Until recently, most of us in Texas and throughout the country (unless you had an oil and gas lease) struggled with high gasoline prices. However, a new study entitled, “Are the Energy States Still Energy States?” by Mark Snead, an economist and Vice President of the Federal Reserve Bank of Kansas City, provides more context to the overall interaction between the energy industry and the economy. The study suggests that thirteen energy producing states, (we’ll call this group the “Energy States”), have strong enough energy industries that higher oil and gas prices actually help, rather than hurt, their economies. Mr. Snead’s list of the thirteen Energy States are Alaska, Louisiana, Mississippi, Oklahoma, Texas, Colorado, Montana, New Mexico, Utah, Wyoming, Kansas, North Dakota and West Virginia.
Texas itself is the largest single producer of both oil and gas in the country, and by itself produced 21% of crude oil and one-third of natural gas output in the U.S. in 2008. The same year, the Texas energy industry generated nearly $65 billion in oil and gas earnings, more than half of the national earnings from oil and gas.
Mr. Snead’s study shows that during the recent recession, the Energy States did better than other states that lacked a robust energy sector. Individually, all the Energy States economically outperformed both the nation as a whole and non-energy states as a group. The Energy States experienced faster job growth prior to the recession, entered the recession much later, and have posted better job growth overall since the recession. Between December 2007 and September 2009, non-energy states saw a contraction of employment by 5.7%, compared to 2.8% in Energy States. Since the start of the recession, Energy States were four of the top five states, and seven of the top ten states, in job growth. Energy States North Dakota and Alaska were the top two states in terms of job growth and had the only net job increases throughout the recession! Contrary to general expectations, the economies of the Energy States actually start to decline when gas prices go down. Lower oil and gas prices have the inverse effect on the Energy States compared with non-energy states, where high gas prices can take a severe toll on economic productivity.
Mr. Snead stated that on their own, the increased employment and income produced in the Energy States is not enough to offset the economic effect of high gas prices, but that if the country as a whole increased energy conservation and production efforts, it could make a significant difference. He pointed to two obvious benefits to Americans-more jobs and more money focused on domestic resources instead of foreign oil and gas.
Increased domestic production does not always produce an immediate reduction in gas prices. In general, more supply does decrease price, but Mr. Snead points out that when the US exports its oil, prices are subject to global market factors. Still, some states like Kansas and Oklahoma see studies like this as encouragement to proceed with development of their energy resources, such as the Mississippian Lime formation, which might hold vast oil reserves.
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