When Will Oil Employment Recover?

When will employment in Alaska’s oil industry begin to recover?

This question is one that I don’t have the ability to answer, but it’s one that has been on my mind.  You may remember from my June blog post that the Mining and Logging sector, of which Oil and Gas (O&G) is a sub-sector, was one of two sectors in Alaska’s economy that lost jobs between May 2020 and May 2021 (see Figure 1). You might also remember that as of the May 2021 data the sector wasn’t showing any signs of employment recovery.

Figure 1. Percent of Jobs Lost May 2019 to May 2020 vs Percent of Jobs Recovered May 2020 to May 2021

In July, Alaska North Slope (ANS) crude prices averaged $74.24 per barrel.  This price is the highest monthly average since October 2018 and higher than any monthly average price seen in 2020, 2019, 2017, 2016, or 2015.  In fact, before mid-2018, one must go all the way back to 2014 to find higher average monthly prices (and that’s when prices were averaging over $100 a barrel). It’s important to note that this year just the June and July averages are above $70.  Prior months averaged from the mid-$50s to the upper $60s, with an upward trend reflecting a recovering world economy. Thus, while oil prices are currently amongst the highest we’ve seen in the last seven years, they haven’t been this high for a sustained period since 2011- (see Figure 2).

Figure 2.  ANS West Coast Average Spot Prices, 2004-2021

Source: http://www.tax.alaska.gov/programs/oil/prevailing/ans.aspx

So, what about employment?

Despite recent stronger prices, Alaska’s O&G employment is still mired at the lowest levels of the last 20 years. Yes, you read that correctly. O&G employment hasn’t been this low in the Alaska Department of Labor and Workforce Development’s 20-year “modern records.”  However, as they say on the infomercials, “But, Wait There’s More!”  I went back into the 1990-2000 historical excel file, and we can safely say that O&G employment hasn’t been this low in at least 31 years. Monthly sector employment has ranged between 6,100 and 6,400 since last October, and the current reading is 6,200. The prior low across all 31 years was 7,600 employees in January 2000.   The prior lows in the “modern record” are 8,000 in and previously in April 2003. In short, we currently sit roughly 25% below the prior low of the last 20 years (see Figure 3). Less than 2 percent of Alaska wage and salary employment is currently found in the O&G sector.

Figure 3.  Alaska Oil & Gas Employment, Monthly, 2000-2021

Theoretically, prices in the $70+ range should be supportive of increased employment. As noted above, the last time prices were this high was in 2018, and indeed we did see a modest recovery in sector employment from the employment lows caused by the 2014/2015 price meltdown. That event resulted in Alaska losing 6,000 O&G jobs, or about 40 percent of the total, when employment fell from just over 15,000 to around 9,000. In 2018 and 2019, we recovered around 1,000 of those jobs before COVID (and other factors) dropped sector employment by 4,000 positions (equal to another 40 percent of the 2019 pre-loss high).   In total, we’re down 9,000 O&G jobs (60%) since the December 2014 all-time highs. 

 So, when might we see a recovery?

I do not know. My guess, based on the pattern that we saw in 2018/2019, is that industry is likely looking for 6-12 months of sustained price recovery before it starts adding significant employment numbers. On a recent flight to Fairbanks, I sat next to an O&G sub-contractor, and he described their book of business as “slammed/on fire.” Even if we do see a recovery, what will it look like? A recovery like we saw in late 2018/2019 would only bring back 500-1,000 jobs. That’s cold comfort to an economy that’s lost 9,000 of these high-paying jobs over the last six years. 

My best guess is that a true recovery would take us back to the 10,000 jobs we saw in 2018/2019, but not the 15,000 jobs of 2015. However, even that might be a stretch. The role of oil industry in Alaska is changing. BP, which serviced projects worldwide with Alaska staff, has been replaced by HilCorp Alaska who, while skilled at working on aging fields, will not be servicing projects worldwide with Alaska-based engineers. Additionally, the world’s relationship with oil is changing.  We will still consume oil (and lots of it) in the coming decades, but the financial world’s appetite for Arctic exploration is waning. There are less costly and less controversial places to explore. Never say never, but my gut says we should consider a significant non-zero probability that O&G employment has shifted semi-permanently. If we see sustained prices in the $60s and $70s without a significant employment response, it will say something about our long-term future as an oil province. Oil & Gas employment has been an important contributor to our labor market for decades, but it will take a significant shift upward for the sector to regain its historic importance.

Jonathan’s Takeaway:  Our summer of healing hasn’t roped-in the O&G sector just yet. I expect some level of increased employment this year if prices stay $65+ per barrel, but I’m not placing my bets on a full recovery in the sector just yet.

Jonathan King is a consulting economist and Certified Professional Coach. His firm, Halcyon Consulting, is dedicated to helping clients reach their goals through accountability, integrity, and personal growth. Jonathan has 24 years of social science consulting experience, including 17 years in Alaska. The comments in this blog do not necessarily represent the view of employers and clients past or present and are Jonathan’s alone. Suggested blog topics, constructive feedback, and comments are desired at askjonathan@apcm.net.

8/16/21