Nov 4, 2019

The U.S. shale boom has set up the risk of busts for local communities

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Reproduced from report from Columbia University's Center on Global Energy Policy and Resources for the Future; Chart: Axios Visuals

The federal government should take new steps to help oil-producing regions navigate boom-and-bust cycles and diversify their economies, two nonpartisan think tanks say in a new report.

Why it matters: The decade-long oil boom has transformed the U.S. into the world’s largest producer. But that growth has increased the number of communities vulnerable to market volatility.

What they found: The report from Resources for the Future and a Columbia University energy think tank suggests two main policies.

  1. Congress should instruct the Department of Commerce’s Economic Development Administration to provide grants to oil producing communities and fund economic diversification for those regions.
  2. The government should create an Oil Volatility Advisory Board to connect oil producing regions with experts from departments like Commerce and Energy, and help those areas take advantage of existing funding opportunities. The authors say this is more politically feasible since it could be implemented by the executive branch alone.

Where it stands: The biggest risk to oil-heavy communities in places like eastern New Mexico and west Texas is becoming overly dependent on oil production, which can crowd out investment in other sectors — leading to a non-diverse economy that doesn't do well long-term.

  • Oil and gas producers shed one-third of their labor force in the three years after prices crashed in 2014, as seen in the above charts.
  • "[In] my personal experience, local officials are not looking to the federal government as a resource to help them navigate these new challenges related to volatility," Resources for the Future analyst Daniel Raimi tells Axios — adding that "a modest effort" at the federal level could make a difference.

Between the lines: "I don’t know if either of those options are likely to be adopted, but given Washington’s celebration of the oil boom, it seems like there may be some appetite," Raimi says. "Our main goal is to simply put the issue on the table."

Go deeper: The shale boom has become a check on the market's long-term volatility

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