,000,000 2,000,000 2,000,000 1,400,000 1,300,000 1,200,000 2,000,000 2,000,000 2,000,000 2,000,000 1,500,000 1,400,000 2,000,000 2,000,000 2,000,000 2,000,000 1,700,000 1,600,000 2,000,000 2,000,000 2,000,000 2,000,000 1,900,000 1,800,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 1,950,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000

...J N)

73

initial pipeline for at least 25 years* after commencement of production.9

3. Behavior of Costs, Prices and Tax Rates. Projections are made in terms of April 1971 prices; that is, it is assumed that April 1971 prices (except wage rates) will prevail over the entire period. Labor productivity and real wage rates are assumed to increase at a rate of 3 percent per an-

lO

rates or rates of return on capital, except as necessary to project pipeline tariffs. All state and federal tax rates are assumed to be those prevailing in April 1971.11

Crude petroleum prices and resultant price differen­tials among various U.S. markets are assumed to remain constant over the period of the projections.12 Principal projections will be based upon April 1971 Los Angeles refinery gate prices of $3.17 per barrel for API 26-26.9 degree crude.13

State of Alaska

Income from Royalties and Taxes on North Slope Crude Oil

The royalty and production tax revenues collected by the State of Alaska-and the royalties received by private individuals who hold override interests-from North Slope production will depend directly upon the wellhead price of crude oil. This value will be the netback figure calculated by subtracting transport costs from the price of North Slope crude in its principal markets.14 The wellhead price is estimated at $2.42 or $2.52, corresponding to the conservative and

*Production rates for each individual well will of course decline from the beginning, but it is assumed that additional development drilling will enable total field production to continue at two million bpd through the year 2000.

74

accelerated throughput assumptions.* The state will collect a royalty of 12112 percent of the wellhead price per barrel produced. In addi­tion, the state has a sliding scale production tax of 3 to 8 percent of the wellhead price depending on the production rate of the well. Since Prudhoe Bay wells will generally produce at high rates, the total revenue will approximate 20 percent of the wellhead price,

$0.484 per barrel or $0.504.t As shown in Table IV-2 below, when the pipeline is operating at its full capacity of two million barrels per day, the state will be collecting about $1 million per day m royaities and production taxes from Prudhoe Bay wells.15 These projections are based upon the mean of the two hypothetical throughput as­sumptions.

TABLE IV-2

ROYALTY AND PRODUCTION TAX REVENUE TO THE STATE OF ALASKA CALENDAR 1975-2000

(millions of dollars)

Calendar Conservative Accelerated Year Schedule Schedule Mean

1975 61.8 183.6 122.7 1976 141.7 368.2 255.0 1977 176.6 368.2 272.4 1978 211.9 368.2 290.0 1979 247.2 368.2 307.7 1980 283.3 368.2 325.8 1981 317.9 368.2 343.2 1982 344.4 368.2 356.3

1983-2000 353.4 368.2 360.8

*See Table IV-1.

twith the official Alyeska buildup schedule (Table IV-1), the pipeline capital cost per barrel is $0.334; a generous allowance for operation and maintenance gives a tariff of $0.48. This means a wellhead price of $2.44; the state would collect $0.49 per barrel.

75

Aside from the mineral production tax, the state's principal tax revenue sources directly responsive to North Slope petroleum activi­ties are personal and corporate income taxes. The yields of other taxes, among them the business license tax, excises on tobacco and alcoholic beverages, and motor vehicle fees, can be expected to in­crease with employment and payrolls. Table IV-3 summarizes state revenues directly attributable to North Slope petroleum operations. It does not include state revenues generated through secondary (in­come multiplier) effects.

Individual Leaseholders

Only one 2,580 acre tract in the direct vicinity of the Prudhoe Bay field is under original lease to individual Alaska residents. This lease has been assigned by its two individual owners to an operating oil company for terms that include an overriding royalty. A "producing well" exists on the property, but information is not available on which to determine how much oil, if any, this tract will contribute to daily production.16 No figure can, therefore, be offered here for probable royalty income to the individual investors.

Alaska Natives

The Arctic Slope Native Association claims title, by virtue of abor­iginal occupancy, to the state-selected lands containing the Prudhoe Bay field and, thereby, to any revenues which may be generated from petroleum production. No court or agency now has authority to adjudicate this claim, and it is unlikely that an ultimate settlement will grant title in fee to the Eskimo group.17 However, as part of a general Native claims settlement, several bills now before the Con­gress18 provide for Native groups to share, under varying formulas, mineral leasing revenues from public lands in Alaska (including lands tentatively approved for state selection). Accordingly, we will assume a 2 percent royalty to an aggregate maximum of $500 million, carved

-.J cs:,

TABLE IV-3

STATE REVENUES DIRECTLY ATTRIBUTABLE TO NORTH SLOPE PETROLEUM OPERATIONSa

(millions of dollars)

Personal Income Taxes Royalties and Corporate Income Taxd Income Taxes c On Nativee Otherf

Year Production Taxesb Mining Pipeline Other Construction Other Revenues Taxes Total

1971 .1 1.1 2.1 2.4 5.7 1972 1.5 7.2 4.8 8.3 21.8 1973 1.5 7.5 5.1 8.5 22.6 1974 1.7 6.1 6.3 7.0 20.6 1975 110.4 2.1 .8 1.1 3.3 3.3 121.0 1976 279.5 4.2 .5 .5 2.0 2.1 238.8 1977 245.2 4.2 .5 .3 1.8 1.8 253.8 1978 261.0 4.2 .5 .2 1.8 1.9 269.6 1979 276.9 4.2 .5 .2 1.8 1.7 285.3 1980 293.2 1.2 4.2 .4 1.8 1.7 302.5 1981 308.9 2.6 4.2 .4 1.8 1.8 319.7 1982 320.1 4.0 4.2 .4 1.8 1.8 332.3 1983 324.1 5.5 4.2 .4 1.8 .8 1.8 338.6 1984 324.1 6.9 4.2 .4 1.9 .8 1.8 340.1 1985 324.1 8.2 4.2 .4 1.9 .8 1.8 341.4 1986

TABLE IV-3 (Continued)

STATE REVENUES DIRECTLY ATTRIBUTABLE TO NORTH SLOPE PETROLEUM OPERATIONSa

(millions of dollars)

Personal Incomv Taxes f

Royalties and b Corporate Income Taxd Income Taxes C

On l\ative e

Other Year Production Taxes Mining Pipeline Other Construction Other Re\enues Taxes Total

1986 324.1 9.6 4.2 .4 1.9 8 1.8 342.0 1987 324.1 11.0 4.2 .4 1.9 s 1.8 343.4 1988 324.1 12.3 4.2 .4 2.0 s 1.8 345.6 1989 354.6 13.7 4.2 .4 2.0 1.8 376.8 1990 360.8 15.1 4.2 .4 2.0 1.4 383.9 1991 360.8 16.5 4.2 .4 2.0 1.3 385.2 1992 360.8 17.9 4.2 .4 2.0 1.3 386.6 1993 360.8 19.2 4.2 .4 2.0 1.3 387.9 1994 360.8 20.6 4.2 .4 2.1 1.3 389.4 1995 360.8 22.0 4.2 .4 2.1 1.3 390.8 1996 360.8 23.4 4.2 .4 2.1 1.3 392.2 1997 360.8 24.7 4.2 .4 2.1 1.3 393.5 1998 360.8 26.1 4.2 .4 2.2 1.3 395.0 1999 360.8 27.5 4.2 .4 2.2 1.3 396.4 2000 360.8 29.0 4.2 .4 2.2 1.3 397.9

-J -J

78

NOTES TO TABLE IV-3

aDoes not include revenues generated through income multiplier effect.

bMean state revenues, Table IV-2, less Native share, Table IV-4.

cThe Alaska Department of Revenu·e (1971) has estimated marginal personal income tax liabilities as 3. 3 percent of gross payrolls for the economy as a whole, and 3.9 percent of gross construction payrolls. Because of the progression of tax rates, however, those proportions are sensitive to changes in money wage rates. For fiscal years 1965-1970, the elasticity of revenue yield to average monthly wage rates (assuming a constant average number of employed), was approximately 1.08. Personal income tax projections in Table IV-3 use this parameter together with a 3 percent annual increase in real wages, and the equivalent of a 1. 75 percent annual rate of inflation (the rate of the Anchorage Consumer Price Index in 1960-1971.)

dThe effective marginal rate of the state's corporate profits tax is 9. 36 percent. It is assumed that the joint action of tax preferences (depreciation, depletion, intangible drilling expenses, etc.) on North Slope petroleum activities results in zero taxable profits through 1979, and taxable profits thereafter increasing at $0.02 per barrel per year. Corporate income tax projections on the pipeline (not subject to mineral tax preferences) are based upon a profit rate of 16 percent before federal and state taxes on 'the owners' 15 percent equity in a 197 5 pipeline value of $1,875 million. In other sectors of the economy, taxable profits are assumed to be equal to 15 percent of profits.

eHalf the share of mineral revenues granted to Native groups is assumed to be taxable after 12 years (S. 35 provides for twelve years of tax exemption) at personal income rates, and half is assumed to be cmrently non-taxable.

father taxes presumably sensitive to the activities considered here averaged 2.5 percent of state personal income in fiscal years 1966-1970 (half-year lag). These taxes are state codes 102-105;117-120; 131-133; 201-240; 285-297; and 440-442. Their yield elasticity to per capita state personal income was .98. Projections in Table IV-3 were a constant 2.5 percent of payrolls from Table IV-D, plus one half of revenues to Native groups from Table IV-4.

79

out of the state's share,* which is granted to one or more Native corporations, with 10 percent of this revenue coming from other production than Prudhoe Bay .19

On the above assumption, payments to Natives from Prudhoe Bay production under the mean of the two hypothetical schedules of throughput are set out in Table IV-4.

TABLE IV-4

ROYALTY INCOME FROM PRUDHOE BAY OIL PRODUCTION TO NATIVES UNDER CLAIMS SETTLEMENT

(millions of 1971 dollars)

Calendar Year

Mean Schedule

Calendar Year

Mean Schedule

1975 1976 1977 1978 1979 1980 1981 1982

12.3 25.5 27.2 29.0 30.7 32.6 34.3 35.6

1983 1984 1985 1986 1987 1988 1989 1990

36.1 36.1 36.1 36.1 36.1 36.1

6.2

*This 2 percent royalty share to the Natives is often incorrectly referred to as an "overriding royalty." Care should be taken to avoid double counting this revenue with that of the state in Table IV-2, above.

80

Direct Employment and Payrolls in Petroleum-Related Activities

The impact of Prudhoe Bay activities on the Alaska economy cannot be isolated from other petroleum industry activities within the state. For example, the development and production of oil in the northernmost region of Alaska will have substantial effects on em­ployment within the Anchorage area, the headquarters center of the oil industry. Also, the regular rotation of workers from the field to Anchorage for a week's leave will concentrate the major secondary effects of their employment in the southcentral region. The level of exploration, development, and production activities in other areas of the state will determine whether resident workers transfer to the North Slope or additional workers are brought in from outside Alaska.

Estimated employment by general location20 and type of activity in the Prudhoe Bay field and in the construction and operation of the pipeline21 is shown in Table IV-5.22 As the table indicates, the peak of exploration activity was clearly passed in the summer of 1969, followed by the sharp fall of northern region mining employ­ment in 1970. Some work in exploring other geologically promising areas and the borders of the known field is expected to continue on a reduced scale until 1973 and drop off sharply to end in 1975. Basic field development and construction of field gathering and control systems are projected to continue at an accelerating rate from 1970 through 1973, with development employment then falling off and continuing at modest levels necessary to maintain producing capa­city. To provide vital gas for field use, modest "production employ­ment" is assumed to start in mid-1972 and rise at a constant rate until the full production force of 400 workers in the field is achieved in 1975.23 It is assumed that this labor force will not increase fur­ther, although levels of production will continue to increase at least until 1981.24

In the fall of 1969, Earth Resources Co. announced plans to con­struct at Fairbanks a $30 million petroleum refinery and electric power generation facility. This complex would process 15,000 barrels daily of crude oil drawn from the pipeline system to produce

TABLE IV-5

EMPLOYMENT IN PRUDHOE BAY DEVELOPMENT AND PRODUCTION .AND IN CONSTRUCTION AND OPERATION OF TRANSPORTATION SYSTEM 1910-1980

1970 1971 1972 1973 1974 1975 1976 1077 1978 1979 1980a

(monthly average employment -- thol!sands)

NORTHERN REGION Prudhoe Bay Field

Exploration 0.5 0.5 0.5 0.5 0.3 0.2 Development 0.8 0.8 0.8 0.8 0.5 0.3 0.2 0.2 0.2 0.1 0.1 Production ----- ----- 0.1 0.2 0.3 0.4 0.4 0.4 0.4 0.4 0.4

Subtotal 1.3 1.3 1.4 1.5 1.1 1.0 0.6 0.6 0.6 0.5 0.5

Prudhoe Bay-Valdez Pipeline Construction 0.2 0.2 5.8 5.8 3.9 0.7 0.4 0.2 0.2 0.1 Operation ----- ----- ----- ----- ----- 0.1 0.1 0.1 0.1 0.1 0.1

Subtotal 0.2 0.2 5.8 5.8 3.9 0.8 0.5 0.3 0.3 0.2 0.1

Fairbanks Refinery-Power Plant Construction ----- ---- ----- 0.1 0.3 Operation ----- ----- ----- ----- ----- 0.1 0.1 0.1 0.1 0.1 0.1

Subtotal ----- ----- ----- 0.1 0.3 0.1 0.1 0.1 0.1 0.1 0.1

TOTAL NORTHERN REGION 1.5 1.5 7.2 7.4 5.3 1.9 1.2 1.0 1.0 0.8 0.7 00 I-'

00

(Continued) ~

TABLE IV-5

EMPLOYMENT IN PRUDHOE BAY DEVELOPMENT AND PRODUCTION AND IN CONSTRUCTION AND OPERATION OF TRANSPORTATION SYSTEM 1970-1980

1970 1971 1972 1973 1974 1975 1976 1\)77 1978 1979 1980a

(monthly average employment -- thousands)

SOUTHERN REGION (Directly Related to

Prudhoe Bay Activities )

Anchorage Administration, etc. 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 Prudhoe Bay workers on leave 0.4 0.5 0.5 0.5 0.4 0.4 0.3 0.2 0.2 0.2 0.2 Wholesaling, tools & equip. 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Subtotal 0.8 0.9 0.9 0.9 0.8 0.8 0.7 0.5 0.5 0.5 0.5

Prudhoe Bay- Valdez Pipeline Construction 0.3 0.3 2.8 2.8 2.8 0.8 0.1 0.1 0.1 0.1 Operation ----- ----- ----- ----- ----- 0.1 0.1 0.1 0.1 0.1 0.1

Subtotal 0.3 0.3 2.8 2.8 2.8 0.9 0.2 0.2 0.2 0.2 0.1

TOT AL SOUTHERN REGION 1.1 1.2 3.7 2.7 3.6 1. 7 0.9 0.7 0.7 0.7 0.6

aEmployment declines at annual rate of 3 percent after 1980.

83

automotive grade gasoline and other products and to generate 45,000 kilowatts of power. It is assumed that these plans will be executed; refinery employment and payrolls are included in our projections.

The most recent estimates of pipeline construction employment by Alyeska Pipeline Service Company are the basis for estimating employment of resident versus outside workers (Table IV-6). It should be noted that "Alaska" employment means only that the

was hired in il.laslia, not necessarily that he had established Alaska residency. The resident or Alaska-hire estimates as presented appear too high, and the lower limit of the company's :!::_ 15-20 per­cent qualification should by used in this instance.

Secondary and Indirect Impacts

The direct impact of Prudhoe Bay development and related activi­ties will become less visible once pipeline and terminal construction have been completed. The number of people in the petroleum-related labor force and their dependents will decline significantly. However, it does not necessarily follow that the number of people in any particular community will decrease. The future of each community will depend more on state policies for expenditure of petroleum revenues than on any other factor. As the state receives revenues from North Slope oil production (income which is directly attribu­table to oil development), that money may be spent and respent within the Alaska economy, generating additional income as a secon­dary effect of oil revenues. Oil revenues will have the greatest impact on Alaska if they are disbursed to individuals as wages, salaries and transfer payments, and the least current impact if they are invested in securities or spent on imported capital goods and supplies. Thus, the total long-range effect of development and operation of the Prud­hoe Bay field and the pipeline will depend above all on how the state spends its royalty and production tax income.

For the purposes of projecting the secondary impacts of petro­leum income, we have assumed that the state spends all its current income and spends it on the same kinds of things it did in fiscal years

84

Calendar Year

1972

1973

1974

TABLE IV-6

TRANS-ALASKA PIPELINE FACILITIES CONSTRUCTION DIRECT EMPLOYMENT BY SOURCE OF WORKERS

Outside Alaska Project Total Alaska Native Non-Native

(monthly employment averages)

Road 1,854 524 330 1,000 Pipeline 5,636 1,083 1,140 3,413 Terminal 485 52 110 323 Pump Stations 537 70 115 352 Communications 73 10 15 48

Total 8,585 1,739 1,710 5,136

Road 1,854 524 330 1,000 Pipeline 5,636 1,083 1,140 3,413 Terminal 485 52 110 323 Pump Stations 537 70 115 352 Communications 75 10 15 48

Total 8,585 1,739 1,710 5,136

Road Pipeline 5,636 1,083 1,140 3,413 Terminal 485 52 110 323 Pump Stations 537 70 115 352 Communications 73 10 15 48

Total 6,731 1,215 1,380 4,136

Note: "Accuracy± 15-20 percent."

SOURCE: Testimony of E.L. Patton, before Legislative Pipeline Impact Committee, April 3, 1971.

1967-70;25 and that other directly oil-related income, expenditures, and employment are at levels projected elsewhere in this report. 26 On this basis, we project levels of personal income, employment and population for the period 1971-2000 (Table IV-7). Under the assumed conditions, we expect no sharp drop in personal income,

TABLE IV-7

TOTAL INCOME, EMPLOYMENT AND POPULATION ATTRIBUTABLE TO

NORTH SLOPE PETROLEUM PRODUCTION, 1971-2000

Employment (thousands) Population (thousands) Personal Income Directly Secondary Directly Secondary

(millions dollars) Attributable Effects Total Attributable Effects Total

1971 140.3 7.2 3.5 10.7 18.4 6.6 25.0 1972 424.4 20.9 6.8 27.7 37. 12.9 50.6 1973 436.0 20.9 6.8 27.7 37. 12.9 50.6 1974 391.1 16.4 7.8 24.2 30.] 14.8 44.9 1975 318.1 8.1 13.0 21.1 19.6 24.7 44.3 1976 388.5 4.6 20.8 25.4 14.3 39.5 53.8 1977 386.2 3.6 20.8 24.4 11.0 39.5 50.5 1978 405.3 3.2 21.4 24.6 10.5 40.7 51.2 1979 419.1 3.2 21.7 24.9 9.6 41.2 50.8 1980 434.3 2.9 22.2 25.1 8.9 42.1 51.0 1981 454.4 2.8 22.7 25.5 8.6 43.1 51. 7 1982 469.0 2.7 22.8 25.5 8.4 43.3 51.7 1983 475.4 2.7 22.5 25.2 8.1 42.8 50.8 1984 476.9 2.6 21.8 24.4 7.9 41.4 49.3 1985 478.3 2.5 21.3 23.8 7.7 40.5 48.2

00 01

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

TABLE IV-7 (Continued)

TOTAL INCOME, EMPLOYMENT AND POPULATION ATTRIBUTABLE TO NORTH SLOPE PETROLEUM PRODUCTION, 1971-2000

Em12lo:£ment (thousands) Poi:iulation (thousands) Personal Income Directly Secondary Directly Secondary (millions dollars) Attributable Effects Total Attributable Effects Total

479.0 2.4 20.8 23.2 7.5 39.5 47.0 480.4 2.4 20.2 22.6 7.2 38.4 45.6 482.8 2.3 19.7 22.0 7.0 37.4 44.4 484.1 2.2 19.2 21.4 6.8 36.5 43.2 485.1 2.1 18.7 20.8 6.6 35.5 42.1 486.5 2.1 18.2 20.3 6.4 34.6 41.0 487.9 2.0 17.7 19.7 6.2 33.6 39.8 489.3 2.0 17.2 19.2 6.0 32.6 38.6 490.9 1.9 16.8 18.7 5.9 31.9 37.8 492.4 1.9 16.4 18.3 5.7 31.2 36.9 493.8 1.8 16.0 17.8 5.5 30.4 35.9 495.2 1.7 15.6 17.3 5.4 29.6 35.0 496.8 1.7 15.1 16.8 5.2 28.7 33.9 498.3 1.7 14.7 16.4 5.1 27.9 33.0 499.9 1.6 14.3 15.9 4.3 27.2 32.1

00 ~

87

population and employment. Although there would be a gradual drop in population and employment beginning in the late 1970's, personal income would continue to rise until the end of the century.

Effect on Prices and Costs

During the 1960's, consumer prices in the Anchorage area steadily

economic growth since 1968 has been accompanied by an even more rapid closing of Anchorage-U.S. price differentials. Fairbanks has experienced a lesser reduction in relative prices; smaller, isolated communities in Alaska have experienced almost no reduction.27 As was pointed out in Chapter II, lower Alaska prices reflect larger local and regional markets, economies of scale, more competition, and expanded import substitution. Additional growth generated by North Slope oil development and production can be expected to lower prices further in the Anchorage area. To the extent that oil development-related growth occurs in Fairbanks, prices there can also be expected to decline, though the decline may be limited by greater uncertainty about Fairbanks' long term growth prospects.

Nonetheless, average prices in Alaska, even in Anchorage, cannot soon be expected to fall all the way to their national counterparts. An irreducible core of "real cost" factors, such as environmental severity and extreme seasonal and cyclical fluctuations in construc­tion by government and the petroleum industry, may perpetuate a differential on the order of 10 to 20 percent above national averages.

Despite economies resulting from the rapid introduction of mobile, modular and systems methods of building,28 commercial and residential construction and operating costs will continue to be exceptionally high and will account for most of the Alaska-U.S. dif­ferential in general price levels.29 Some further reductions in relative costs of construction in Alaska can be expected to result from econ­omic growth because of economies of scale, improved transportation, and the increasing use of existing and new building technology spe­cialized for Alaska environments. However, these tendencies may be

88

offset during the period of pipeline construction by bottlenecks in specific skills, materials and services, by increased labor turnover, and by vigorous attempts ( economically costly even if ultimately frus­trated by competitive conditions) at boom-time profiteering, padding and featherbedding by business and labor. Building costs throughout the state will likely inflate at least at the national rate until the pipeline is completed, and then level off rapidly. Homeownership and rental costs, which reflect supply and demand for existing hous­ing stock rather than for construction services, will probably be rela­tively stable in Anchorage, but are likely to increase temporarily in Fairbanks, Valdez and smaller places along the pipeline route. The degree of future inflation in housing costs will depend in part on the extent to which present real estate prices in Alaska are already in­flated above their equilibrium levels in anticipation of a pipeline boom. On balance, most living costs in the Anchorage and Fairbanks areas other than housing should continue to decline relative to national averages, even during the height of pipeline construction activity.

Alaska Consumption of North Slope Oil and Gas

The patterns of petroleum product supply in Alaska will probably be altered only slightly by the development and production of North Slope crude. Low cost oil from Cook Inlet is now available for local consumption. Were economics more favorable, that oil presumably would now be processed and marketed for local consumption. Assuming that North Slope crude does not drastically affect West Coast petroleum prices, the opportunity cost relationships for Alaska refineries will not differ significantly just because more crude becomes available.

Substantial economies of scale exist in petroleum refining and processing operations, i.e., the larger refineries have lower per unit costs of processing. Tankers will supply large refineries in California and Washington with Alaska crude. On their Alaska-bound voyages, these tankers can carry petroleum products as "ballast," making the incremental cost of transport to Alaska extremely low.

89

Some import substitution will probably take place, and one or more small refineries may be established in the Interior or the Copper River basin. A refinery of the simple atmospheric distillation variety, originally built by the U.S. government at Haines, Alaska, is owned by a Copper Center trucking firm which plans to erect it at some undetermined point along the pipeline. Such small refineries are disproportionately favored in the distribution of import licenses, which fact enhances their feasibility. However, facilities such as this one and Lhose now operating on the Kenai Peninsula do not gasoline of the quality required by modem automotive engines.

Significant import substitution could take place in supplying fuel to military and civilian steam and power generation facilities in the Fairbanks vicinity. Such facilities could use a minimally refined product. But resistance to conversion can be expected from both public and private sectors because of effects upon employment and upon the value of existing investments.

It is doubtful that power and steam generation facilities would find it economical to convert to natural gas, should it become avail­able in Fairbanks. However, the use of gas in residential and com­mercial service might provide some unpriced benefits by lowering the noxiousness, though not decreasing the density, of Fairbanks' ice fog.30

The Timber Industry in Interior, Alaska

Part of the timber needed for pilings and sawn lumber on drilling sites could be met by village mills in the Yukon-Koyukuk basin, using local timber resources. 31 The arctic slope itself is totally un­forested. Two factors work against local production of sawn lumber. The first handicap is that drilling operations require large dimension lumber and timber; Interior Alaska timber stands are of relatively small diameter. 32 Moreover, manufacture of large dimension pro­ducts generates substantial by-products of smaller dimension lumber and/or waste. The second constraint is the small size of mills, the high cost of power, and the dearth of managerial skills and capital in

90

remote areas. Even if these limitations can be overcome by accepting a high degree of physical waste in manufacturing, it is doubtful that such an operation would be viable without a subsidy.

Similar reasoning applies to the effect of the pipeline access road in opening Interior Alaska forests for markets to the south. The timber stands of Interior Alaska require more than improved access to be harvested. There are unutilized or underutilized stands eco­nomically better situated than those to be "opened up" by routes north. 33 As long as production economies are marginal and stump­age prices are low in the railbelt (from Seward through Anchorage to Fairbanks), and in southeastern and southcentral Alaska, there will be no incentive to log the northern Interior.

The above considerations make it unlikely that North Slope petro­leum development, or its transportation systems, will substantially stimulate wood products industries in Interior Alaska or anywhere in the state. Production and transport economies have dictated that almost all wood products consumed in the railbelt area are imported from out-of-state, rather than from the present timber-producing areas of southeast Alaska. 34

Mining

It is sometimes suggested that a large indirect effect of surface transport to the North Slope from the Fairbanks area will be the stimulus to mining of known deposits of rich ores in the region. 35 Important deposits of metallic minerals on the south slope of the Brooks Range conceivably may be near enough to the proposed pipe­line access road to influence their commercial availability, but these deposits are apparently still to be discovered. 36 There is little to be "opened up" along the remainder of the route: the White Mountains are already reasonably accessible from the Elliott and Steese high­ways; any mineral deposits in the Yukon Flats and the North Slope

proper are buried under thousands of feet of sediments. Metallic mineral production is now virtually at a standstill in Alaska, even in areas that are already accessible, better known and more promising

91

than the area discussed here. The probability that "opening up" Alaska's northern Interior will result in significant mining activity, while greater than zero, is very small.

Opening up new territory will affect mineral exploration less than will the psychological impact of rich petroleum discoveries that make Alaska look like a promising place to work. This influence is impos­sible to measure, but there has clearly been an upsurge in exploratory adivity in the state since the Prudhoe discovery most of i.t in southeast Alaska. This increase is not obviously related to price-cost expectations in mining and in primary metals, is at odds with the movement in availability and cost of capital in the U.S. economy generally, and seems to be totally unrelated to expectations concern­ing expansion of transportation systems in the near future.37 The most reasonable hypothesis, supported by the opinions of several explorationists, is that the new interest of mining companies and investors in Alaska is mainly a psychological spillover from the Prud­hoe Bay oil and gas discoveries.

Availability and Cost of Capital

A phenomenon similar to that described in the mining industry can be perceived in capital markets generally. Because of the publi­city received by the Prudhoe Bay discoveries, the 1969 North Slope lease sale and the controversy over the trans-Alaska pipeline, and because of the state's rapid economic development over the last three years, Alaska is regarded as having good prospects for further growth, and as being a good place in which to invest. The state's $900 million bonus windfall and its expectation of production revenues have also improved the credit standing of state and local governments. In 1970, for the first time in history, market rates of interest in Alaska were not consistently higher than in other western states, and Alaska municipal bonds sold at rates lower than the national average. 38 The Anchorage area in particular saw a massive inflow of venture capital in 1969-70, reflecting primarily the indirect effects of Prudhoe Bay oil and anticipation of permanent economic growth generated by it. Gross receipts in construction, real estate and finance in the Anchor­age area were recorded at $157 million in both 1966 and 1967, $187

92

million in 1968, $208 million in 1969, and $609 million in 1970, increases of 0, 19, 11 and 193 percent respectively.39 This invest­ment boom occurred without notable inflation and tapered off in 1971 without notable distress. If the present investment climate does not collapse with expectations about pipeline construction and state revenues, it may be the foundation for several years of sustained economic growth.

Costs to State and Local Government Directly Related to Petroleum

Development and operation of the Prudhoe Bay field and related transportation facilities will result in costs to state and local govern­ments that would not otherwise have been incurred. Additional costs considered here include those relating directly to operation of the petroleum industry, those resulting from the need to serve and over­see personnel involved in petroleum and related operations, those emanating from increased accessibility and activity in new areas in the state, and those resulting from other related activities.

Transportation and Communication

Capital improvements during the pipeline construction period will include the building and equipping of seven highway maintenance camps between Livengood and Prudhoe Bay at a total cost of $4.8 million.40 Responsibility for building the road from Livengood to Prudhoe rests with Alyeska Pipeline Service Company;41 the Livengood-Yukon River segment has already been built to state standards. Preliminary engineering for a combination highway­pipeline bridge over the Yukon River currently is being undertaken cooperatively by the state Department of Highways and Alyeska. Alyeska plans to pay the State of Alaska $6.5 million for the right to install an oil pipeline on the bridge, which will be built and main­tained by the state.42 Total cost of the bridge is estimated at $13 million. Under anticipated cost-sharing arrangements with the federal government, the actual state share of bridge construction should be less than $1 million.43

93

An expected 50 percent increase in traffic along existing highways from Valdez to Livengood is expected to increase annual mainten­ance costs during the construction period by $440,00o.44 State maintenance of the road between Livengood and Prudhoe will not begin until the pipeline is completed. At that time, the annual road maintenance budget will increase by about $1,410,000.45

Costs for improvement of the state-owned airport at Deadhorse are forecast at $12 to $13 million over a five-year period.46 Under the federal aid airport program, the federal government may contri­bute up to 621h percent of total construction costs. Under this shar­ing formula, minimum state outlays would be $4.45 million; how­ever, it is probable that state investment will be over $6 million. Annual state capital investments of $1.5 million are projected during the height of pipeline construction. No significant additional capital improvements will be necessary after the five-year development stage is completed. Annual state maintenance and operating costs at Dead­horse are estimated at $100,000 during pipeline construction and during subsequent Prudhoe Bay development and operation.

Alyeska Pipeline Service Company will construct airports at Pros­pect Creek, Dietrich, and Galbraith Lake to state standards and turn them over to the state upon completion of the pipeline. Annual maintenance costs thereafter are estimated at $25,000 for each air­port, for a total annual cost of $75,000.

While pipeline and field development will generate increases in traffic at Anchorage and Fairbanks international airports, existing facilities and current capital improvement programs will be able to accommodate any additional impact. Increase of cargo aprons at Anchorage airport at a cost of $500,000 ($225,000 state, $275,000 federal) is included in the current $6 million capital improvement program. No significant increase in overall cost of operations and maintenance at Anchorage and Fairbanks airports is therefore antici­pated.

No additional state investment is projected for harbor facilities at Valdez. The existing small boat harbor has sufficient facilities for expansion, and no significant additional costs to the state are indi-

94

cated.47 The city of Valdez or private developers will have the responsibility to provide further berthing facilities as needed.

Installation of high frequency or very high frequency communica­tions system during pipeline construction to serve all state agencies (Highways, Fish and Game, Public Safety, Public Works, and so forth) in the area between Fairbanks and Prudhoe Bay is estimated to cost roughly $100,000.48

Surveillance of Oil Fields, Pipeline and Terminal, and Administration of Leases

The state, in addition to providing facilities and services, must assure compliance of developmental and operational activities with applicable laws and regulations. In some instances, state responsi­bility will include assuring conformance with federal criteria, while in others arrangements will be made with federal agencies to cany out monitoring on behalf of the state.

As of this time, final arrangements for monitoring pipeline con­struction (including road, pumping, terminal and other facilities) have not been completed. Contractual arrangements may be made with the Bureau of Land Management (BLM) for field surveillance over construction on state and private lands. Combined use of the BLM team is considerably less costly than the state developing its own task force.

Officials have estimated that the state will have to provide $500,000 annually for pipeline and road construction monitoring during peak construction. 49 This amount would cover payment to BLM for field surveillance services, the cost of state-ELM coordina­tors, and expenses incurred by state agencies in surveillance support. An allocation of $500,000 for general construction surveillance should be sufficient since the pipeline construction and related activi­ties on federal land is projected to cost $2.5 million. 50

95

Additional costs will be incurred by the state in overseeing and enforcing provisions of state and federal laws and regulations dealing with manpower, safety, health, and fish and wildlife resources. Prin­cipal annual costs applicable to development and operation of the pipeline, road, terminal facilities, and the Prudhoe Bay field are:

$440,000 for enforcement of state and federal safety and health laws; $110,000 for continuing surveillance after construction of pipeline and terminal facilities is com­pleted.51

$200,000 during construction period for environmental health surveillance; $100,000 after construction.52

$400,000 for habitat protection and enforcement of Fish and Game laws and regulations.53

An additional $250,000 per year will be required during develop­ment and operation of the Prudhoe Bay field. This money will pay for lease administration and monitoring of North Slope operations, including surveillance of gathering lines, all of which will be on state lands. 54

Other Direct State Costs

The large influx of people, particularly transients, and the inten­sive use of highways during the construction period will require 24-hour state trooper patrols along the highway system between Prudhoe Bay and Valdez by the Alaska Department of Public Safety. 55

Health services for personnel engaged in pipeline and road con­struction and other petroleum-related activities will be provided primarily by contractors and, as appropriate, by insurance carriers associated with the contractors. During construction, the state will need to provide general overview and assure that adequate health services are maintained. 56

96

Location of construction camps in and prov1s10n of new access into currently remote areas will lead to additional state costs in the area of resources management, including fish and game resources, 57 land management, 58 geological services, 59 and recreational develop­ment. 60

The cost of possible pollution impact on commercial fisheries has not yet been ascertained. Preparatory research is being undertaken cooperatively by federal and state agencies and the University of Alaska. It will undoubtedly be necessary to intensify monitoring in streams to study escapement and viability of eggs and fry _61

Special efforts will continue on the part of the state to prepare its residents, particularly Alaska Natives, for employment during con­struction and for pipeline operation and field production jobs. One­fourth of the estimated $2 million manpower training effort will consist of state funds. Of these, $150,000 a year will be expended during the most intensive period of pipeline construction and pre­paration for full-scale Prudhoe Bay production.62

The state must increase payments to local school districts as oil development-related dependents swell the school-age population. The majority of families are expected to locate in Anchorage, Fairbanks and Valdez, in descending numerical order. Some, however, will reside near construction camps or in roadside communities, and their children will attend state-operated schools. State expenditures to support an estimated increase of somewhat over 3,000 in school population are projected at between $3 million and $3.5 million annually, depending on which schools pupils attend.63

Petroleum-related activities and the influx of workers and families will lead to other costs that cannot be ascertained at this time. These may include health and welfare expenditures for the increased population, higher administrative costs resulting from expansion of state activities, marginal impacts on the legislative and judicial branches, increases in state-local revenue sharing under per capita formulas, and the like. Altogether, these costs are not likely to exceed $1 million. Table IV-8 summarizing additional petroleum-

97

TABLE IV-8

EXPENDITURES IMPOSED ON STATE GOVERNMENT DIRECTLY ATTRIBUTABLE TO NORTH SLOPE PETROLEUM ACTIVITIES

(millions of dollars)

Year

1972 1973 1974 1975 1976 1977 1978 1979 1980 1981-2000

Expenditures

10.6 10.8 11.9 7.5 5.1 4.5 4.3 4.2 4.0 3.9

related expenditures, makes a general allowance for such non­calculated costs.

Impact on Communities

The impact on communities affected dfrectly by petroleum development and pipeline construction will be primarily in the form of increased demand for public services and facilities. Most of those employed in construction and oil field development will be housed in camps away from major communities;64 the primary exceptions are those to be employed in terminal construction at Valdez.65 While the smaller communities along the pipeline route will be heavily affected by traffic and transients during the construction period,

98

long-term effects of petroleum development will be small or non­existent. Educational, law enforcement, and other public services for these communities are, when provided, the responsibility of state government. Any determinable increased costs are, therefore, in­cluded in preceding calculations of state costs.

Most indirect employment and most unemployment will be in Fairbanks and Anchorage; these cities will also have to accommodate most of the additional dependent populatron. Table IV-9 shows in­creases in total population, workforce, dependents and associated unemployment during the period 1971 to 1980. Due to their larger size and capability, Fairbanks66 and Anchorage67 are expected to absorb the construction and post-construction impact without exten­sive difficulties.

TABLE IV-9

WORKFORCE AND DEPENDENTS ATTRIBUTABLE TO ARCTIC SLOPE OIL PRODUCTION AND RELATED INDUSTRIES AND NET ANNUAL POPULATION CHANGEa

(thousands of persons)

1971 1972 1~73 1974 1975 1976 1977 1978 1979 1980b

NORTHERN REGION

Direct Employment 3.0 11.6 11.6 8.1 3.7 2.4 2. 2.0 1.7 1.6

Associated Unemployment 0.5 1.4 1.4 1.0 0.5 0.3 0.3 0.2 0.2 0.2 Total Related Workforce 3.5 13.0 13.0 9.1 4.2 2.7 2A 2.2 1.9 1.8 Total Dependents 5.0 8.3 8.3 6.9 5.2 4.7 4.2 3.9 3.3 3.2 Less:Dependentsin

South Region (0.7) ( 3.1) (3.1) (2.2) (LO) (0.6) ( 0.6) ( 0.5) ( 0.4) ( 0.4) Total Related Resident

Population 7.8 18.2 18.2 12.8 8.4 6.8 6.0 5.6 4.8 4.6 Net Population Increase

(Decrease) ----- 10.4 ----- ( 5.4) ( 4.4) ( 1.6 ) ( 0.8 ) ( 0.4) ( 0.8 ) (0.2)

SOUTHERN REGION

Direct Employment 4.2 9.3 9.3 8.3 4.4 2.2 1.5 1.5 1.5 1.3

Associated Unemployment 0.2 0.5 0.5 0.5 0.2 0.1 0. 0.1 0.1 0.1 Total Related Workforce 4.4 9.8 9.8 8.8 4.6 2.3 1.6 1.6 1.6 1.4 Total Dependents 5.5 6.6 6.6 6.3 5.6 4.0 2. 2.8 2.8 2.5 ©

©

f-' 0

TABLE IV-9 (Continued) 0

WORKFORCE AND DEPENDENTS ATTRIBUTABLE TO ARCTIC SLOPE OIL PRODUCTION AND RELATED INDUSTRIES AND NET ANNUAL POPULAT!ON CHANGEa

(thousands of persons)

1971 1972 1973 1974 1975 1976 1977 1978 1979 1930b

Plus: North Slope Dependents 0.7 3.1 3.1 ( 2.2) (1.0) ( 0.6) ( 0.(i) ( 0.5) ( 0.4) (0.4)

Total Related Resident Population 10.6 19.5 19.5 17.3 11.2 7.5 5.U 4.9 4.8 4.3

Net Population Increase (Decrease) ----- 8.9 ----- ( 2.2) ( 6.1) ( 3. 7 ) ( 2.1)) ( 0.1) ( 0.1) ( 0.5)

STATEWIDE

Direct Employment 7.2 20.9 20.9 16.4 8.1 4.6 3.6 3.5 3.2 2.9

Associated Unemployment 0.7 1.9 1.9 1.5 0.7 0.4 OA 0.3 0.3 0.3 Total Related Workforce 7.9 22.8 22.8 17.9 8.8 5.0 4.0 3.8 3.5 3.2 Total Dependents 10.5 14.9 14.9 13.2 10.8 8.7 7.0 6.7 6.1 5.7 Total Related Population 18.4 37.7 37.7 30.1 19.6 14.3 11.0 10.5 9.6 8.9 Net Population Increase

(Decrease) ----- 19.3 ----- ( 7.6) (10.5) (5.3) ( 3. 3) (0.5) ( 0.9) ( 0.7)

101

NOTES TO TABLE IV-9

a Assumptions for calculation of dependents:

*Ratio of 1.75 related population per each individual in permanent work­force.

*During period 1971-75 permanent workforce is same as 1976.

*Of non-permanent workforce during 1971-75, 20 percent will have de­pendents in Alaska at 1. 75 ratio; balance have dependents outside state.

*1976 and after, whole labor force considered permanent.

b After 1980, employment in each category declines at 3 percent (exponen­tial) annually.

SOURCE: Calculated by G.W. Rogers based on employment data from Table IV-5; unemployment and participation rates from Alaska Depart­ment of Labor publications: Annual Workforce Estimates and Alaska Manpower Outlook -- 1970's, "Regional Population and Em­ployment Estimate, 1961-1980," Report No. 10, February 3, 1971.

102

TECHNICAL NOTES

1some of the assumptions adopted are patently "unrealistic" and are made to simplify both calculations and interpretation. One example is the use of April 1971 prices for a series of revenue and cost estimates extending over 25 years. Other assumptions involve matters of judgment on which there is a wide range of expert opinion in which one expert's guess is not clearly better than another, for instance on the ultimate recoverable containment of the Prudhoe Bay field. Still other assumptions are substitutes for numbers that are in principle calculable, but which are hidden behind a thicket of alternative accounting conventions, varying tax positions of different oil companies, and the policy nuances of regulatory authorities. In each case where an arbitrary choice of assumptions had to be made, we have chosen simpler rather than more subtle alternatives if it is not clear that complexity would improve the final result.

Among the projections presented in this report, those that depend upon the wellhead price of crude oil are among the most uncertain because, as a "net­back" or residual variable, the wellhead value is subject to a leverage effect from changes in the refinery prices and also depends upon pipeline and tanker tariffs, for which authoritative estimates vary over a range of two to one. Accordingly, state royalty and production tax revenues can be projected with a two-thirds confidence interval of no better than ± 50 percent, and corporate income tax revenue projections are even more shaky. Direct employment projections can be expected to fall within an interval of ±. 20 percent, provided our major qualita­tive assumptions are realistic (e.g., that the pipeline will in fact be built). The degree of confidence in other numerical projections, for example secondary employment effects operating through spending of state revenues and of payrolls from direct employment, is somewhere between these extremes.

Great caution must be taken in using any of the projections presented here in cost-benefit analyses. The reference group for the costs and benefits must be carefully defined and double-counting must be avoided. For instance, payrolls disbursed to workers moving to Alaska for oil industry or pipeline construction jobs are not benefits to "the Alaska economy" if that economy is defined in terms of the state's present residents. Nor are they net benefits to the national economy, unless the workers involved would have been totally unemployed otherwise. The value of crude oil produced in Alaska should not be measured for the purpose of national cost-benefit analysis by either its price or its cost of production, but by the price of imported crude that it displaces (which price may or may not be lower than the cost of Alaska oil).

103

2This cost includes interest charges on outlays made before 1971. At equal money outlays over four years, 1972 to 1975, and at a 10 percent rate of cost inflation, a 1971 valuation of $1.75 billion implies a total nominal cost of $2.17 billion.

3The real world principles for calculating pipeline tariffs are exceedingly complex, involving many nuances of alternating accounting schemes and of regulatory policy; almost all existing projections are based on "naive" models that abstract from many of these complexities. The present report is not an

"constant" dollar interest charges on depreciated value and allowing for corporate profits taxes, annual capital costs on the pipeline are assumed to be 8 percent of the $1.75 billion replacement cost over the life of the pipeline.

The difference between this procedure and the use of separate depreciation and rate of return calculations is not great. Suppose depreciation at 5 percent of the balance and an 8 percent return on the depreciated value of the pipeline.

K 0

(1.0S)t 28 ----C E t=1 Qt

(1.13)t

where:

C

K

Qt 28 Qt I

t=1 (1.08) t

=

28 K 0

(1.13)t

E t=1 Qt (1.0S)t

capital cost per barrel,

present value of capital cost, throughput in the year t, and

K

28 Qt E ----

t=1 (1.08)t

present barrel equivalent of future throughput

The approximation is close for interest rates in the normal range and for long time periods, so that the value of the investment at the end of the time period is relatively insignificant.

The greatest violence to reality done by the present procedure is to produce a single imputed tariff over the life of the pipeline. The accounting rules approved by the Interstate Commerce Commission typically provide for initially higher, declining rates.

104

4Industry personnel have not been able to resolve certain issues to the authors' satisfaction. On the one hand, the development drilling schedules of individual companies now suggest an initial producing capacity of 1.2 to 1.5 million barrels per day, increasing within two years to at least 2 million bpd. On the other hand, it is not immediately apparent where the volume of crude oil implied either by this schedule or by the Alyeska schedule will be marketed.

5see, for example, Eckis, 1970. pp. 44-45.

6one rationale for using the two extreme alternatives rather than the inter­mediate Alyeska projected schedule relates to the realized price of Alaska crude. Any production buildup more rapid than the conservative schedule would either depress prices in P.A.D. District V, or the excess would have to be sold elsewhere (Japan or Districts I-IV), necessarily at lower prices than assumed here.

7Production taxes and royalties are projected for each schedule separately. For purposes of projecting the impact of state revenues over time and for certain

other series, the arithmetic mean of these two revenue flows is used. Direct employment in construction and in the field is not very sensitive to the rate of capacity buildup. For the projection of direct employment, the Alyeska schedule is used.

8Future bonus incomes to the state, the level of future exploration effort, and the expectation of future discoveries in northern Alaska will be powerfully influenced by the fate of the first proposed pipeline, but no estimates of these are made here.

9Maximum production is constrained by our assumption that producing and transport capacity above two million bpd constitute a separate set of decisions. The abrupt cutoff of production in A.D. 2000 is unrealistic but is not critical to the interpretation of this report's projections. Even at a discount rate as low as 2.5 percent, different plausible assumptions about life of the field do not have extreme impacts on 1971 present value. For instance, the present value of a constant production flow ending in year 2000 is the same as that of flow of the same volume through 1987, followed by a perpetual 10 percent decline rate; and the 1971 present value of a constant production stream in perpetuity at this rate is only about half again larger than that of the same stream ending in 2000.

There is no reason to prefer as more realistic either the assumption that operations will be in decline in 2000 or the assumption that they will continue to grow. Petroleum production on the North Slope, not to mention general economic conditions in Alaska, will be far less sensitive to the assumptions adopted here than to other, unforeseeable variables.

105

10The use of constant April 1971 prices may be troublesome in view of the real world interdependence of interest rates and commodity price increases, and because of the continuing discrepancy among the rates of increase in crude oil prices, construction costs, and the general price level. Nevertheless, we con­cluded that direct projections of constant prices were less troublesome than the manifold assumptions required to make projections in nominal prices advancing at a variety of hypothetical rates.

Apart from the problems of establishing "real" interest rates and of differen­tial rates of inflation, the most noteworthy anomaly in the use of constant dollars is in the projection of state and federal personal income tax revenues; because of the progressive rate structure, the yield of these taxes as a proportion of personal income is very sensitive to changes in the price level. For the purpose of calculating tax revenues, it is assumed that nominal incomes per capita in­crease at the 3 percent annual rate indicated above, further inflated at an average rate of change of the Anchorage Consumer Price Index from 1960 to 1971 (1.75 percent annual exponential increase).

Agreement is unlikely on the proper interest rate for reducing various revenue flows (for example, state royalty and tax income) to present value. The approp­riate rate may indeed be different for different purposes; readers may perform the discounting exercise for themselves, using the rates of their choice.

11 Revenue projections are of course directly responsive to the rates of the state petroleum production tax, and the temptation should be noted for the legislature to increase these rates in the face of high production rates and low per barrel resource costs of production. Large oil and gas revenues, however, will probably have a stabilizing effect upon other taxes, paid principally by residents.

12The most likely foundation for this assumption is the prior assumption that the U.S. retains volumetric import restrictions or their equivalent in tariffs, with effects that include maintenance of the present levels and geographic struc­ture of real crude oil prices. (Since mandatory import quotas were imposed in 1958, both domestic and world crude oil prices have increased in nomimal terms and declined in real terms.) In this context, North Slope crude oil will be a price taker in "lower 48" markets. The last proposition does not, however, imply that Alaska production exerts no downward pressure on domestic prices; because of constraints on maximum imports, North Slope production may indeed be indis­pensable in preventing increases of real crude prices in the face of a declining discovery rate in other states. See Burrows and Domencich (1970), Cabinet Task Force on Oil Import Control (1970), and Levy (1970c).

All authorities agree that the marginal per barrel cost of North Slope oil, however calculated, is sufficiently low that production from the present dis­covery would proceed under any plausible assumption about market prices,

106

transport costs or taxes. See Adelman (1970), Norman (1971), Cabinet Task Force (1969), Erickson (1970), Tussing (1969a). This consensus is summarized by General George A. Lincoln, dii:ector of the Office of Emergency Prepared­ness, that " ... development of the great supply potential of the North Slope of Alaska is currently insensitive to price at present levels, because the North Slope discovery is of such magnitude that the unit costs of production will be low and its unavailability to the market is not a matter of price." (Oil and Gas Journal, May 10, 1971.)

13Prices will depend upon gravity and several other aspects of crude oil quality. BP Alaska's crudes range between 26 and 28.7 degrees API (Oil and Gas Journal, May 24, 1971, p. 57). A Standard Oil of California group (Roselius and Steffens, 1971) reports a range of North Slope crudes from 22.9 to 27.4 degrees, and about 1 percent sulfur. "The average of 20 current postings for 26-26.9 degrees API in California is $3.07 /bbl. The posted price will vary depending upon crude quality and the distance from the refining centers. Signal Hill, which may be a reasonable pick as a reference crude, posts a $3.12/bbl. Adding 5 cents gathering and delivery costs gives $3.17 at a typical Los Angeles refinery gate." (J.T. Mccutcheon, communication to Tussing, June 2, 1971.)

14see section on Wellhead Price Determination.

Some and perhaps all of the first production will be marketed on the West Coast of the U.S. and will take its prices from those of comparable gravity crudes in the Los Angeles area. Production at substantially higher levels than District V refining capacity will push Alaska crudes into other markets than the West Coast before it significantly affects prices there. This development could eventually shift the price from a Los Angeles base to Chicago or even to the Gulf Coast; the effect of such a shift of netback prices is not clear.

The projections here are based on average Los Angeles refinery prices of $3.17 per barrel. Long-term tanker rates from Valdez to Los Angeles are assumed to be $0.25 per barrel for an Alaska tidewater value of $2.92. Recent per barrel tanker charges between Cook Inlet and California of $0.45 and $0.50 are not an appropriate standard for projecting transport costs for North Slope oil, as the former approximate the short-term charter rates for smaller vessels than those which will be operated on the Valdez run. Estimated 100 percent ATRS ocean freight from Valdez to Los Angeles is $0.46 per barrel. J.T. McCutcheon (correspondence to Tussing, June 2, 1971) gives long-term expecta­tion of ATRS flat. Levy (1970c, p. III 9-10) offers a "rule of thumb" estimate of $0.20 to $0.25 per barrel tanker cost for North Slope crudes from Valdez to southern California. Adelman (1970, pp. 37-38) estimates the tanker cost at $0.08 per barrel to Puget Sound and $0.35 to Panama; and Norman (1971, p. 73) uses $0.20 to Puget Sound, $0.25 to San Francisco, and $0.30 to Los Angeles. For the general basis for such calculations, see Petroleum Press Service, 35: 2, February, 1968, pp. 59-60. The wellhead price would, by our calculations, be $2.92 less the per barrel pipeline tariff.

107

The cost of pipeline transportation depends on several factors, including the volume of oil actually carried; the throughput assumptions set out in Table IV-1 result in capital costs of $0.36 and $0.28. Operating and maintenance costs per barrel will probably be about $0.10 to $0.15 per barrel, $0.14 and $0.12 are used here for a total tariff of $0.50 and $0.40 respectively.

Previous estimates of pipeline tariffs have ranged as low as $0.30 (Department of Interior submission to the Cabinet Task Force on Oil Import Control, based on two million barrels per day) to $1.00 by an ARCO representative (L.K. Cheney, 1969) to a committee of the Alaska legislature. The Cabinet Task Force on Oil Control , Department's range of $0.30 to $0.60. There is no indication how the Depart­ment of the Interior or ARCO arrived at their figures, but the latter may refer to the initial rate in a declining tariff schedule. Adelman's estimate of $0.41 (1970, p. 38) is calculated by the same method as ours, but he uses $1.5 billion as a total cost figure and assumes a somewhat different schedule of throughput. Recent estimates by the State of Alaska Division of Oil and Gas (1971) use a somewhat different accounting scheme and different assumptions, but the state's "most reasonable" projection of pipeline tariffs is almost identical with ours.

At tidewater price of $2.92 and a pipeline charge of $0.50 per barrel, the wellhead price is $2.42; at $2.92 and $0.40, the wellhead price is $2.52.

15The most recent projections of state revenues by the Alaska Division of Oil and Gas (1971) are based upon a considerably more complex model than that used here, and include sensitivity estimates for seven different variables. How­ever, the state's "most reasonable" projection series is within 5 percent of the mean revenue schedule of Table IV-2.

16Interview with Cliff Burglin, Fairbanks lease broker, May 25, 1971.

17 For a summary of the legal issues, see Federal Field Committee (1968, pp. 429-41, 456-59, 515-16, and 533-46), and U.S. Senate Committee on Interior and Insular Affairs (1970, especially pp. 46-66).

18H.R. 3100 by Aspinall and Haley would create a statewide Native fund, and deposit in it (in each of 25 fiscal years) $20 million out of state mineral revenues. (The authors are respectively chairmen of the House Committee on Interior and Insular Affairs and the House Subcommittee on Indian Affairs.)

S. 35, by Jackson, H.R. 7432 by Saylor, et al., and H.R. 10367 by the Subcommittee on Indian Affairs, grant a 2 percent royalty on the gross value of mineral production until the total revenues so committed equal $500 mi!lion.

108

(Jackson is chairman of the Senate Committee on Interior and Insular Affairs; Saylor is ranking Republican on the House Committee on Interior and Insular Affairs.) S. 35 is almost identical with S. 1830, which passed the Senate in the second session of the 91st Congress. H.R. 7432 and its identical twin, S. 1571, are the "Administration Bill."

H.R. 7039 by Meeds, et al., and S. 835 by Harris, et al., provide for a 2 percent royalty in perpetuity. These two bills are the "Alaska Federation of Natives Bill." In addition to the royalty provision, this bill would authorize Native associations include lands tentatively approved for state selection. Under such legislation the Regional Native Corporation for the North Slope would certainly select the Prudhoe Bay field and appropriate its entire royalty income. A further develop­ment in this scenario would probably be a sharp increase in the state's produc­tion tax rates, in an attempt to offset the loss of royalty income.

For the purpose of this projection, it is assumed that the provisions adopted are those of S. 35, H.R. 7432, and H.R. 10367.

19Major production from other fields, or production from Prudhoe Bay at a rate above two million bpd using additional transportation facilities, would accelerate the schedule of payments to the Natives, but would reduce the pro­portion of the total chargeable against the production considered here.

20The allocation of pipeline construction employment between regions was based upon assigning road construction employment to the northern region, and terminal construction employment to the southern region. Pipeline, pumping station, and communication site construction employment was split between the two on the basis of mileage and number of stations and sites in each region. Pertinent information was obtained from location maps in U.S. Bureau of Land Management, Surveillance of the Proposed Trans Alaska Pipeline System, Annual Report 1970.

21The occupational composition of the mmmg employment estimated in Table IV-A has been projected from the composition indicated in a survey of firms engaged in mining activities of the petroleum industry in the fall of 1969. The survey covered current and anticipated employment by occupations for calendar years 1972, 1975, and 1980. The relative composition pattern for these years has been applied to total employment to obtain the occupational structure projected in Table IV-A. The Alyeska Pipeline Service Company provided the data for estimates of employment by occupational composition that appear in Table IV-B.

TABLE IV-A

PROJECTED PRUDHOE BAY RELATED MINING EMPLOYMENT

BY OCCUPATION

109

Northern Region Southern Region

Hl72

Professional 0.1 Technicians 0.1 Managerial * Clerical 0.2 Services 0.1

Skilled, semi-skilled petroleum related 0.6 Other tract es 0.3

TOTAL EMPLOYMENT 1.4

*less than 50.

Hl75 Hl80

(monthly employment averages - thousands)

0.1 0.1

* 0.1

*

0.4 0.2 1.0

* 0.2

0.2 0.1 0.5

0.2 0.1 0.2 0.2 0.1 0.1 0.1 0.1

0.2 0.1 0.1 0.1 0.8 0.7

0.1 0.2 0.1 0.1

*

* 0.5

SOURCE: Alaska Department of Labor, Alaska's Manpower Outlook, 1970's, Publication No. 4. Relative composition applied to mining employment, Table III-B.

22Total payrolls in any industrial classification are a function of a complex of factors-age rates, occupational mix, amount of overtime pay, special remote station pay, etc.-which vary in their interrelations in accordance with season of the year, location of employment, cyclical changes, etc. As was done in the case of employment in the Alaska petroleum industry, the average monthly compen­sation per worker rather than unit wage rates were used. Projections were based upon 1965-70 experience for the principal industrial classifications. For all industries except construction, 1970 average monthly compensation per em­ployed worker data were inflated to estimated 1971 rates on the basis of past trends. These rates were used, rather than th£ April 1971 data (which are not yet available for employment and payrolls), because of the importance of seasonal factors in determining average total compensation per worker. For the years beyond 1971, real wage rates are assumed to increase at the rate of 3 percent per annum. After 1980, payrolls are assumed to remain constant, as real wage rates just offset increases in labor productivity.

110

TABLE IV-B TRANS-ALASKA PIPELINE AND FACILITIES CONSTRUCTION

EMPLOYMENT BY MAJOR OCCUPATION CLASS

Professional Managerial Skilled & Year Project Total & technicians & clerical Services semi-skillE

(monthly employment averages)

1972 Road 1,854 64 197 128 1,465 Pipeline 5.636 100 213 290 5,033 Terminal 485 16 20 13 436 Pump Stations 537 3 30 16 488 Co mmunica tio ns 73 27 9 2 35

Total 8,585 210 469 449 7,457

1973 Road 1,854 64 197 128 1,465 Pipeline 5,636 100 213 290 5,033 Terminal 485 16 20 13 436 Pump Stations 537 3 30 16 488 Communications 73 27 9 2 35

Total 8,585 210 469 449 7,457

1974 Road Pipeline 5,636 100 213 290 5,033 Terminal 485 16 20 13 436 Pump Stations 537 3 30 16 488 Communications 73 27 9 2 35

Total 6,731 146 272 321 5,992

SOURCE: Testimony of K L. Patton, before Legislative Pipeline Impact Committee, April 3, 197

Construction provided extraordinary difficulties. Examining a ten year period, it was found that the average total compensation was subject to unusual inflationary and deflationary forces during periods of rapid expansion or ter­mination of activities. No practical method presented itself, however, for taking these factors into account in projecting payrolls. Quarterly payroll and employ­ment data for the Anchorage, Valdez, Fairbanks and Barrow areas for 1969 and 1970 were used as factors for the northern and southern regions, applied to projected construction employment in arriving at payrolls. In conformity with the analysis on the section on unemployment, average unemployment was assumed to change proportionately with total labor fore~. Tables IV-C and IV -D (following) present these projections.

23Note that in Table IV-A, the 1980 levels of employment are primarily the permanent employees of firms engaged primarily in the production of oil or gas. The difference between the higher 1972 and 1975 levels and the lower 1980 employment levels are employees of firms contracting services during the transi­tion stages from exploration to production.

TABLE IV-C

PAYROLLS FROM PRUDHOE BAY PETROLEUM-RELATED ACTIVITIES, 1971-1980

(millions of dollars)

1971 1972 1973 1974 1975 1976 1977 1978 1979 1980*

NORTHERN REGION Prudhoe Bay Field

Mining 24.4 27.2 29.9 22.4 21.0 13.0 13.3 13.7 11.8 12.1 Construction

Pipeline 4.4 132.2 135.7 94.0 17.4 10.0 4.8 5.1 2.6 Refining -- --- 0.2 6.1 --- --- --- ---- ---

Pipeline Operation --- ---- --- --- 1.9 1.9 2.0 2.0 2.1 2.2 Refinary Operation --- ---- --- --- 1.9 2.0 2.0 2.1 2.2 2.2 TOTAL NORTHERN REGION 28.8 159.4 165.8 122.5 42.2 26.9 22.1 22.9 18.7 16.5

SOUTHERN REGION (Directly Related to Prudhoe Bay)

Anchorage Mining 14.9 15.4 15.8 14.3 14.7 13.0 11.1 11.5 11.8 12.1 Wholesaling, tools & equip. 1.2 1.3 1.3 1.4 1.4 1.4

Pipeline Construction 5.6 53.8 55.4 57.1 16.8 2.2 2.2 2.3 2.4 Operation --- ---- --- --- 1.9 1.9 2.0 2.0 2.1 2.2

TOTAL SOUTHERN REGION 21. 7 70.5 72.5 72.8 34.8 18.5 15.3 15.8 16.3 14.3

STATEWIDE TOTAL: 50.5 229.9 238.3 195.3 77.0 45.4 37.4 38.7 35.0 30.8

*Payrolls are constant after 1980.

SOURCE: Table IV-B employment. 1970 payroll data by industry from Alaska Department of Labor, Statistical Quarterly, in-f!ated to estimated April 1971 levels. Annual real wage increase computed at 3 percent for all categories.

I-' I-' I-'

I-'

TABLE IV-D I-' Nl

ADDITIONS TO TOTAL PAYROLLS DIRECTLY ATTRIBUTABLE TO ARCTIC SLOPE OIL, PRODUCTION, TRANSPORTATION, PROCESSING

(millions of dollars)

Region and Industry 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980a

NORTHERN REGION Mining 24.4 27.2 29.9 22.4 21.0 13.0 13.3 13.7 11.8 12.1 Construction 4.4 132.2 135.7 100.0 17.4 10.0 4.8 5.1 2.6 Manufacturing -- --- --- ---- 1.9 2.0 2.0 2.1 2.2 2.2 Transportation, communications,

public utilities 5.1 13.1 9.5 4.2 4.3 4.4 3.0 3.1 3.2 3.3 Trade 2.7 9.3 10.6 7.9 3.1 2.1 2.2 2.2 2.3 2.6 Finance, insurance, real estate 0.1 1.8 1.9 1.0 1.0 0.2 0.3 0.1 0.1 0.1 Service 1.8 7.4 7.6 5.9 3.0 2.1 2.1 2.2 2.2 2.3 Government 3.6 6.4 7.6 7.8 6.1 5.2 5.4 4.4 4.5 4.6 Other, Self-employed 2.3 8.2 8.5 6.3 3.9 1.3 .4 1.4 1.5 1.5 -- --- --- --- -- -- -- -- -

Total: 44.4 205.6 211.3 155.6 61.7 40.3 34.5 34.3 30.4 28.7

SOUTHERN REGION Mining 14.9 15.4 15.8 14.3 14.7 13.0 lLl 11.5 11.8 12.1 Construction 5.6 53.8 55.4 57.1 16.8 2.2 2.2 2.3 2.4 Manufacturing Transportation, communications

Public utilities 2.5 6.6 6.8 5.6 4.3 2.9 3.0 3.1 3.2 3.3 Trade 12.6 17.6 18.2 14.9 10.2 4.2 2.2 2.2 2.3 2.6 Finance, insurance, real estate 0.9 1.9 1.9 2.0 1.0 1.1 0.6 0.5 0.3 0.3 Service 3.6 7.4 7.6 6.9 4.0 2.1 .1 1.1 1.2 1.2 Government 5.3 12.9 13.3 11.8 7.1 4.1 :l.2 3.3 3.4 3.5 Other, Self-employed 4.6 10.6 11.0 10.1 5.2 2.7 1.4 1.4 1.5 1.5 -- -- -- -

Total: 50.0 126.2 130.0 122.7 63.3 32.3 24 .. 8 25.4 26.1 24.5 STATEWIDE TOTAL: 94.4 331.8 341.3 278.3 125.0 72.6 59.3 59.7 56.5 53.2

aPayrolls are constant after 1980.

Region and Industry

NORTHERN REGION Mining Construction Manufacturing Transv., Comm., Pub. Uti!. Trad ea Finance, Ins., Real Estate Services Other, self-employed Government: Federal

State/Local TOTAL

SOUTHERN REGION Mining Construction Manufacturing Transp., Comm., Pub. Util. Trade a

TABLE IV-E

EMPLOYMENT DIRECTLY ATTRIBUTABLE TO ARCTIC SLOPE OIL PRODUCTION, TRANSPORTATION, PROCESSING

1971 1972 1973 1974 1975 1976 1977

(monthly average employment - thousands)

1.3 1.4 1.5 1.1 1.0 0.6 0.6 0.2 5.8 5.8 3.9 0.7 0.4 0.2 -- -- -- -- 0.1 0.1 0.1

0.4 1.0 0.7 0.3 0.3 0.3 0.2 0.3 1.0 1.1 0.8 0.3 0.2 0.2

* 0.2 0.2 0.1 0.1 * * 0.2 0.8 0.8 0.6 0.3 0.2 0.2 0.2 0.7 0.7 0.5 0.3 0.1 0.1 0.1 0.2 0.2 0.2 0.1 0.1 0.1 0.3 0.5 0.6 0.6 0.5 0.4 0.4 3.0 11.6 11.6 8.1 3.7 2.4 2.1

0.8 0.8 0.8 0.7 0.7 0.6 0.5 0.3 2.8 2.8 2.8 0.8 0.1 0.1 -- -- -- -- -- -- --

0.2 0.5 0.5 0.4 0.3 0.2 0.2 1.4 1.9 1.9 1.5 1.0 0.4 0.2

1978 1979 1980b

0.6 0.5 0.5 0.2 0.1 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2

* * * 0.2 0.1 0.1 0.1 0.1 0.1

* * * 0.4 0.4 0.4 2.0 1.7 1.6

0.5 0.5 0.5 0.1 0.1 - --

0.2 0.2 0.2 0.2 0.2 0.1 f-'

f-' c.c,

r-' r-'

TABLE IV-E (Continued) ~

EMPLOYMENT DIRECTLY ATTRIBUTABLE TO ARCTIC SLOPE OIL PRODUCTION, TRANSPORTATION, PROCESSING

Region and Industry 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980b

(monthly average employment - thousands)

Finance, Ins., Real Estate 0_1 0.2 0.2 0.2 0.1 0.1 * * * * Services 0.4 0.8 0.8 0.7 0.4 0.2 0.1 0.1 0.1 0.1 Other, self-employed 0.4 0.9 0.9 0.8 0.4 0.2 0.1 0.1 0.1 0.1 Government: Federal 0.1 0.2 0.2 0.2 0.1 0.1 - - - -

State/Local 0.5 1.2 1.2 1.0 0.6 0.3 0.3 0.3 0.3 0.3 TOTAL 4.2 9.3 9.3 8.3 4.4 2.2 1.5 1.5 1.5 1.3

STATEWIDE Mining 2.1 2.2 2.3 1.8 1.7 1.2 1.1 1.1 1.0 1.0 Construction .5 8.6 8.6 6.7 1.5 0.5 0.3 0.3 0.2 Manufacturing -- -- - -- 0.1 0.1 0.1 0.1 0.1 0.1 Transp., Comm., Pub. Util. 0.6 1.5 1.2 0.7 0.6 0.5 0.4 0.4 0.4 0.4 Trade a 1.7 2.9 3.0 2.3 1.3 0.6 0.4 0.4 0.4 0.3 Finance, Ins., Real Estate 0.1 0.4 0.4 0.3 0.2 0.1 Services 0.6 1.6 1.6 1.3 0.7 0.4 0.3 0.3 0.2 0.2 Other, self-employed 0.6 1.6 1.6 1.3 0.7 0.3 0.2 0.2 0.2 0.2 Government: Federal 0.2 0.4 0.4 0.4 0.2 0.2 0.1

State/Local 0.8 1.7 1.8 1.6 1.1 0.7 0.7 0.7 0.7 0.7 TOTAL 7.2 20.9 20.9 16.4 8.1 4.6 3.6 3.2 3.2 2.9

*Less than 50.

alncludes wholesaling of oil and gas field equipment.

b After 1980, employment in each category declines at 3 percent (exponential) annually.

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24Employment in other industries was computed from the breakdown in Table IV-6 on the basis of the regional employment models presented above, and more fully discussed in Alaska Department of Labor, Alaska's Manpower Out­look, 1970's, Publication No. 4, pp. 293-99. Table IV-E (following) shows em­ployment increases by sector attributable directly to North Slope petroleum activity and its transportation, to "backward linkages," i.e., in-state procurement of goods and services by the oil industry and its contractors (including pipeline construction), and to other immediate impacts of construction and operation of the system. This table does not, however, include either the economic impact of state expenditures out of additional revenues or income multipliers resulting from payroll spending.

25The categories used, and the 1967-70 proportions are seen in the first column below. The category "grants, claims and shared revenues" is assumed to be half personal transfer payments and half grants to local governments, which spend on the other categories in the same proportion as the state. The second column shows the proportions after this redistribution has been made (percent).

Personal Services 32.6 38.7 Capital Expenditures 26.3 31.2 Equipment 1.4 1.7 other Expenses 12.5 14.8 Grants, Claims and

Shared Revenues 27.2 Transfer Payments 13.6

26Personal income in Table IV-7 was estimated with a simple multiplier model. The increment in Alaska personal income was regarded as a function of injections of income from the "Prudhoe Bay oil economy," consisting of 100 percent of payrolls (Table IV-D) up to $75 million, and 75 percent of payrolls above that figure; 100 percent of the state's expenditures on personal services and transfers, 50 percent of capital expenditures, and 15 percent of equipment and other expenditures (Table IV-3). Native groups were assumed to spend their incomes (Table IV-4) in the same proportions as the state (and local) govern­ments. (The overall proportion of state and Native expenditures injected into the Alaska economy was 70.4 percent.) The multiplier coefficient applied to these injections was 1.5.

There are no adequate estimates of multiplier or input-output relationships in Alaska's economy. The Alaska Department of Labor (Klockenteger, 1971) has calculated a "Keynesian" employment multiplier for the state of 1.47; Tuck's model (1967) implies an "economic base" value added multiplier of 1.3; and the proportion of personal income estimated to originate in the economic base sector in Table 11-C implies a multiplier of 1.79. This last figure is clearly exces­sive; its inflation results mainly from the understatement of the place of oil and

116

gas in the state's economy by the use of personal income rather than value added.

It is in order to dismiss here the common notion that income or employment multipliers for "basic" industries in Alaska are in the order of 2 or 5 or 7. There is no basis, empirically or theoretically, for such large figures. "Multiplier" con­cepts, whether Keynesian or "economic base" models, depend on the proportion that is respent within the region of funds generated by sales of its products or services outside. Generally, multiplier coefficients are calculated as the reciprocal of the rate of "leakage"-the proportion of increments in those outside funds that leaves the regional income stream through savings, taxes, remittances of wages, interest and profits to non-residents; and imports of goods and services from outside the regions. For instance, if 5 percent of incremental income directly generated by export industries like oil and gas is saved, 20 percent is diverted by federal taxes, 5 percent leaves the region in factor payments to non-resident corporations and individuals, and half the remainder is spent on goods and services from outside, the total rate of "leakage" is 65 percent; this figure implies a multiplier coefficient of 1.54. In view of the small size of Alaska's economy, the high degree of absentee ownership, the transient char­acter of much of its labor force, and its dependence on imports, it is hardly conceivable that total leakages from income increments are less than 65 percent (which implies a multiplier coefficient of no greater than 1.54).

To obtain employment estimates for nonpetroleum-related activity, petroleum-related payrolls (Table IV-D) were subtracted from personal income; the remainder was def\ated to wages and salaries by the proportion of wages and salaries in 1969 Alaska personal income (84.5 percent, Table II-B). Average non-agricultural wages and salaries (inflated at 3 percent per year from 1970 average of $10,824; Alaska Department of Labor, Statistical Quarterly. Popul­ation related to this employment was calculated on the assumption of 8 percent unemployment and 1.75 dependents per member of labor force (1970 urban average, Alaska; 1970 Census of Population and Alaska Department of Labor, Workforce Estimates.)

27 Thomas and Tussing, in press.

28Fryer, 1971.

29Massell and Massell, 1971.

30u is possible that North Slope natural gas will be consumed in local markets in the Interior. It is theoretically possible to entrain quantities of gas in the throughput of a high pressure oil pipeline for extraction at some point further down the line. Such an arrangement might be used to provide the Fair-

117

banks area with North Slope natural gas service, but the technical problems involved are considerable.

More likely but still uncertain is the construction of a small (perhaps 12 inch) pipeline parallel to the oil line on the same right of way. Such a facility would not be feasible alone, but the cost savings from parallel construction and from immediate availability of gas to fuel compression stations along the route may be significant. The price of this natural gas in Fairbanks would probably be con­siderably less expensive than propane, and about on a par with fuel oil for small users,

31A study of petroleum industry wood use on the Alaska North Slope indi­cates that the needs on exploratory sites are expected to level off at about 92 pilings and 18 thousand board feet (MBF) of sawn lumber products per well; sawn timber and lumber needed in development drilling is estimated at about 20 MBF per well (Snyder, 1970). These estimates do not account for the salvage potential of the sawn material. Assuming a 75 percent salvage of lumber and timbers, the net timber demand per well would be only about five MBF. The use of pilings and dimension lumber in construction of the pipeline and its pumping stations is not expected to be significant (F.A. Therrell to Snyder, 1970).

32oetailed by Snyder, 1970.

33one existing transportation route, the Steese Highway, has for some time provided a means of tapping the Yukon River forests, but wood does not flow to the south as a result of this access. Timber located on the Yukon, the Koyukuk, and the lower reaches of the Tanana rivers will remain economically inaccessible, regardless of transport accessibility, until the forests of the railbelt area are more intensively utilized. At that time, alternative supply areas, with cheap stumpage, can sustain a higher transport levy.

34snyder, in press.

35For example, the Joint Federal-State Transportation Task Force (1968, p. 185) referred to, " ... the massive exploration activities and rich finds (some, e.g., copper, awaiting only the availability of transportation for extraction) along the south slope of the mineralized Endicott Mountains ... " The area referred to is traversed by the route of the proposed pipeline access road; gold silver, copper, lead and manganese are known to occur widely and there are a number of active claims in the Chandalar and Wiseman districts (Heiner and Wolff, 1968, pp. 14, 16, 24-28). However, the investigators could find no support either in published literature or among geologists for the extravagent characterization of the area by the Transportation Task Force.

118

36Herreid's (1968) map of comparative lode metal potential in Alaska sug­gests that the route passes through no zone of more than "moderate" potential, and that it increases the accessible area (50 miles or less from ice-free tidewater, a railroad, or the continental highway system) of moderate or better potential in the state by no more than 2 or 3 percent. To the extent that the location of intrusive rocks indicates metallic mineral potential, the U.S.G.S. geological map of Alaska indicates that the road will increase the accessibility (as defined above) of such rocks in Alaska by about 3 percent.

37 Alaska Division of Mines and Minerals, Annual Report; Alaska Construc­tion and Oil Report, June 1971.

38Revenue News, February 16, 1971.

39Greater Anchorage Area Statistical Profile, March 1971. There is un­doubtedly serious double counting in the gross receipts in construction, real estate and finance figures, but they suggest the order of magnitude of the capital movement.

40 Alaska Department of Highways draft impact report of May 6, 1971.

41construction agreement between the State of Alaska and Alyeska Pipeline Service Company, dated June 11, 1971.

42 Agreement for construction of Yukon River bridge between Alyeska Pipe­line Service Company and the State of Alaska, dated June 11, 1971.

43 Alaska Department of Highways draft impact report of May 6, 1971, and information provided by Thomas A. Johnson, administrative director, Depart­ment of Highways, June 10, 1971.

44Ibid. Present maintenance cost for this section averages about $1,950 per mile, excluding snow removal; increase of $1,000 per mile in maintenance cost is projected. (Cost of snow removal is not expected to increase because of higher traffic volume). The state Department of Highways expects that heavy use of existing roads during pipeline construction will lead to their reconstruction after the construction period is over. However, costs incurred in such reconstruction will amount to advancing the scheduled improvement program rather than incur­ring additional costs.

119

45The maintenance figure is based upon inclusion of 60 miles of Spine Road at Prudhoe Bay for a total highway system increase of approximately 470 miles, with an average annual maintenance cost of $3,000 per mile.

46Information on airports is based upon February 2, 1971 memorandum regarding pipeline impact by Public Works Commissioner George W. Easley, and May 27, 1971 interview with Tracy D. Kaldor, administrative director, Depart­ment of Public Works, Juneau.

47May 27, 1971 interview with Tracy D. Kaldor, administrative director, Department of Public Works, Juneau.

48cited February 2, 1971 memorandum by Public Works Commissioner Easley; cost estimate by Charles L. Buck, Division of Communications, Depart­ment of Public Works, May 27, 1971.

49Interview with Charles F. Herbert, Commissioner, Department of Natural Resources, Juneau, May 26, 1971. The state administration requested a $500,000 appropriation for pipeline monitoring for FY 1972. Since construc­tion is not expected to proceed until 1972, the legislature ap.propriated $250,000, an amount deemed sufficient to monitor current activities and pro­vide surveillance during the first half of 1972.

501nterview with Gerald W. Zamber, assistant pipeline project coordinator, Bureau of Land Management, Anchorage, May 20, 1971.

51Information supplied by Commissioner Henry A. Benson and Mrs. Elizabeth Evans, Alaska Department of Labor, June 2, 1971. The $440,000 is to be matched by an equivalent amount in federal funds. The total of $880,000 will fund 20 safety inspectors, necessary clerical staff and supervision, travel, equipment, and other support costs. The department is responsible for enforce­ment of federal and state occupational safety and health laws, and electrical, boiler and pressure, welding and other regulations. It is expected that post­construction expenditures of $110,000 will also be matched by federal funds.

52Interview of May 27, 1971 with James Anderegg, director, Division of Environmental Health; Ronald G. Hansen, chief, Water Pollution Control Sec­tion; and Lloyd A. Morley, chief, Environmental Health Sanitation Section. Funds would cover three sanitarians (in addition to existing district sanitarians at Fairbanks and Valdez) for construction monitoring; one health physicist to monitor use of industrial radiography; one sanitary engineer to monitor water supply, waste disposal, use of pesticides, etc., along pipeline; one sanitary en­gineer at oil fields to provide surveillance of camps, drillsites, and pollution

120

hazards. Post-construction requirements include one permanent sanitarian to be located on the North Slope; one sanitary engineer at Prudhoe Bay; and one sanitarian (ballast water enforcer) to oversee compliance with oil pollution stat­utes at Port Valdez. Cost per position is $30,000-$35,000 per year, including transportation, equipment, and other support.

53Interview with Wallace H. Noerenberg, Commissioner, Department of Fish and Game, May 28, 1971. Funds would cover two persons at Prudhoe Bay, three at Bettles, two at Fairbanks. one at Paxson, and one at Valdez; some of these are now funded from a $200,000 appropriation for surveillance and protection. Additional personnel will be shifted into support functions as may be required.

54Interview with Commissioner Charles F. Herbert, Department of Natural Resources, May 26, 1971.

55captain Gordon R. Nelson, director of administrative services, Alaska Department of Public Safety, interview May 28, 1971. In addition to present personnel at Fairbanks and Delta, two more men will be stationed at Valdez, five at Glennallen, two at Paxson, and four north of Fairbanks. Maintaining one trooper or investigator in remote areas costs about $25,000, including trans­portation and other support requirements.

56Interview with Lief Thorne-Thompson, administrative officer, Division of Public Health, Department of Health and Welfare, May 27, 1971.

57 See technical note 53. Short-term need is seen for at least one sports fisheries and two game management employees, each at a cost of $30,000-$40,000, including support. During the height of construction, ad­ditional personnel may be shifted into impacted areas from other regions; thus, informational and educational work dealing with general safety and preventative protection training in camps will be carried out by staff from Juneau.

58Few, if any, additional costs are anticipated for this purpose, as most lands to which new access is provided by the North Slope road will for some time remain in federal or reserve status.

59 Access to the Brooks Range may bring about increased mining exploration when the land freeze is lifted, particularly if additional roads are built west and east along the flank of the range.

60Interview with Commissioner Herbert. See technical note 54.

121

61Interview with Commissioner Noerenberg. See technical note 53.

62commissioner Benson and Mrs. Evans. See technical note 51.

63The 5,300 increase in the number of dependents from 1971 to 1972 and 1973 (Table IV-9) reflects an increase of a little over 3,000 families. One school­age child is assumed per family. According to a May 27, 1971 interview with state Commissioner of Education Clifford R. Hartman and Deputy Commis-sioner Robert L Thomas. the state $1,500 per year in state-operated schools and $1,000 in city and borough schools, de­pending on size and location of district. Local district effort generally amounts to about $300 per student. The state is projecting FY 1972 per pupil expendi­tures of $910 for Anchorage, $960 for Fairbanks, and $1,350 for Valdez. No investment in capital improvements is projected for the construction impact period, as education officials believe that any temporary increase in enrollment can best be accommodated through double-shifting in existing schools. Where new facilities will be required, they can be provided in the form of relocatable units; these units can be obtained within three to four months at $40,000 each. With space for 25 students, the cost is $1,600 per pupil, or $800 if units are used on a two-shift basis.

64 According to final population counts of the 1970 census, communities along the route have the following populations: Copper Center - 206, Glennallen - 363, Gakona - 88, Galkana - 53, Delta Junction - 703 (including off-base military and dependents). Other places, such as Livengood and Wiseman, did not have a sufficient number of people for separately recorded counts. (Stevens Village, off the main pipeline and road route, had a 1970 population of 74.)

65valdez. Calculations based on Table IV-9 and Table IV-E indicate that Valdez, with a current population of 1,100 can be expected to experience an influx of some 1,000 construction workers during pipeline and terminal con­struction. (The estimate of current population is from Bomhoff, Collie & Klotz, Comprehensive Development Plan for Valdez, Alaska, 1971, and Alaska State Housing Authority, Community Impacts of the Trans-Alaska Pipeline, Ancho­rage, 1971. The 1970 Valdez census population was 1,005.)

While in terms of numbers, the impact of this labor influx could have severe repercussions upon the community, actual impact will largely depend upon the number of persons bringing families to Valdez. The current lack of housing and absence of sufficient mobile home parking facilities will work to make it imprac­tical for any substantial number of dependents to come into the community. Therefore, the temporary influx is expected to consist largely of single workers who will be housed in construction camps several miles removed from the city proper. Due to the activity already experienced in Valdez during unloading,

122

transshipping, and processing pipe, the additional impact upon the local govern­ment is thus not expected to be very severe. The employment peak is expected to last through 1972 and 1973 and then drop to 200 workers in 1976 and 100 thereafter. (It should be noted that community impact estimates here refer to the direct effects of petroleum development, production and transportation, and of construction and operation of the pipeline and related facilities. They do not include those impacts resulting from respending of income from these activities; e.g., spending of state mineral royalties.)

the permanent labor force of around 100 necessary to operate terminal facilities; including dependents, this should bring about a population increase of close to 300. However, the heavy shipping traffic will lead to need for navigational facilities and other special services that will further increase the number of permanent residents. The major unpredictable element is future development of petrochemical industry utilizing Prudhoe Bay crude. In any case, permanent population growth predicated on direct impact of Prudhoe Bay development will not be excessively large and will occur gradually. With proper planning and avoidance of overexpansion premised on intensive short-term construction activi­ties, Valdez will have little difficulty in accommodating long-term impact. (The recent rise and decline of petroleum-related activities at Kenai has been well documented in Alaska State Housing Authority, Community Impacts of the Trans Alaska Pipeline, 1971. Also see section on Seasonal and Cyclical Fluctua­tions in this report. The events in Kenai have provided the basis for a more cautious approach to planning and development on the part of state and local governments.)

The basic planning report of the Valdez Comprehensive Development Plan anticipates a 1976 population of 3,300 if the pipeline is constructed and 2,100 people without the pipeline. The planners look to other economic development taking place in the region and have developed a five-year capital improvement plan for the city based upon current needs and provision of facilities necessary for continuing growth and economic diversification. Major items in the five-year program include: schools · $900,000; water system · $806,000; sanitary sewer­age, including treatment plant · $1,754,000; storm sewers - $407,000; solid waste disposal · $63,000; street improvements · $1,525,000; public buildings, including new fire station and hospital · $2,611,000; parks and recreation · $85,000. Financing sources have not yet been determined, but it is assumed that substantial funds will be obtained from federal and state governments. The proposed improvements are not necessarily related to petroleum development. The planners and engineers consider present dock facilities adequate for some time and anticipate that industry will take care of any special needs that may arise in the foreseeable future. Incidentally, it should also be noted that the Bomhoff, Collie & Klotz planning study for Valdez makes "optimistic" popula­tion projections of 6,200 people in 1981, 9,600 in 1986, and 15,000 in 1991.

123

66Fairbanks. Although most employment during the peak construction per­iod will be in the field, the Fairbanks community will experience a significant increase in workers and dependents. It is estimated that direct and indirect employment in Fairbanks during 1972 and 1973 will be 4,400, related addition­al unemployment will come to 1,400, and new dependents will number about 4,700 for a petroleum-related population of 10,500. These estimates are derived from Table IV-9 and Table IV-E. Projected employment is based on jobs actually to be located in Fairbanks, with a major proportion of service, government and other positions located there. All northern region unemployment is assigned to Fairbanks, as it will be the place of recruitment of workers. Of 8,300 northern region dependents, 4,000 are assigned to Fairbanks, 3,800 to Anchorage, and 500 to other places. In turn, of the 6,600 dependents related to the labor force in the southern region, 700 are assigned to Fairbanks, 4,600 to Anchorage, and 1,300 to other places in the region. If Fairbanks had more available housing and better community facilities, a higher proportion of regional dependents could be located there.

Some proportion of the petroleum-related jobs will be filled by persons presently employed and unemployed in Fairbanks, though a large number of jobs are expected to go to persons new to the state or from other regions. As previously explained, although some of Fairbanks' currently unemployed workers will certainly get some of these jobs, the influx of job seekers will increase the total number of unemployed. The fact that the ratio of dependents to members of the incoming labor force will be lower than that of the resident population has been taken into account in the projections. (See notes, Table IV-9.) Thus, the petroleum-related 1972-73 population of 10,500 needs to be considered a net influx over 1971 of 3,100 persons into Fairbanks during the height of pipeline construction.

During the peak impact period, severe strain will be placed on Fairbanks' public services and facilities. Since local housing is inadequate to accommodate the expected population influx, many people will have to be housed in construc­tion camps and dormitories, trailers and substandard makeshift quarters. Exces­sive crowding and lack of facilities will work to limit the amount of time unemployed job seekers, particularly those with dependents, will spend in Fairbanks.

Within the city of Fairbanks, adequate water, sewer and other facilities will generally be available. The city's strict building codes will, however, force temporary accommodations to be provided in peripheral areas, where facilities are generally lacking. The main public service impact will be on the educational system. Temporarily increased enrollment will be handled through double shift­ing, probably at all grade levels. Increased school operating costs will largely be borne by the state. Local resources for school and other purposes will be greatly augmented through increased sales tax revenues from the high anticipated level

124

of economic activity in Fairbanks. Property tax revenues should also help meet impact expenditures, but may lag because of delays in reassessments and obtain­ing revenues from newly developed properties. Likewise, payments under state revenue sharing may be somewhat slow in responding to population changes; however, since gross population in Fairbanks is not expected to drop excessively upon completion of the pipeline, the total receipt of state revenues will continue higher after the impact period in comparison to current receipts.

The peak construction impact period will be relatively brief. Beginning in 197 4, Fairbanks will experience a decline in 1976, the petroleum-related population is expected to decline to 4,800. (This number was calculated from Table IV-9 and Table IV-E, and breaks down as follows: employment - 1,300; unemployment - 300; dependents - 3,200, includ­ing 400 related to workers in remote locations.) By 1980, the petroleum-related population is projected to be 3,500. (This figure is based on 1,000 employed, 200 unemployed, and 2,300 dependents, 200 of whom are related to workers in remote locations.) While this decline is occurring, possibly reinforced by declines in military population, developments other than those related to Prudhoe Bay operations, may work to sustain or even gradually increase Fairbanks' permanent population. These include, in particular, further petroleum exploration and possible development in other parts of Alaska, and the expansion of tourism, mining and other activities. The higher level of public services and expenditures brought about by greatly expanded state revenues will also have an expansionary impact. If it comes, however, permanent growth will be relatively slow and steady, and will occur at a time when adequate public resources are available. Permanent population increases also need to be viewed in the context of general anticipated population growth. For example, drafts of the Fairbanks Metro­politan Transportation Study Report project "high" population estimates of approximately 50,000 in 1980 and 73,800 in 1990, compared to an actual urban area count of 28,656 in 1969. On the other hand, the study makes preliminary "low" estimates, predicated upon no oil development or other significant new economic activities, of 31,000 in 1980 and 33,300 in 1990. Even this low estimate could conceivably be too high: defense activities are still the mainstay of the local economy, and a total closing of Ft. Wainwright, for example, could result in a 1980 population for the Fairbanks area substantially lower than the 1970 population.

67 Anchorage. Anchorage is expected to experience a population impact of a magnitude similar to Fairbanks, but its relation to existing population and its composition will be quite different. Whereas the total 1972 pipeline and petroleum-related population in the Fairbanks North Star Borough is forecast to be 34 percent of 1970 total population, for the Greater Anchorage Borough it will amount to 12 percent. The total 1972 and 1973 Anchorage population ascribable to Prudhoe Bay development and related activities is projected at

125

12,100, consisting of 3,300 employed, 400 unemployed, and 8,400 dependents. The estimated petroleum-related population increase is 4,600, which can be readily accommodated in the community. (Calculated from Table IV-9 and Table IV-E.) Population forecasts are based on jobs actually projected for Anchorage. Four hundred of 500 southern region unemployed are assigned to Anchorage. Of 6,600 southern region dependents, 4,600 are allocated to Anchorage, as are 3,800 from the northern region. The base for calculating impact percentages in the 1970 Census Anchorage population (excluding those living on military facilities) of 102,994 and the like figure for Fairbanks of 30,618.

While the present housing vacancy rate is only around 3 percent, enough builders have sufficient capacity to provide additional housing to meet projected impacts. Prior to the North Slope lease sale, Anchorage had been growing at a rate of 4 or 5 percent per year. There is little danger, therefore, of overbuilding housing and overdeveloping facilities for the temporary influx of population associated with Prudhoe Bay development. While oil-related future populations are projected at 4,700 in 1976 and 3,100 in 1980, total Anchorage area growth will more than compensate for the projected decline in directly related popula­tion. Composition of 1976 Prudhoe Bay petroleum-related population is pro­jected at 1,200 employed, 100 unemployed, and 3,400 dependents, of whom 600 are associated with workers in the northern region and 600 in the southern region; 1980 population will include: 700 employed, 100 unemployed, and 2,300 dependents including 500 dependents of workers in other parts of the southern region and 400 dependents of workers in the northern region. (These figures were calculated from Table IV-9 and Table IV-E. Information on Anchorage impact absorption capability from Robert E. Sharp, city manager, city of Anchorage, June 14, 1971. Cohort survival method projections of population forecast 175,000-180,000 people in the Anchorage area in 1980 and 210,000 in 1990; from Anchorage Area Metropolitan Transportation Study, 1971.)

126

BIBLIOGRAPHY

Books and Articles

ADELMAN, 1970 Adelman, M.A., "The Alaska North Slope Discoveries and World Petroleum Supplies and Costs," in Rogers (ed.), 1970 (q.v.); also in Adelman (ed.) (q.v.), 1971.

1971 Adelman, M.A. (ed.), Alaskan Oil Costs and Supply, New York: Praeger Publishers, 1971.

ALASKA DEPARTMENT OF REVENUE, 1970 Alaska Department of Revenue, Revenue Sources, 1970-1976, Submitted to the First Session, Seventh State Legislature, 1970.

ALASKA STATE HOUSING AUTHORITY, 1971 Alaska State Housing Authority, Community Impacts of the Trans Alaska Pipeline, Anchorage, April 1971.

ALASKA, STATE OF Alaska, State of, Comments on the Proposed Trans-Alaska Pipeline, Juneau, July 1971.

ALASKA DIVISION OF OIL AND GAS, 1971 Alaska Department of Natural Resources, Division of Oil and Gas, Estimated North Slope Oil and Gas Production Fees, Anchorage, July 1971.

ANCHORAGE AREA METROPOLITAN TRANSPORTATION STUDY

Anchorage Area Metropolitan Transportation Study, Wilbur Smith & Associates, Anchorage 1971 draft.

128

API-AGA, 1969 American Gas Association, American Petroleum Institute, and Canadian Petroleum Association, Reserves of Crude Oil in the United States and Canada, New York, 1969.

BOMHOFF, COLLIE & KLOTZ, 1971 Bomhoff, Collie & Klotz, Valdez Alaska: A Comprehensive

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BOWEN, 1971 Bowen, B., "Defense Spending in Alaska," Alaska Review of Business and Economic Conditions, College, Alaska, July 1971.

BRADLEY, 1971 Bradley, P.G., "Exploration Models and Petroleum Produc­tion Economics," in Adelman (ed.), 1971 (q.v.).

BURROWS AND DOMENCICH, 1970 Burrows, J.C., and Domencich, T.A., An Analysis of the United States Oil Import Quota, Lexington: D.C. Health Co., 1970.

CABINET TASK FORCE, 1970 U.S., Cabinet Task Force on Oil Import Control, The Oil Import Question, Washington: U.S. Government Printing Office, 1970.

CABINET TASK FORCE, 1971 U.S., Cabinet Task Force on Oil Import Control (staff), "Estimated Wellhead and Delivered Costs of North Slope Alaska Crude," in Adelman (ed.), 1971 (q.v.).

CENSUS OF MINERAL INDUSTRIES U.S. Department of Commerce, Bureau of the Census, Census of Mineral Industries, 1963 and 1967.

129

CENSUS OF POPULATION, 1960 U.S. Department of Commerce, Bureau of the Census, Population Census of the United States, 1960, "Alaska: Detailed Characteristics of the Population," and "Migration Between State Economic Areas."

CENSUS OF POPULATION, 1970 U.S. Department of Commerce, Bureau of the Census, 1970 Census of Population, Advance Reports, Alaska, 'Final Population Counts," and "General Population Character­istics."

CHATTERTON, 1963 Chatterton, C.V., "Alaska-Oil and Forget-me-Nots," Journal of Petroleum Technology, May 1963.

ECKIS, 1970 Eckis, R., "Alaska Oil m Domestic and World Markets," in Rogers (ed.), 1970.

ERICKSON, 1967 Erickson, G.K., "The Natural Gas Industry in Alaska," Alaska Review of Business and Economic Conditions, Feb­ruary 1967.

ERICKSON, 1968 Erickson, G.K., "Alaska's Petroleum Industry," Alaska Re­view of Business and Economic Conditions, February 1968.

ERICKSON, 1970a Erickson, G.K., "Alaska's Petroleum Leasing Policy," Alaska

Review of Business and Economic Conditions, July 1970, Also in Harrison (ed.), 1971 (q.v.).

ERICKSON, 1970b Erickson, G.K., "Alaska's Petroleum Leasing Policy: A Crisis of Direction," in Rogers (ed.), 1970, (q.v.).

130

FAIRBANKS AREA METROPOLITAN TRANSPORTATION STUDY

Fairbanks Area Metropolitan Transportation Study, Wilbur Smith & Associates, Fairbanks 1971 draft.

1968a U.S., Federal Field Committee for Development Planning in Alaska, A Subregional Economic Analysis of Alaska, Anchor­age, 1968.

FEDERAL FIELD COMMITTEE, 1968b U.S., Federal Field Committee for Development Planning in Alaska, Alaska Natives and the Land, Washington: U.S. Gov­ernment Printing Office, 1968.

FRYER, 1971 Fryer, M., "The Construction Industry in Alaska," in Federal Field Committee for Development Planning in Alaska, Con­struction Costs and Alaska Regional Inflation, Anchorage 1971.

GRYC, et. al, 1964 Gryc, G.; Eberlein, G.D.; and Gates, G.O., U.S. Geological Survey 's Role in the Investigation and Appraisal of Alaska's Mineral Resources, paper presented at 1964 Conference, Alaska Section, A.I.M.E., College, Alaska, March 19, 1964.

HARRISON, 1971 Harrison, G.S. (ed.), Alaska Public Policy: Current Problems and Issues, College, Alaska: University of Alaska, 1971.

HEARINGS, 1971 U.S. Department of the Interior, Trans Alaska Pipeline Hear­ings, Hearing Transcript and Exhibits, Washington, D.C., and Anchorage, February 1971.

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HEINER AND WOLFF, 1968 Heiner, L.E., and Wolff, E.N. (eds.), Mineral Resources of Northern Alaska: Final Report, Fairbanks: University of Alaska, Mineral Industry Research Laboratory for the NORTH Commission, June 1968.

HERREID, 1968 Herreid, G., "Tectonics and Ore Deposits in Alaska," in Heiner and Wolff, 1968 (q.v.).

KLOCKENTEGER, 1971 Klockenteger, G., "ALPS Construction and Its Impact on the Alaskan Economy," Alaska Department of Labor, Employ­ment Security Division, Research and Analysis Section, Economic Analysis, Vol. I, No. 2, April 21, 1971.

LEVY, 1970a W.J. Levy Consultants Corporation, Economic Consideration for Alaska's Future Oil and Gas Leasing Policy, prepared for the Alaska Legislative Council, New York, February 1970.

LEVY, 1970b W.J. Levy Consultants Corporation, Limitations on Oil Im­ports from Canada, prepared for the Alaska Legislative Coun­cil, New York, March 1970.

LEVY, 1970c W.J. Levy Consultants Corporation, Economic Considera­tions Bearing on Valuation of Alaskan Crude Oil and State Policy on Pipelines, prepared for the Alaska Legislative Coun­cil, December 1970.

LOLL, 1964 Loll, L.M., "Alaska's Petroleum Industry," Alaska Review of Business and Economic Conditions, August 1964.

132

LOVEJOY AND HOMAN, 1965 Lovejoy, W.F., and Homan, P.T., Methods of Estimating Reserves of Crude Oil, Natural Gas and Natural Gas Liquids, Baltimore: Johns Hopkins Press for Resources for the Future, Inc. 1965.

LOVEJOY AND HOMAN, 1967 Lovejoy, W.F., and Homan, P.T., Economic Aspects of Oil Conservation Regulation, Baltimore: Johns Hopkins Press for Resources for the Future, Inc., 1967.

MASSELL AND MASSELL, 1971 Massell, B.F., and Massell, A.P., "High Prices and Construc­tion Costs in Alaska: An Analysis and Some Policy Quide­lines," in Federal Field Committee for Development Planning in Alaska, Construction Costs and Alaska Regional Inflation, Anchorage, 1971.

MILLER, PAYNE, AND GRYC, 1958 Miller, D.J.; Payne T.G.; and Gryc, G., Geology of Possible Petroleum Provinces in Alaska, Washington: U.S. Geological Survey, 1958.

NATIONAL PETROLEUM COUNCIL, 1967 National Petroleum Council, Impact of New Technology on the U.S. Petroleum Industry 1946-1965, Washington, D.C., 1967.

NATIONAL PETROLEUM COUNCIL, 1970 National Petroleum Council, Future Petroleum Provinces of the United States, Washington, D.C., July 1970.

NORMAN, 1971 Norman, C.F., "Economic Analysis of Prudhoe Bay Oil Field," in Adelman (ed.), 1971 (q.v.).

133

PUBLIC LAND LAW REVIEW COMMISSION, 1970 Public Land Law Review Commission, One Third of the Na­tion's Land, A Report to the President and to the Congress by the Public Land Law Review Commission, Washington, D.C.: U.S. Government Printing Office, 1970.

ROGERS, 1967 Rogers, G W , Alaska and Economic and Social Guidelines for the Regional Medical Program in Alaska, Fairbanks: University of Alaska, Institute of Social, Economic and Government Research, SEG Report No. 15, December 1967.

ROGERS, 1970 Rogers, G.W., "Alaska's Economy in the 1960's, Alaska Re­view of Business and Economic Conditions, December 1970.

ROGERS, 1970 Rogers, G.W. (ed.), Change in Alaska: People, Petroleum, Politics, Seattle: University of Washington Press, 1970.

ROGERS AND COOLEY, 1963 Rogers, G.W., and Cooley, R.A., Alaska's Population and Economy, Fairbanks: University of Alaska, Institute of So­cial, Economic and Government Research, 1963.

ROSELIUS AND STEFFENS, 1971 Roselius, R.S., and Steffens, J.H., "North Slope Oils Score High with Hydroprocessing," Oil and Gas Journal, May 17, 1971.

SNYDER, 1970 Snyder, R., "Forest Products Use in Alaska Arctic Petroleum Development," Alaska Review of Business and Economic Conditions, June 1970.

134

SNYDER, in press Snyder, R., "The Alaska Market for Lumber," Alaska Review of Business and Economic Conditions, College, Alaska, in press.

THOMAS AND TUSSING, in press Thomas, M., and Tussing, A.R., "Consumer Prices and Bud­get Costs in Alaska, 1960-1971," Alaska Review of Business and Economic Conditions, College, Alaska, in press.

TUCK, 1967 Tuck, B.H., An Aggregate Income Model of a Semi­Autonomous Alaskan Economy, Anchorage: Federal Field Committee for Development Planning in Alaska, 1967.

TUCK, 1971a Tuck, B.H., Estimates of Alaskan Gross Product by Industry of Origin, (preliminary manuscript) Anchorage: Atlantic Richfield Company, January 1971.

TUCK, 1971b Tuck, B.H., A Preliminary Discussion of the Impact of the Petroleum Industry on the Alaska Economy, Anchorage: Atlantic Richfield Company, March 1971.

TUSSING, 1969 Tussing, A.R., "When the Alaska 'Land Freeze' Ends: Issues of Policy Associated with the Expiration of Public Land Order 4582," prepared for the Office of the Secretary, U.S. Department of the Interior, Anchorage: Federal Field Com­mittee for Development Planning in Alaska, November 1969, Republished in Harrison, ( ed.), 1971, ( q.v .).

TUSSING, 1970a Tussing, A.R., "Who Will Bear the Incremental Costs of the Trans Alaska Pipeline?" and "The Impact of Oil Import Re­forms Upon Alaska's Economy," Anchorage: Federal Field Committee for Development Planning in Alaska, April 1970.

135

TUSSING, 1970b Tussing, A.R., "Issues of Land Use Determination in Alaska: For an Alaska Omnibus Land Act," presented at a Battelle Seattle Research Center Conference, "Land Management in the 70's: Concepts and Models," Seattle, September 10-12, 1970, in Harrison, (ed.), 1971, (q.v.).

TUSSING AND ARNOLD, 1969 and "Eskimo Population and

Economy in Transition: Southwest Alaska," Presented at Fourth International Congress of Fondation Francaise d'Etudes Nordiques, "Development Economique de l'Artique et Avenir des Societes Esquimaudes," Le Havre and Rauen, France, November 23-27, 1969.

TUSSING AND ERICKSON, 1968 Tussing, A.R., and Erickson, G.K., Mining and Public Policy in Alaska, Fairbanks: University of Alaska, Institute of So­cial, Economic and Government Research, 1968.

TUSSING, et. al., 1969 Tussing, A.R.; Fischer, R.W.; and Erion, G., Studies on Alaska Regional Inflation, Anchorage: Federal Field Com­mittee for Development Planning in Alaska, July 1969.

TUSSING, et. al., in press Tussing, A.R., et. al., Land Use and Environmental Policy in Alaska, Fairbanks: University of Alaska, Institute of Social, Economic and Government Research, in press.

U.S. SENATE COMMITTEE ON INTERIOR AND INSULAR AFFAIRS, 1970

U.S. Senate Committee on Interior and Insular Affairs, Alaska Native Claims Settlement Act of 1970, Report to ac­company S. 1830, 91st Congress 2nd Session, Senate Report No. 91-925.

136

Periodicals

Alaska Construction and Oil Report, Seattle (monthly).

Alaska, Department of Economic Development, Industrial Develop­ment Division, Alaska Statistical Review, Juneau (annual).

Alaska, Department of Labor, Current Population Estimates, Alaska, Juneau (annual).

Alaska, Department of Labor, Employment Security Division, Statis­tical Quarterly, Juneau.

Alaska, Department of Labor, Employment Security Division, Wark­force Estimates, Juneau (annual).

Alaska, Department of Natural Resources, Division of Lands, Annual Report, Juneau.

Alaska, Department of Natural Resources, Division of Mines and Minerals, Annual Report, Juneau.

Alaska, Department of Natural Resources, Division of Oil and Gas, Annual Report, Anchorage.

Alaska Industry, Anchorage (monthly).

Greater Anchorage Chamber of Commerce, Greater Anchorage Area Statistical Profile (annual).

Oil and Gas Journal, Tulsa (weekly).

Petroleum Press Service, London (fortnightly).

U.S. Department of Commerce, Bureau of the Census, Current Popu­lation Reports.

137

U.S. Depru:tment of Commerce, Office of Business Economics, Sur­vey of Current Business (monthly).

U.S. Department of the Interior, Bureau of Land Management, Pub­lic Land Statistics (annual).

U.S. Department of Labor, Bureau of Labor Statistics, Annual Costs u{ a Lower a l a Family, San Francisco, 1967, 1969, and 1970.

U.S. Department of Labor, Bureau of Labor Statistics, Consumer Price Index, Anchorage, San Francisco ( quarterly).

U.S. Department of Labor, Bureau of Labor Statistics, Monthly La­bor Review.

University of Alaska, Institute of Social, Economic and Government Research, Alaska Review of Business and Economic Condi­tions.

138