Oil-producing communities should prepare for transition, forum told

Corrections were made to this article Mar. 16.

Communities that have depended economically on coal are facing impacts now that communities that similarly rely on oil and gas will face in the future, speakers suggested at a Columbia University School of International and Public Affairs event.

Such communities, along with county and state governments, should consider partnerships with producers to help retrain employees and others who want to stay, they said during the Mar. 14 discussion at Resources for the Future about public policy reactions to oil-producing regions’ economic volatility.

“We are working now with 22 new governors from the last elections, many of who are trying to develop new energy policies,” said Sue Gander, director of the National Governors Association’s environment, energy, and transportation division.

“Even with states having a lot of oil development, it’s usually heavily concentrated and can be overlooked by policymakers,” Gander said. “Several now are looking at a possible shift in oil’s use as a transportation fuel as they build more vehicle electrification infrastructure.”

Oil firms diversifying

Government planners should consider ways to diversify the economy, build a better social safety net by expanding Medicaid to include displaced oil field workers, and retrain those workers to use their skills in other industries, Gander said.

“There is a real opportunity to have a robust oil economy that doesn’t drive a state’s economy,” Gander said. “Oil companies are diversifying their operations and beginning to get into electrification, although solar and wind employment dropped somewhat when the Trump Administration imposed tariffs.”

North Dakota has had infrastructure needs since crude oil development began to rise dramatically in 2006, Dunn County Comm. Daryl Dukart said. “Our employment situation has changed as activity move from exploration and production. More than 2,300 wells have been drilled since the late 1990s. Today, 65 rigs are at work, up from 19 during the lull in 2014. Technology allows a well to be drilled in 6 days now,” he said.

Dunn County has a population of about 3,200 people with the largest rural city having about 1,400, Dukart said. “There’s a wide range between what we get locally and what the state government receives. North Dakota has a 5% extraction tax, which goes entirely to the state, and a production tax, four fifths of which goes to the state and one fifth of which goes to local communities,” he said.

“Millions, if not billions of dollars have been invested in infrastructure, but the majority of our roads outside of communities are unpaved,” Dukart noted. “Counties in North Dakota face challenges to their school systems. Places like Williston have outgrown the schools that were built early in the boom and are having trouble getting new bonds.”

Demands for medical and family services have grown substantially, Dukart said. “Today, we’re partnering with producers and other organizations to provide these services. We’re also working to protect our Badlands environment,” he said.

‘The roads are collapsing’

Oil-producing counties have to deal with most of the road problems because E&P generally takes place in rural areas away from towns and cities, said Dianne Rahm, a political science professor at Texas State University in San Macros.

“The roads are collapsing. When two 16-wheelers meet each other, they pull to the sides, which starts to destroy the road’s shoulders. That’s why counties are turning to oil and gas producers for more revenue,” Rahm said.

Rahm said at its peak, 1 million b/d of oil was produced from the Eagle Ford shale when prices were $100/bbl. Hydraulic fracturing has been a windfall there because local business taxes have increased: From 2011 through 2014, taxes in Eagle Ford counties rose 70% before starting to fall in 2015, she said.

“Many Eagle Ford producers are wildcatters who aren’t inclined to voluntarily provide more revenue because they’re concentrating on developing the resources,” Rahm said. “But the political power of more incoming revenue is greater than having to pay for impacts from a boom.”

Growth from diversified sources

When it comes to intervening to support producing areas’ economies, the federal government is limited but not completely inactive, other speakers on a second panel noted. “We focus on communities that have high unemployment but try to help those which are facing high demand for services and infrastructure,” said Nancy Gilbert, a senior program analyst at the US Department of Commerce’s Economic Development Administration (EDA).

EDA provides capital for revolving loan funds that help communities, Gilbert said. “Our regional innovation strategies help them look forward to new kinds of development. Our goal is to help them develop their own strategies for economic growth from diversified sources,” she said. “When we make an investment, we try to see whether it aligns with longer-term comprehensive strategies.”

The agency always faces more demand than it can meet because it’s relatively small, Gilbert noted. “But we can provide a catalyst to bring communities together with programs to help them meet their needs. Our programs are aimed at regions because we’re looking at interlocking networks. But we’re concerned about jobs and services for people who live in these communities,” she said.

The US Department of Defense’s Office of Economic Adjustment (OEA) works mainly to bring defense-related industries and businesses with other federal agencies, according to Patrick J. O’Brien, direct of the OEA within the Office of the Undersecretary of Defense. “But we believe the effort needs to start with local communities, which need to come up with plans for a feasible economic future,” he said.

OEA also works with industries to help them become more resilient and work with communities, O’Brien said. “You can’t be successful without brining communities and businesses together. On the Gulf Coast, many have needed to make a transition from a declining shrimp industry to riverboat gambling which has grown,” he said. “Local governments should be able to go to industries and help them develop programs to maintain and improve the local workforce.”

Adele Morris, a senior fellow and policy director for climate and energy economics at the Brookings Institution, said her research on the future of fossil fuels has found that impacts from carbon taxes are amplified in the prices for the fuels themselves. “What’s going to happen in the municipal bond market when it becomes clear how much these communities rely on declining industries. The federal government doesn’t have a good record on this, but it will need to pay more attention because it’s so predictable,” she said.

Contact Nick Snow at [email protected].