As we’ve been predicting here for some time now, the sustained low oil prices which have resulted from the domestic energy production surge have started hitting the industry hard as the immutable laws of the free market kick in. We’ve been enjoying great benefits from low gas and heating prices, but manufacturers can’t keep selling oil below the sixty dollar per barrel level and remain profitable because of some of the baseline costs of drilling which don’t change with the market prices. In North Dakota there has been a rapid contraction in extraction activity over the past two months and an area which had been booming for the past seven years has suddenly screeched nearly to a halt. The Atlantic has an excellent, if some what depressing, deep dive piece which explores the real world effect this has had for residents both new and old.
Though many native North Dakotans remembered the oil bust in the late 1980s, this time it was easy to believe that the boom would last. “Your grandchildren’s grandchildren will be working in the Bakken,” Lynn Helms, director of the North Dakota Department of Mineral Resources, said in October. Just over a year ago, North Dakota was producing more than one million barrels of oil per day, more than any state but Texas. This time around, it seemed, things would be different.
But as soon as the price of oil dropped late last year, things began to unravel, and rigs started to close. Of the 192 drilling rigs active in April of 2014, just 94 were open one year later.
Charlie Cogdill, an agent for Halliburton, has been through four oil busts over the course of his career. He describes drilling as “the tip of the spear,” the first part of the industry to be affected by the slowdown. A downturn in oil prices produces a ripple effect that spreads from drilling to fracking, from the workers on the rigs to the small communities where those workers live.
What will happen to those who uprooted themselves and their families to move here? What will happen to the towns that suddenly flourished? What will happen to those who pinned their dreams on the North Dakota oil boom?
The bulls working the rigs were the first to lose their jobs, but the impact has spread like ripples across a pond in a matter of months. Oil field support companies such as Little Dog, LLC, which sells tools, technical equipment and replacement parts to the drillers, have had to get rid of most of their workers. But the effects hit the non-energy sectors across the board with equal vigor. Fast food places were offering well above minimum wage to low skill workers because there just weren’t enough people to fill all the jobs. Now that’s ended. The school system is emptying and the real estate market has plunged as well.
The district has lost 120 students over the course of the year, a 3.4 percent decrease, according to Vince Reep, the assistant superintendent of Dickinson’s public-school system. The loss is in sharp contrast to the steady influx of young students the schools saw for two years prior. “We grew by over 500, nearly 600 children in two years,” Reep says.
The departing children and families left empty homes behind. Dave Bauer, who manages 700 apartments, garages, and houses in Dickinson says that in September of last year, he had barely any vacancies. Then in October, he began receiving notices from residents saying they were leaving the state for reasons related to the oil slowdown. This spring, the vacancies piled up.
North Dakota is coming off of a run where they had the lowest unemployment rate in the nation for seven straight years. (They’ve now dropped out of first place.) While the rest of the country was stagnating with at or above double digit joblessness, at the peak of the crash in early 2009 North Dakota topped out at barely 4%. It was an island of prosperity in the middle of a nation which was otherwise sinking like a stone. People flocked there in droves to restart their lives. But now that process is grinding to a halt, at least for the time being.
The real tragedy here is that this was all avoidable. While we have flooded the zone domestically, there are eager markets awaiting our products across the Atlantic. Unfortunately, there is still a more than forty year old export ban in place on crude oil and other fossil fuel products preventing us from keeping demand at a level where production could remain at peak. Back in May, Lisa Murkowski (R-Alaska) and Heidi Heitkamp (D-N.D.) introduced a bipartisan bill which would have lifted the ban and opened up those markets, bringing additional revenue to American interests and weakening Russia’s control over Europe. But as recently as last week a group of Democrats, led by Senator Ed Markey of Massachusetts, were still pressuring the President to block any such action. One wonders how strenuous Markey would be in his green warrior efforts if it were the residents of Boston who were watching all their jobs dry up and their residents fleeing the state. Simultaneously, Democrats are pushing the White House to increase the royalties charged to energy companies who drill on federal land, driving their break even costs (and ability to hire workers) even higher.
This holding pattern will end eventually. After the rigs are stacked for too great a period of time the supply will fall, demand will remain constant and oil prices will rise to the point where the drillers can go back to work. Unfortunately, the workers and the rest of the residents near the oil fields will have to sweat it out in this stop and go economic environment while they wait for that to happen. This is a problem Congress could fix with one or two quick votes, but the Democrats are digging in their heels and refusing to take action. So, for the 100th time this week I ask yet again… how do these guys keep getting elected?