Painful transition for energy states as oil revenues evaporate
From Alaska to Louisiana, the great American oil boom is coming to an end.
For states that are top energy producers, the crash in oil prices has brought a major economic hangover, a loss of tax revenues and big budget shortfalls.
That’s a swift reversal from the historic windfall produced by a decade-long U.S. energy boom. A technology-driven revival of an industry that been in decline for decades sparked a surprise surge in hiring, tax revenues and outside investment that helped lift the economies of states with big deposits of oil and natural gas.
“It really generated a good stable economy with good income growth for workers and good revenue growth for state governments,” said Steve Cochrane, an economist with Moody’s Analytics. “Now it’s all kind of turned on its head.”
Now, the impact of the crash in oil prices is being felt unevenly in the U.S. oil patch, a collection of sprawling oil and gas fields that cross state lines. To better follow the impact, CNBC is producing a series of reports looking at which states are feeling the sharpest pain from the drop in lower oil prices.
Of the major energy producers, Alaska, North Dakota, West Virginia and Wyoming have slipped into recession, according to Moody’s. (West Virginia and Wyoming — both top coal producers — have also been hurt by a drop in coal production and prices.) The economies of Louisiana, Oklahoma and New Mexico have stalled — but not yet headed in reverse. Only Texas has continued to see its economy expand in all but a few energy-dependent metro areas, according to Moody’s.
The varied fortunes of these energy-reliant states has been heavily influenced by a range of factors, from how heavily they rely on oil and gas taxes to how well they’ve diversified their economies away from oil and gas production.
The Last Frontier
Among top oil producers, Alaska has been hit hardest, by far, from the plunge in crude prices two years ago, largely because it has relied so heavily on oil taxes for so long.
Though the first Alaskan oil well was drilled in 1898 — some six decades before statehood — the modern oil boom in the so-called Last Frontier dates to the mid-1970s when huge reserves were found off the North Slope. The discovery set off a gold rush that drew workers from across the country and tens of billions of dollars of investment in infrastructure, including an 800-mile pipeline crossing the state. In 1977, annual production doubled, to more than 200 million barrels. The next year, it more than doubled again.
The result was a gusher of wealth, much of it captured in the state’s permanent fund, a pot of gold created to share the new-found oil riches with the people of the state. Since 1982, every eligible resident has received an annual check of as much as $2,000, their share of the bounty derived from the state’s natural resources. Through 2014, some $21 billion has been paid out directly to Alaskans.
Long before oil prices crashed in 2014, though, that source of that wealth began declining. Alaskan oil production has been shrinking since it peaked in 1988 at two million barrels a day; by last year it had fallen to less than a quarter of that.
Now, with oil prices roughly a third of their peak two years ago, the loss of oil revenues has hit the state hard.
Though it ranks fourth among oil-producing states, as recently as 2012 nearly 75 cents of every dollar of the state’s revenue came from oil, according to Moody’s. Last year, that share had fallen to 28 percent.