The importance of oil to recent economic performance in North Dakota is well-documented. As the biennial legislative session gets underway the price declines of the last several months are likely on everyone’s mind, and rightly so. This Wall Street Journal article details the difficult decisions facing oil companies in the relatively near future as far as capital spending, dividends, and other expenditures are concerned. This New York Times article discusses the scaling back in rigs across the country due to lower oil prices.
So yesterday I looked at how the oil patch core counties (Dunn, McKenzie, Mountrail, Williams) are responsible for over 50% of the employment increase in North Dakota in the last year (posting). I thought I would look at those particular counties again and compare to the state overall. I looked at the percentage change of employment from year ago levels. This should remove a majority of the seasonal effects in the data though we can never be sure. For September the state was up 2.88% from year ago levels. Williams county was up 6.82% from a year ago, Mountrail county was up 11.54%, Mckenzie county was up 21.62% and Dunn county was up 19.04%. For comparison, the percentage changes for Burleigh, Cass, and Grand Forks counties over the same time period were 1.44%, 1.14%, and -0.99%, respectively. For McKenzie county the average percentage change from a year ago level over the last 12 months was above 20%.
What is the importance of the oil industry to employment in North Dakota? This is a really good question, and one that is not necessarily the easiest to answer. In the last year this same question generated all kinds of arguments about the relative importance of agriculture versus oil in the North Dakota economy. That debate is not the purpose of this post though.
I have not looked at oil production time series for North Dakota in a while so I thought it time to take a look. Oil production, in fact most commodity production, and certainly extractive production, has an interesting cost structure. There are significant fixed cost elements to cover in order to generate profit. Notice in the graph below that while price starts rising around 2000, it was not until around 2005 that production started to rise. As the price continues to rise we see production continue to increase too.
The shale oil expansion began in North Dakota, and the expansion of oil output in the U.S. has been nothing short of revolutionary. However, I think it is time to recognize that the fanciful notion of “energy independence” is less and less likely to happen, if it ever really had a chance. We are surely less dependent on foreign oil as the graph shows, but it is not clear that it is going to go to zero anytime soon, if ever.