In the midst of a nation that’s hitting many speed bumps on its way to economic recovery, the question must be asked: How does a state become successful? Why are different cities and different states so different from each other? Detroit, Michigan is filing for bankruptcy, while Houston, Texas is booming beyond belief. The economic situation in Detroit looks so bleak but Houston’s future looks so bright.
Luck is at work in the potential prosperity of a state. Factors from the desirability of a climate to its historical significance can draw tourism and residents. How much energy does the state have? States with abundant energy, particularly fossil fuels, have the amazing opportunity to capitalize on development of these natural resources. Oil and natural gas development creates jobs, boosts support industries, and attracts manufacturing. States without oil, natural gas, or coal must find other ways to attract business.
But many controllable factors are at work as well. The state’s policies could propel it to a rich state status or hinder growth, increasing its likelihood to become a poor state. How business-friendly is the state? High tax rates and burdensome, unpredictable regulations make business owners question if a state is really open for business. If not, they may find themselves closing up shop and moving to another state – states that are opening businesses with open arms.
The upstream side of the oil and natural gas industry, the exploration and production side, is unique in that there must be oil and natural gas for the business to be successful. Thus, independent producers will expand their business (thereby creating jobs and injecting money into state economies) where the energy is. However, for better or worse, energy development does not occur in a political vacuum. States must be open for energy development. They must have stable, working regulatory regimes and predictable policies.
If States Produce It, Jobs Will Come
The U.S. Energy Information Administration’s data on proved oil reserves demonstrates that jobs are created when states are abundant in energy. This week, USA Today highlighted the Top 10 most oil-rich states. As the piece noted, not only is the oil and gas industry the backbone of these states’ economies, development of the energy creates support jobs in all kinds of sectors as well.
A recent PricewaterhouseCoopers study commissioned by the American Petroleum Institute found that the industry supported more than 9.8 million American jobs in 2011. That’s 5.6 percent of our nation’s total employment. Thanks to the shale production that has changed America’s energy outlook, it’s has grown dramatically in the last two years. More than 600,000 jobs have been added in just two years. Each direct job supported 2.8 jobs elsewhere, according to the PwC study. That means that the jobs created from energy production are by no means confined to major oil and gas producing states.
One of the best examples of a state who is doing the right thing by its citizens and welcoming energy development is North Dakota. Because of the Bakken shale play and the state’s open-armed reception of the oil and gas industry, North Dakota’s unemployment rate stands at the lowest in the nation – 3.1 percent in June. Before the advent of hydraulic fracturing and horizontal drilling which unlocked the oil and gas trapped in the Bakken shale, people were fleeing the previously barren, desolate state. Now, stories of signing bonuses at McDonalds and new airports opening up to accommodate business travel demonstrate that energy abundance brings the jobs. This week, Department of Interior Secretary Sally Jewell visited North Dakota to witness the revival going on there and praised the industry for advancing environmentally-friendly technologies.
Another example – you won’t be too shocked to hear – is Texas. But just because this state has historically been a major energy producing state doesn’t mean it shouldn’t get the praise it deserves. Texas is actually undergoing a huge oil and gas revival. From the Eagle Ford shale to the Permian Basin, new technologies have injected new life into West and South Texas. Also, Houston is one of the best places for recent college graduates to find a job – in no small part thanks the industry jobs there.
The Marcellus shale – the most extensive natural gas play in the United States – lies underneath New York, Pennsylvania, and West Virginia (with the Utica shale underneath eastern Ohio). The industry has indeed gone in and developed this energy-rich shale, transforming the economies of all of those states…except New York that is. Why? Because the New York state government has banned the use of hydraulic fracturing in natural gas development. This action virtually forbids the oil and natural gas industry from operating in New York.
Thus, the citizens of upstate New York are struggling to find jobs, but right over the state border, landowners are becoming “Marcellus Millionaires” overnight and manufacturing is returning to Ohio’s Rust Belt. Sadly, the citizens of New York are the victims of horrible, misguided, ideological policy. Without the ban, the industry would have been more than willing to go in and operate in the state of New York, but for most, the future is too uncertain. The geography is the same – it’s the politics that’s different. It’s a stark example of a missed opportunity for energy development, job creation, and economic growth.
California is an interesting case. No one can deny that the state is undergoing troubling economic times. The economy is suffering, taxes are high, and jobs are scarce. People and businesses are fleeing to states like Texas where the economy is booming, taxes are low, and jobs are plenty. However, the Monterey shale is a chance for California’s economic growth. Spanning 1,750 square miles in central and southern California, its potential development holds the promise for thousands of new direct and support jobs.
However, policy challenges loom. Environmental activists in California have been trying to get the California state legislature to ban hydraulic fracturing, seeking to push California towards the path of New York and stop the development of the shale altogether. Recently, the future has looked brighter. The governor has (thankfully) been optimistic about oil and gas development, confirming the safety of hydraulic fracturing; recent bills to ban hydraulic fracturing have failed to win support in the legislature.
As our country struggle to deal with economic challenges in states, one thing should be a no-brainer. As a nation, we must welcome oil and natural gas development and remain open for energy business. The transformative power is evident in states like North Dakota, Ohio, Oklahoma, Texas…the list keeps going and growing. When a state is rich in energy and the states’ policies make it a stable place to invest, the likelihood of becoming a prosperous state is all but certain.