Analysis: 2020 was tough, 2021 will be better, maybe

The year 2020 was tough, 2021 will be better.

It couldn’t be any worse. But never say never.

The vaccines are here but COVID-19 will still be around. We survey the state’s major industries:

The petroleum industry appears headed for gradual recovery. Some drill rigs laid off earlier this year will go back to work in 2021. Engineering and other work on two big, multibillion-dollar North Slope oil projects will be underway, a sign of confidence.

Investment decisions by companies are on those late next year. If those happen, look for robust building seasons on the slope from 2022 into 2025, which is when ConocoPhillips’ Willow project and Pikka, being developed by Oil Search, are to be producing. Both of these are $6 billion projects in their full buildout, but the initial phases will be about $3 billion spent for each.

Oil and gas lease sales planned in January will meanwhile test the industry’s confidence in Alaska.

One sale is the upcoming Jan. 6 federal lease offering in the coastal plain of the Arctic National Wildlife Refuge, or ANWR. A second is the state’s annual “areawide” sale conducted every year in the central North Slope and state-owned offshore Beaufort Sea waters.

With the ANWR sale, the Alaska Industrial Development and Export Authority, the state’s development finance corporation, said it is prepared to submit minimum bids on all tracts in the upcoming sale, which will be in the coastal plain of the ANWR.

It is highly unusual for a bidder in a competitive lease sale to signal intentions in advance, so it will be interesting to see what effect this has on the sale. The intent of the state authority, AIDEA, is to ensure no tracts are left on the table, that is, not bid on. If AIDEA secures the acreage it would sublease to private companies, it said.

AIDEA is in an advantageous position because the state gets 50 percent of all bids in an ANWR sale, so the effect is to double the impact of any dollars bid by the authority. AIDEA’s board approved $20 million for this, so AIDEA in theory could bid $40 million and the state would get half of that back. One issue is the 50 percent, or $20 million, comes back to the state General Fund and not to AIDEA, which is an independent corporation with its own separate finances. We presume the Legislature would appropriate the $20 million back to AIDEA.

Mining companies should do well in 2021Mining companies generally did well in 2020. Operators of the handful of producing mines generally kept the virus out of the workforce, and good metals prices, combined with low fuel costs, helped offset the costs of strict health protocols followed by mine operators.

The outlook for 2021 is for more of the same. Ore reserves are being added at the Pogo and Fort Knox gold mines in Interior Alaska, and companies exploring high-grade copper deposits in the western Brooks Range, in the Ambler Mining District east of Kotzebue, will resume a major testing program deferred in 2020 due to pandemic.

The Alaska Industrial Development and Export Authority, of AIDEA, the state’s development finance corporation, will conduct planning and engineering for a 150-mile industrial access road connecting the new copper discoveries to the Dalton Highway, a north-south road connecting North Slope oilfields with Interior Alaska. AIDEA will share the cost of this with mining companies.

Seafood industry handled 2020 problemsAnother positive for 2020 is that the commercial fish harvest happened, despite the virus. Costs were up and markets were depressed but harvesters and seafood processors muddled through, a credit to the industry and state and local officials who developed, and stuck with, strict health protocols.

The market outlook for 2021 remains uncertain and there are always surprises in the harvest, but fisheries operators are building on their experience with managing effects of the pandemic on harvesting and processing and appear confident they can handle problems in 2021.

Tourism – still a question markA big question hangs over the 2021 tourism season, however.

Just a few months ago tour operators were bullish about a snap-back in demand that was pent up from the cancelled 2021 season. Cruise companies told Alaska community leaders that bookings for 2022 were strong.

There’s now more caution. More recently cruise companies have been telling community leaders they are hopeful for some kind of 2022 season but no return to normal, at least this year according to people who have listened in on the briefings. Part of the problem is that federal health officials have yet to give a complete green light for cruise ships sail, and what kinds of guidelines are to be followed.

Cruise companies also say the shoreside procedures to be followed when ships do arrive will be different, with passengers segregated for protection in small, protected clusters as they visit communities. Shoreside vendors will have to follow strict protocols, which will raise costs.

This will translate into less spending by cruise ship visitors, which will hit small businesses and municipal governments in lost sales taxes.

Huge flood of federal aid offset lossesOne of the oddities of the state’s current situation is that while there are real hardships being experienced a flood of federal pandemic aid money in 2020 and set to continue in 2022 has pushed Alaskans’ incomes up, a trend aided by a gradual reopening of some businesses.

Federal aid to businesses and individuals in the second and third quarters of 2020, which were affected by the pandemic, more than offsetting losses in personal income, according to recent data from the U.S. Bureau of Labor Statistics. This is likely to continue into 2021 with the arrival of more federal money in the pandemic relief bill agreed on by Congress in late December.

In the second quarter of 2020 there was $4.9 billion in “transfer” income that added to personal income in Alaska, mostly in various forms of federal assistance like unemployment compensation both for individuals and the self-employed. This more than offset an increase of $2.2 billion in lost wages among unemployed Alaskans and an increased $139 million in lost capital income, mostly from lost rents and investments.

The effects of the increased transfer income continued into the third quarter of 2020 although at lower amounts, while the lost wages and capital income continued at about the same rates.

Benefits of the higher transfer payments also showed up in higher total personal income for the third quarter of 2020, at $19.8 billion, compared with $18.6 billion in transfer payments in the third quarter of 2019, six months before the pandemic hit.

The higher personal income among Alaskans in 2020 was pushed up by increased federal transfer payments which totaled $4.36 billion in third quarter 2020 compared with $3.2 billion in third quarter 2019.

What’s also important is that while many Alaskans lost jobs most continued working at their jobs but had fewer places to spend disposable income after retail businesses. restaurants and bars suspended operations and travel and vacations were postponed.

Consumer spending in Alaska September, for example, was only 2.8 percent below pre-pandemic January, while spending on arts, entertainment and recreation was 46.4 percent below January levels.

If Alaskans appeared awash in cash, they have limited options for spending, so where did this money go?

A lot of it went into paying down bills and saving, economists say, which is also a national trend. What this means is that the heavy influx of federal money may actually have limited effect in stimulating the state’s economy through spending, economists say.

However, it also means that in time, when the pandemic is history, many Alaskans will emerge with fewer debts and stronger finances, they say.