By Kim Mackrael, Katherine Blunt and Dan Frosch
Tumbling oil prices will have broad regional impacts on the U.S.
economy, hitting states far afield from Texas, which was the engine
of a national energy boom during the past decade.
Wyoming, Alaska, Oklahoma, North Dakota and West Virginia all
depend more on mining and energy extraction than the Lone Star
state, according to Wall Street Journal calculations of state
economic output data.
Ohio and Pennsylvania increased their exposures to energy in the
past decade, albeit from low levels, as they jumped on the fracking
revolution that tapped previously unused shale reserves, primarily
for natural gas.
The nation already faces historic declines in economic output
and employment because of the social-distancing measures and
business closures adopted to stem the spread of the novel
coronavirus. Like Texas, other energy-driven states now face an
added blow from plunging oil prices, one that might outlast the
pandemic shock.
"It will also remain a headwind going into 2021 as broader
economic conditions start to improve," said Karl Kuykendall, a
regional economist with IHS Markit, an economic research firm.
The most actively traded U.S. contracts for crude oil -- the
West Texas Intermediate futures for delivery of petroleum in June
-- dropped 43% to $11.57 a barrel Tuesday, a day after some
contracts for the U.S. crude benchmark dropped below zero for the
first time in history. Oil owners were effectively paying others to
take it off their hands and store it.
Pain in the oil industry will likely ripple through other parts
of those state economies. People who lose jobs in energy will spend
less, with spillovers on housing markets, service industries and
state coffers.
Wyoming depends on mining and energy production for 16.4% of all
state economic output, far more than Texas with 7.8% after spending
much of the past three decades diversifying into new industries,
including technology. Alaska is at 15.3% of output, Oklahoma at
11.7% and North Dakota at 10.3%.
"It's bleak in Wyoming. There's no better way to describe it
right now," said Pete Obermueller, president of the Petroleum
Association of Wyoming.
Wyoming had been relying on steady oil revenue to shift away
from coal production, which has been in decline, and also falling
natural gas prices.
Now, Mr. Obermueller said there were just six oil rigs operating
in the state, down from 30 about a year ago. The number could reach
zero by June. He estimated at least 1,700 jobs related to the oil
industry had already been lost.
According to Wyoming's petroleum industry group, taxes and
royalties from oil and gas production contributed about $1.4
billion to the state's coffers in the calendar year 2018, which
amounts to about half the state's annual general fund. The crash
will change that.
A recent memo from the Wyoming Legislative Service Office, a
nonpartisan arm of the Legislature, projected that for the next
fiscal year the price of oil per barrel could fall as much as 70%
below earlier projections and production could decline by as much
as 30%, amounting to a nearly $334 million revenue loss.
"This has been like being in an elevator where the cable snapped
and we haven't hit bottom yet," said Robert Godby, deputy director
of the University of Wyoming's Center for Energy, Regulation and
Policy Analysis.
Alaska doesn't have personal-income or general sales taxes,
leaving it highly dependent on oil-related tax revenue.
Mouhcine Guettabi, an associate professor of economics at the
University of Alaska Anchorage, said the state has already been
cutting its budget for six years and now faces even bigger strain.
It might need to turn to new sources of revenue, he said, such as
an income or sales tax.
Adding to its challenge: The state looks set to lose its tourism
season because of the coronavirus pandemic, which typically brings
in about $1.5 billion dollars in a couple of months, much of that
from cruise visitors.
"The state finds itself in a really precarious place," said Mr.
Guettabi.
A Louisiana survey during the last two weeks of March, when oil
prices were still above $20 a barrel, showed members of the state
oil and gas association anticipated cutting production and
employees by as much as 70% within four months, a reduction that
could cost the state more than 24,000 jobs and $2 billion in
wages.
Louisiana Oil & Gas Association President Gifford Briggs
said the group is in the process of updating those projections in
light of the recent price crash. "Our members are telling me that
they've instructed their field people to begin shutting in
production immediately," he said.
In Oklahoma, production and oilfield services companies have
laid off hundreds of workers in recent weeks. The number of state
rigs in operation has fallen in half to 24 since the beginning of
the year.
"We're not seeing large-scale layoffs as of yet, but I'm afraid
we're just on the cusp of that," said Tom Seng, director of the
University of Tulsa's School of Energy Economics, Policy and
Commerce.
S.I.R. Q,LLC, a small oilfield service company based in
Williston, N.D, typically spends September through May dispatching
crews to drilling sites to heat water used for fracking. Its last
customer has stopped production. The company's chief executive,
Todd Williams, is looking for other ways to deploy the firm's fleet
of trucks. He expects the company can hang on for about six months
with no oilfield work.
"Even if we have our trucks working, maybe I'm going to have to
find another job," he said.
Write to Kim Mackrael at kim.mackrael@wsj.com, Katherine Blunt
at Katherine.Blunt@wsj.com and Dan Frosch at dan.frosch@wsj.com
(END) Dow Jones Newswires
April 21, 2020 18:42 ET (22:42 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.