NEW YORK (MainStreet) — Plunging oil prices has pushed major oil and gas producers to curtail their projects and slash their budgets, which means thousands of jobs are at risk.
The rapid decline in oil prices have served as a boon to consumers who are saving money each month, but extremely low prices will affect the 9 million Americans who owe their livelihoods to the energy industry among the 32 states which produce commercial quantities of oil and natural gas.
The dramatic drop in oil prices isn’t all good news for the American economy, said Bernard Weinstein, associate director of the Maguire Energy Institute at Southern Methodist University in Dallas. A conservative estimate is that about 33% of the oil and gas extraction jobs, or 65,000 positions, will vanish during 2015. Other industries such as oilfield service companies, manufacturers of drilling equipment and transportation services related to oil and gas extraction will also be hit, although estimates for those jobs are harder to determine, he said. Companies such as Halliburton, Schlumberger and Baker Hughes have already announced huge layoffs, although most of them are likely to be outside the U.S.
Although Texas, Alaska and North Dakota are the largest producers of hydrocarbons, 29 other states also produce commercial amounts of oil and natural gas.
“The geographic impacts of the downturn in the industry will be felt nationally,” Weinstein said. “For example, the Marcellus Shale in Pennsylvania and West Virginia is now the nation’s number one producer of natural gas—both dry gas and natural gas liquids such as ethane and propane.”
Alaska, North Dakota and Texas will face a dramatic drop in revenue in 2015 due to the plunging oil prices, which results in less drilling and more laid-off workers, said Chris Faulkner, CEO of Breitling Energy, a Dallas oil and gas exploration and production company. In Texas, 125,000 direct and indirect jobs could be at risk while North Dakota could see 50,000 to even 75,000 jobs “evaporating” if low oil prices remain “for any length of time,” he said.
“Keep in mind that the oil and gas industry pays some of the highest wages in this country and these jobs are not easily replaceable in another industry,” Faulkner said. “This is not a matter of one of our employees getting laid off from Hilton and getting hired over at Hyatt. These jobs at this pay level are very hard to find outside of the oil and gas industry.”
The long-term effect of extremely low oil prices could produce a “huge price swing in the other direction” when “too many unprofitable producers throw in the towel in the next year or so,” Faulkner predicts.
“Losing too much investment or stimulating demand could create a price shock in future years as the necessary supply growth cannot return quickly once curtailed,” he said. “If anything, removing the OPEC wildcard should raise the hurdle rate required on oil projects, which may require even high prices for higher cost and risky projects.”
The downside to cheap oil is that a fair number of higher paying jobs in the oil field and oil field services industry will be lost, affecting housing and property values, said Patrick Morris, CEO of HAGIN Investment Management in New York City.
“With modest to slow growth in most other sectors, the loss of tens of thousands of higher paying energy sector jobs is going to have a pretty big negative impact,” he said. “The alarming fact is that many of the areas, certainly in North Dakota, that were the biggest beneficiaries, will now be the big losers. Property values will decrease.”
McKinsey, the management consulting firm, estimated in 2013 that the shale oil boom would create 1.7 million new jobs and add up to $690 billion a year to GDP by 2020.
“This is a pretty big number to lose, but over five years it works out to about 28,000 jobs per month that will not be created at this level,” Morris said.
The states which rely heavily on oil and gas tax revenue to contribute to their budgets will now see that money is at “risk and so are programs like education, transportation and intrastate expansion projects,” Faulkner said.
Another downfall of low oil prices limiting production is that the risks of outages increase, he said.
“As prices fall, outage risks rise particularly from financially stressed nations like Venezuela and Nigeria, which cannot maintain their current subsidies,” Faulkner said. “As subsidies are lifted, the risk of civil unrest tends to rise, putting production at risk. With little spare capacity today, the market has few options to deal with a large outage.”
The glut in the current supply of oil will decrease as demand will rise each year, said Morris. As production for some companies starts to rise again and oil prices stabilize, some jobs will reemerge.
“Whether oil stabilizes at $70 or $85 a barrel is nothing that I can forecast precisely, but in that range the employment opportunities in the space will improve fairly dramatically and the outlook for drillers and operators is also pretty good,” Morris said.
Article Author: Ellen Chang, Mainstreet