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Oil Producing North Dakota Outshines Other States in Personal Income Growth

According to the Bureau of Economic Analysis (BEA), average personal income growth in the U.S. slowed to 2.6 percent in 2013, from a 4.2 percent increase in 2012.[i] The lowest state personal income growth was in West Virginia (1.5 percent) while the highest state personal income growth was in North Dakota (7.6 percent). North Dakota’s growth was almost double the next highest state and almost three times as much as the national average.

To people paying attention to energy policy, these numbers should not be a surprise.  The Obama Administration is attempting to destroy the coal industry and West Virginia is one of the highest producing coal states in the nation. And North Dakota is benefiting from the Bakken shale oil formation, whose production has increased jobs and economic activity and has made North Dakota the second-largest producing oil state in the nation.

BEA Personal Income Data

According to BEA, average state personal income growth was 4.2 percent in 2012 and slowed to 2.6 percent in 2013 due to several factors that were mainly tax-related. They included the expiration of the “payroll tax holiday” (a temporary two-percentage point reduction in the personal contribution rate for social security) at the beginning of 2013 and the acceleration of the receipt of income, especially personal dividends and salary bonuses, into 2012 in anticipation of changes in individual income tax rates for 2013. The expiration of the payroll tax holiday increased contributions for government social insurance, which lowered personal income.

However, states rich in oil and gas extraction had personal income growth that exceeded the national average. Personal income growth in Oklahoma and Texas joined North Dakota in outpacing the national average in 2013 with growth at 3.3 percent (OK) and 3.7 percent (TX), respectively. According to BEA, earnings growth rates in these three states have outpaced the national average not only in 2013, but in each of the four years since the recession.

Oil and Gas Industry Jobs Growth and Wages

According to the U.S. Bureau of Labor Statistics (BLS), the number of new jobs in the oil and gas industry  increased by about 270,000 between 2003 and 2012–an increase of around 92 percent–while the number of total new jobs in the economy as a whole only increased by 3 percent during that period. BLS also reported that the average annual wage (excluding employer-paid benefits) in the oil and gas industry was around $107,200 in 2012, which is more than double the average wage of $49,300 for all workers. [ii]

One of the newer oil-technology plays lies at the Montana-North Dakota border, which includes the western edge of the Bakken formation. In the oil boom towns of Sidney, Montana, and Williston, North Dakota, oil-drilling rigs abound and no vacancies exist in the motels. Employment in Williams County (Williston) increased by 276 percent between 2003 and 2012, and by 65 percent in nearby Richland County (Sidney), where high-paying jobs include petroleum engineers, drilling managers and environmental specialists.

According to BLS data, average wages in the Richland and Williams Counties before the Bakken oil boom in 2003 were about equal to their respective statewide averages. In Richland County, wages averaged $30,000 (91 percent of the Montana average). In Williams County, wages averaged $32,700 (97 percent of the North Dakota average). These counties now have average wages that are 133 percent of Montana’s average and 170 percent of North Dakota’s average. Workers in the service sector that live in the area have also experienced large wage increases. In Richland County, food-service wages have risen to 109 percent of the Montana average when they were at 80 percent before and in Williams County, food-service wages have increased to 146 percent from 97 percent before.

Oil and Gas and Population Growth

According to the U.S. Census Bureau, which tracks population growth between July 1, 2012, and July 1, 2013, average population growth in the United States for that period was 0.7 percent. In western Texas, Midland and Odessa exceeded the average by almost a factor of 5, with each reporting 3.3 percent growth due to the employment boom resulting from oil and natural gas extraction. The oil and gas boom was the cause of half the top 10 fastest-growing metropolitan areas. The city with the largest numeric increase was Houston, Texas, which had an increase of 138,000 people over that one-year period.

The shale oil boom in North Dakota and elsewhere produced even more dramatic growth for “micropolitan statistical areas,” where 10,000 to 49,999 people live. The top-growing micropolitan area was Williston, North Dakota, with 10.7 percent growth, followed by Dickinson, North Dakota. Since 2010, the population in Williston has doubled to more than 30,000 residents. Other quick-growing micropolitan areas in 2013 due to oil and gas extraction are Andrews, Texas, which is north of Odessa; Minot, North Dakota; Weatherford, Oklahoma; and Hobbs, New Mexico.[iii]

The Energy Boom is Likely to Continue

Oil production in North Dakota and Montana in the Bakken and Three Forks formations is expected to average 1.1 million barrels per day this year with about $15 billion spent on drilling and completion of wells.[iv] Oil production in this area is expected to increase to 1.7 million barrels per day by 2020 with the lifetime of a well expected to be 25 to 30 years. And that growth in production is just for oil. Due to lack of infrastructure, an estimated 1500 natural gas wells are being flared (burned off) each day in the area, enough to heat and cool one million homes.[v]

In 2013, Texas, the largest oil-producing state in the nation, produced 3 times the oil that North Dakota produced. Further, Texas has the infrastructure to produce oil and natural gas. In the Eagle Ford Shale formation in Texas, for example, monthly oil production increased from 340 barrels per day in January 2009 to nearly 1 million barrels per day in June 2013, while natural gas production increased from 5.8 million cubic feet per day to nearly 4,000 million cubic feet per day.[vi]  See chart below.

Screen-Shot-2014-04-14-at-9.46

Source: Energy Information Administration

Conclusion

The oil and gas boom resulting from hydraulic fracturing and horizontal drilling technology should make folks in states that have moratoria or have banned the technology envious for those states employing it are seeing wage increases and personal income growth much higher than the national average. Hydraulic fracturing, a 50-60 year old drilling technology, combined with horizontal drilling has opened the door to oil and natural gas extraction and moved the United States toward energy independence. Five years ago, the United States imported, on a net basis, 26 percent of its fuel including coal, natural gas and oil. At the end of 2013, that number decreased to 13 percent and is expected to decline further.

Source: IER

[i] Bureau of Economic Analysis, State Personal Income 2013, March 25, 2014, http://bea.gov/newsreleases/regional/spi/SQPI_NewsRelease.htm

[ii] Wall Street Journal, The U.S. Energy Boom Lifts Low-Income Workers Too, April 4, 2014, http://online.wsj.com/news/articles/SB10001424052702303978304579471391927466968?mod=rss_opinion_main&mg=reno64-wsj

[iii] Bloomberg Business Week, Fracking and Retirees Drive U.S. Population Growth, March 27, 2014, http://www.businessweek.com/articles/2014-03-27/fracking-and-retirees-drive-u-dot-s-dot-population-growth

[iv] The Hill, North Dakota, Montana Oil production Expected to Surge, April 3, 2014, http://thehill.com/blogs/e2-wire/e2-wire/202544-bakken-oil-production-to-surge

[v] Cypress Creek Mirror, Natural gas boom benefiting the local economy, April 7, 2014, http://www.yourhoustonnews.com/cypresscreek/news/natural-gas-boom-benefiting-the-local-economy/article_626dc9fa-8583-566d-ac2d-1f26c8c22c58.html

[vi] Energy Information Administration, Eagle Ford production increasingly targets oil-rich areas, February 10, 2014, http://www.eia.gov/todayinenergy/detail.cfm?id=14951

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