What happens to Oklahoma if the recent boom in oil and gas production propelled by hydraulic fracturing goes bust?
If it’s anything close to the 1980s glut that led to steep price drops for oil, a devastated state economy and an ensuing exodus of people from Oklahoma, then it could be an extremely bad problem. For those of us who lived through the 1980s in Oklahoma as working adults, the sheer thought of another major bust should generate a lot of anxiety if not downright panic.
All this doesn’t even take into account the damage to the environment that would get left behind because of the hydraulic fracturing or fracking extraction process, which environmentalists claim contaminates water supplies and leads to earthquakes caused by wastewater disposal. Who’s going to pay for the clean up? Bankrupt or financially struggling oil and gas companies?
I’m posting about this topic because billionaire oilman and Oklahoma State University alum T. Boone Pickens recently gave a speech here in Oklahoma City in which he said oil production in the United States has doubled in the last 10 years and is creating a glut in the world market, lowering barrel prices. NewsOK.com quoted Pickens as saying, “Now we’re producing too much oil.”
The prices are much higher per barrel than they were in the 1980s and supposedly the state economy is more diversified now, but let there be no mistake that any major slowdown in the oil and gas patch is going to strain the Oklahoma economy and especially state revenues. Crude oil prices have dropped from more than $110 per barrel to approximately $80 per barrel over the last year, and some experts expect the decline to continue.
This has meant gasoline prices have dropped below $3 per gallon in some American cities, including Oklahoma City, but that savings doesn’t boost the overall state economy as much as a booming oil patch.
I don’t want to sound overly paranoid, but here are a couple of points to consider:
(1) It’s my belief and experience as a journalistic observer here that oil and gas companies are notable for short-term management and fiduciary practices detrimental to a stable energy supply and overall energy policy. These companies are like children eating too much candy and then getting sick. By this, I mean oil and gas companies almost always adopt and promote a boom mentality, if the conditions warrant, expanding their employee base and drilling as much as possible as the boom plays out. Once the boom goes bust, which it always does, employees are laid off in droves. In some cases, larger companies swallow up the assets of smaller companies. Of course, the big benefactors of this system are chief executive officers and other high-level members of oil and gas companies, who essentially take their millions of dollars and run, only to resurface again in the next boom. The cycle of boom and bust, which severely affects energy states like Oklahoma, will only stop when the country develops more renewable and cleaner energy supplies and adopts a sensible energy policy about fossil fuels. That seems highly unlikely over at least the next two years.
(2) It will be interesting to note how Republicans will criticize President Barack Obama over the oil glut. (Republicans, of course, blame Obama for everything.) The GOP has constantly depicted the president as anti-fossil fuels yet domestic oil production has doubled during his tenure. Basic facts like these somehow go unchallenged by Democrats or the president himself. Now that there’s an oil glut, with dropping prices, how will Republicans, with their majorities in the House and Senate, try to rescue the oil and gas companies they depend upon for campaign contributions or, to put it another way, their very sustenance as politicians. How many more tax breaks to oil and gas companies will the Republicans try to hand out under the rhetorical subterfuge of “American energy independence”?
The 1980s in Oklahoma, ironically the era of sacrosanct Republican former President Ronald Reagan, weren’t the best of times for the state economy to say the least. No one here wants to experience such a dramatic economic downturn again, but if we do it’s only fitting that the adoption of the nonsensical GOP “drill, baby, drill” slogan as energy policy will have been the main culprit. Thousands unemployed, plummeting state revenues, even more cuts to education and environmental damage on a large scale could be in our near future in Oklahoma. We’ve seen it before here, and it could happen again.