Amid Iran war, Alaska’s oil is selling with an extra premium on global markets

The gap between the price of Brent crude and North Slope crude ‘may be the highest value in history’

The Trans-Alaska Pipeline is seen on Sept. 19, 2022, in Fairbanks. Thermospyhons, devices that help preserve permafrost by drawing heat from the ground, protrude above the line. This portion of the pipeline, 450 miles south of Prudhoe Bay, has been transformed into a visitor pullout and is a tourist attraction. (Yereth Rosen/Alaska Beacon)

By James Brooks

Alaska Beacon

The first month of the American war against Iran caused crude oil prices to skyrocket around the world, and the price of Alaska’s oil has risen particularly far.

That rise is making extra millions of dollars available for state services and the Permanent Fund dividend, even as it squeezes the finances of individual Alaskans.

In figures newly compiled by the Alaska Department of Revenue, the average price of a barrel of Alaska North Slope crude was $111.17 in April. 

That’s $8.70 higher than the average price of a barrel of Brent crude, a standard based on oil extracted from Europe’s North Sea. It was also $13.11 per barrel higher than the average price of West Texas Intermediate, a standard based on oil from America’s second-largest state.

“The differential is the largest monthly value since the year 2000 and may be the highest value in history,” said the Department of Revenue, referring to the gap between Brent and North Slope crude.

“The large premium is due to a tightness in the Pacific basin oil market, where ANS is traded. “Most mid-east crude oil is supply constrained and cannot reach major importers like China, Japan, India, and South Korea,” the department said by email. “Uncertainty about shipping and delivery is incentivizing refiners to pay a premium for available crude that does not transit areas with substantial security risks. Crude grades from the Americas are the safest option. Brent primarily trades in the Atlantic basin, where the impacts from the Iran war are not quite as pronounced on a barrel-for-barrel basis.”

The premium now being paid for Alaska crude will have a significant impact if it continues for months. 

Each increase in the average annual price of a barrel of ANS crude is worth roughly $30 million. The exact value varies, because the state collects different amounts of money at different price levels.

While more than half of the state’s general-purpose revenue now comes from the Alaska Permanent Fund’s investments, oil is still the No. 2 source of flexible spending money for the state, and prices — combined with production — cause the amount of available money to flex up and down each year.

Legislative budgeters write the state’s budget with an average crude price in mind for an entire fiscal year, from July 1 through June 30 of the following year.

In the current fiscal year, which ends June 30, the Department of Revenue expects prices to average $75.26 per barrel. 

Thanks in part to the Alaska premium, the average through May 5 was $75.71. Every day that prices stay above that level, the more unexpected money the state will receive.

The state Senate already has a plan for that extra money. The first $96 million would go to an “energy relief” payment that increases the amount of the 2026 Permanent Fund dividend. The next $111 million would be distributed to public schools, and anything above that would go into the state’s principal savings account, the Constitutional Budget Reserve.

While Alaska’s state treasury is receiving a boon from the high prices, legislators don’t expect it to last. In the fiscal year that starts July 1, they’re anticipating significantly lower average North Slope oil prices.

“The Senate operating budget, when combined with spending agreements for the capital budget, balances the budget on $73/barrel oil, with some money left over,” said Sen. Lyman Hoffman, D-Bethel and co-chair of the Senate Finance Committee, speaking about the Senate’s budget proposal on Wednesday.

“The (House’s draft) budget, when combined with spending agreements for the capital budget, has close to a $320 million deficit at $75 a barrel oil,” Hoffman said.

Staff for Rep. Andy Josephson, D-Anchorage and co-chair of the House Finance Committee, said they believe that estimate is accurate. The House’s draft budget includes a Permanent Fund dividend of $1,500. The Senate’s proposed dividend is $1,150, including a $150 energy rebate.

• James Brooks Cascade is a longtime Alaska reporter who lives in Juneau. He previously worked at the Anchorage Daily News, Juneau Empire, Kodiak Mirror and Fairbanks Daily News-Miner. Alaska Beacon is part of States Newsroom, the nation’s largest state-focused nonprofit news organization.