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Spotlight on Economics: North Dakota is an Oil State

The decline in rigs means less employment, spending and tax revenue.

By David Ripplinger, Assistant Professor

NDSU Agribusiness and Applied Economics Department

It’s been hard not to notice the rapid drop and then slight rebound in gas prices since Thanksgiving. Of course, there’s no other product in America whose price is broadcast with bright, glowing signs.

Falling gas prices have been good for the American consumer. According to the Energy Information Administration, the average price of regular gasoline in the Midwest on March 9 was $2.34 per gallon, which is $1.20 per gallon less than a year ago. For a motorist who uses 500 gallons a year, that’s $600 staying in his or her pockets on an annual basis. Of course, we are talking American consumers, so the money probably won’t stay in his or her pockets for very long.

While declining prices have been well-received by many, it’s bad news for our nation’s and state’s oil industry.

West Texas Intermediate (WTI), the benchmark for U.S. oil prices, has fallen by half since last summer and is now hovering around $50 per barrel. As gas prices have declined, so has development activity. The North Dakota weekly rig count was down to 105 as of March 6, according to Baker Hughes, an oilfield service company. This is down from 180 in late November.

The decline in rigs means less employment, spending and tax revenue. Lower oil prices mean lower oil extraction and production tax revenue. Many of you are aware of the price triggers that will eliminate the extraction tax rate if WTI averages less than $52.59 for five consecutive months.

A January forecast of oil and gas tax revenue for the next biennium was $4.27 billion, almost half of the $8.32 billion projected in December.

I bring up the issues of consumer spending and tax revenues to support a comparison. A half-million North Dakota motorists spending $600 less in 2015 would total $300 million. The loss to North Dakota’s treasury from low oil prices could be nearly 10 times that amount.

So a thought for North Dakota motorists as you fill up at the pump: Enjoy the savings, but know that up to 10 times that amount in the form of reduced taxes and new spending is being lost.

North Dakota is now an oil state.

NDSU Agriculture Communication – March 26, 2015

Source:David Ripplinger, (701) 231-5265, david.ripplinger@ndsu.edu
Editor:Rich Mattern, (701) 231-6136, richard.mattern@ndsu.edu
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