Tuesday, August 08, 2006

Fear Reaction to BP Prudhoe Bay Closing will be Brief

The news of BP closing Prudhoe Bay oil fields while the firm replaces corroded feeder pipelines will startle the real estate market here, at least briefly. Uncertainty always first triggers a fear reaction. In real estate this means buyers will hold back from the commitment of investing in a home, or making a decision about commercial property.

Then things sort themselves out. In the interim, demand just builds. People die, change jobs, get married or divorced, retire, have kids. Businesses expand, contract, or change mission. Their housing needs and business real estate requirements are still there.

So at some point everyone gets going again, and makes their purchase, or business leasing decision. Those become very busy weeks for us real estate folks.

I would predict the impact of this news from BP will be brief. People will quickly appreciate that economic activity and corporate spending that impacts the Alaska economy is good for the real estate market. BP's new project at Prudhoe Bay will be a very significant reinvestment of capital.

As one of my friends within the oil industry, puts it, "Once the market recovers from the initial shock of the news, I think you'll find that there is going to be significant activity. Replacing the oil feeder lines at Prudhoe Bay is no small task and will require an army of workers together with some high powered help from the Engineering contractors. That together with the rest of the Alaska activity is going to keep the economy strong for some time to come."

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