Falling oil prices hurt Bakken, help consumers
Declining oil prices will hurt the Bakken, but most likely benefit Montana as gas prices fall, economists say.
Montana has mostly watched from the sidelines as the oil boom unfolded in North Dakota. Oil production on the Montana side has actually declined over 10 years to about 690,000 barrels a month, according to Montana Board of Oil and Gas data. North Dakota on the other hand produced 36.6 million barrels in October.
“Production has been really flat,” said Tom Richmond, former director of the Montana Board of Oil and Gas. “There might be 10 oil rigs on the Montana side. If those rigs drill 100 new wells every year, that’s just enough to keep production up there.”
The production differences put the two states on different paths as oil prices, driven downward by global production, fall to nearly half of what they were when the oil boom started.
North Dakota is bracing for big losses in tax revenue, triggered by a rule that suspends oil taxes for two years if oil production drops below $52 a barrel for five months. Last month, the number of oil drilling rigs in North Dakota fell by seven to 180. The state’s general fund takes in $300 million a year. Montana’s general fund receives roughly $100 million.
There is some expectation that the job market in the Montana’s Bakken counties and Billings will soften as oil production declines, said Barbara Wagner, Montana Department of Labor and Industry chief economist.
Unemployment in those areas is extremely low. Richland County, which is at the heart of Bakken oil production in Montana, had an unemployment rate of 2.1 percent in November. Yellowstone County unemployment was 3.5 percent last month. There is no forecast for how many jobs may be lost to the Bakken decline.
What is known is that cheaper gasoline should have an immediate impact on Montana’s economy, Wagner said. Consumers typically use their gas savings to support other businesses. Gas prices, which averaged $3.37 a gallon this year according the U.S. Energy Department, could average $2.59 in 2015.
American households are expected to on average spend $550 less on gasoline next year than they did in 2014, according to the U.S. Energy Information Administration. It could be the first time since 2009 that American households spent less than $2,000 a year on fuel.
Increased purchases should translate into job growth, Wagner said. And though Montana jobs on average pay much less than Bakken jobs -- it takes 2.5 Montana jobs to equal the income of one $100,000 Bakken job -- the number of jobs created should translate into lower statewide unemployment and increased income growth even with jobs lost to a Bakken decline.
It’s too early to determine how much oil production might contract because of low oil prices. Since the price of oil began sliding in October, pundits have repeatedly offered per barrel prices at which Bakken drilling would no longer be profitable. But there is no magic number.
“There is no silver bullet magic price. We tend to think about it as if there is because it’s convenient,” said Bill Whitsitt, a former Devon Energy vice president of public affairs. “Each play and each of the companies investing in them are different.”
What companies are doing now, Whitsitt said, is looking at their basket of investments and deciding which to move forward on based on cost and potential production. Bakken projects might not be the most expensive projects on the list.”