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Low Crude Prices Bad for the Bakken

Sustained drop in oil prices could mean job losses that hurt Montana's economy

By Tristan Scott

Falling oil prices and lower international demand have cast a shadow over the Bakken oil fields of North Dakota and eastern Montana. As crude prices continue to plank down across the state, economists are reporting a positive effect on consumers and businesses but say that a sustained drop in crude production will hurt the state’s oil and gas industry.

Gas prices have dropped below $2 a gallon in Montana for the first time in nearly six years, which is expected to spark a production drop in the Bakken, resulting in job losses and reduced tax revenue for the state, said Montana Petroleum Association executive director Dave Galt.

“If this thing stays down for awhile, when you roll everything together, you could see a devastating economic impact,” Galt said.

Galt noted that the price of Williston Basin Sweet, about $33 a barrel, is even lower than the $46 a barrel of West Texas Intermediate, the benchmark for crude oil, according to the Rocky Mountain Oil Journal.

“We’re looking at West Texas prices right now, which isn’t good,” he said, noting that production will drop exponentially. “North Dakota has 180 drilling rigs on the Bakken and Montana has 10 rigs, and we can expect to see a 50 percent reduction on both sides of the border. It’s going to be a trail down fast.”

But oil and gas production represents a relatively small percentage of Montana’s economy, which is far more diverse than North Dakota’s. And while Montana workers fled to the Bakken oil fields seeking high-paying jobs during the recession, the economy is now recovering, and with lower gas prices the state is reporting higher consumer spending.

“It’s not to say that Montana’s economy is not impacted by the drop in crude prices, but we will see both positive and negative effects,” Barbara Wagner, Montana Department of Labor and Industry chief economist, said. “Compared to North Dakota, which is much more reliant on the oil industry, we primarily serve the Bakken by providing workers, and so our economy is much more diversified than North Dakota’s, which is a really good thing when we have rapid changes like what we are seeing in the market right now.”

Still, the contributions of Montana’s oil and gas industry are significant.

According to a report for the Montana Petroleum Association, written by Scott Rickard of Montana State University-Billings Center for Applied Economic Research, total contributions by Montana’s oil and gas sector include more than 15,600 Montana jobs paying two-thirds more than the state average.

It’s also contributed a total of $2.3 billion, or nearly 6 percent of Montana’s gross domestic product (GDP), which is equivalent to an average Montana industry of twice or more its size.

In 2013, Montana state and local governments collected nearly $1 million per day in taxes and revenues contributed by oil and gas production industries and the firms and workers that depended upon it. This level of funding would be hard to replace, Rickard reported, and would mean the equivalent of raising state income taxes by one-third, or more than doubling vehicle-licensing fees.

“Oil and gas are significant industries in Montana, and they will likely play an important role in our state’s economy for many years into the future,” Rickard said.

 

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