The basics of oil in the ND economy

There is a big deal about understanding the impacts of oil price changes on the state economy given the legislative session underway in Bismarck. I am obviously all for such efforts. To that end I have a few graphs to offer up. Let’s consider the share of the private industry component of North Dakota Gross Domestic Product (GDP). Here is a first picture to consider:

Shares of private industry GDP for agriculture and mining

Shares of private industry GDP attributable to agriculture and mining

As a share of private industry portion of real GDP, mining does not start to increase until around 2005. We can see after the initial increase the actual pace of increase accelerates. This occurs to the point that mining surpasses the share attributable to agriculture, by a significant amount too.

Common sense tells us that a large share, if not almost all, of the increase is due to the surge in oil production in North Dakota. Can we refine these numbers even further? In fact, we can.

Oil & Gas extraction and mining support as a share of private GDP.

Oil & Gas extraction and mining support as a share of private GDP.

One of the more interesting things from the BEA data is that the share of activity due to actual extraction is increasing far less than the overall amount attributed to mining. In fact, the largest share is due to support services (think exploration). Why is this important?

The price of oil is obviously a big determinant in whether or not you will pump oil out of the ground and sink more wells. Here is a link to a great article from Fortune that gets into the price and pumping issues related to fracking. It is clear from this data there will be potentially even greater effects felt in related fields with related employment. Still to be considered will be potential income/employment effects due to these types of changes.

Now these data stop in 2012 so there is a chance there has been a change of late, but this seems to be a significant gap to overcome in the span of a few years. What should people take away from this? Oil is an important sector in the North Dakota economy right now, no doubt about it. When oil prices fall there will be impacts on the rigs and pumping of the firms, but we may see even bigger effects, and potentially earlier effects, from the support related fields.

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