Over the past several years, I’ve had to listen to conservatives talk about “job killing environmental regulations” and how we should be doing more exploitation of fossil fuels. As they put it during the 2008 campaign, “Drill baby, drill!” Yes, if only we would wave aside all those “greenies,” open up public land and offshore areas to drilling, build the Keystone XL pipeline, and get out of the hair of those who want to frack new areas, we would hit the promised land of cheap gas and energy independence. Life would be good, right?
That was what they thought. Then came this year. The world’s demand for oil dropped, while at the same time US domestic production increased and OPEC countries are still pumping the same level. What happened? The price crashed, and oil prices stand at levels not seen in almost 6 years. Cheap gas, and almost “energy independence!” Good times for conservatives, right? Except for a little problem: It’s crashing various state’s economies.
HOUSTON — States dependent on oil and gas revenue are bracing for layoffs, slashing agency budgets and growing increasingly anxious about the ripple effect that falling oil prices may have on their local economies.
The concerns are cutting across traditional oil states like Texas, Louisiana, Oklahoma and Alaska as well as those like North Dakota that are benefiting from the nation’s latest energy boom.
One might note that Republicans generally are in charge of those states. It’s not just that they’re now facing budget deficits, they’re also facing increased unemployment.
Benson is one of thousands of energy workers who have been laid off in recent weeks. In many cases, these were good jobs that were paying healthy wages.
The good times that these states had when oil prices were high came to a screeching halt. Instead of lots of tax money flowing in and low unemployment that they could use to tout how their policies “worked,” and how the rest of the country should follow suit, they’re facing tough times. Budget deficits, not just little ones, big ones. Less employment, and in particular well-paid employment with all the ripple effects that has on any economy. Instead of talking about how good it is to have energy independence and low gas prices, they’re now talking about how good it would be if oil prices went up. That’s because they now face tough times, and they don’t want to deal with that.
In truth, the “boom” was going to eventually followed by a “bust.” The increase in domestic oil production, and even “new sources” all depended on high oil prices, and even at that, it was going to be a short term solution.
With oil prices down, so are profits. Recent analysis by Scotiabank estimates that frackers need $69 per barrel of oil to make money. One oil executive quoted in the Economist said he can cope as long as the oil price is above $50. Another said the industry is “not healthy” below $70.
Businessweek reports that the “dirty secret” of the shale oil boom is that it may not last. Fracked wells are short-lived, with a well’s output typically declining from more than 1,000 barrels a day to 100 barrels in just a few years. New wells must be drilled frequently to maintain production.
In other words, sooner or later – and sooner than conservatives think – that production would hit a point where it would decline or stop. The “boom” would be over, and they’d have to face the reality that the good times have come to an end. None of them seem to want to address that, or have a plan for “what’s next?”
The current price drop is something that’s forcing them to consider that – maybe. But here’s the schadenfreude: They said they wanted increased production and cheap gas prices. The old saying about “Be careful of what you wish for, you might just get it” holds true. They got what they wished for, they got it, and it turns out that it’s pretty lousy for them. The sad part is that they won’t learn from it.