And the boom goes bust

T he recent plunge in oil prices is great news for almost everyone. Motorists pay less at the pump for gas; airlines save money on jet fuel; retailers are likely to profit from the estimated $130 billion consumers will have to spend on other stuff. The economy should grow a bit faster, too.

But some people were not cheering as prices fell by over half in recent months—starting with those in the industry. Energy-related companies are laying off workers. Rigs are being shut down and new drilling is being postponed.

Times are bound to get tougher in the oil patch. How bad? Prince Alwaleed bin Talal of Saudi Arabia predicted that “we’re never going to see $100 [per barrel prices] anymore.” Lately it’s been going for more like $50.

Michelle Foss, an energy economist at the University of Texas at Austin, told the Midland Reporter-Telegram: “I think people need to look back to the 1990s, with roughly 17 years of lower oil prices following the 1985 price drop, and consider a similar scenario going forward.”

That’s straight out of an oil executive’s worst nightmare. Those were the days when two-thirds of the rigs in Texas ceased operation. It was when oil-centric Houston had the worst real estate market in the nation, with dozens of “see-through” office buildings—empty structures begging for tenants. The city saw 200,000 jobs vanish.

Texas’ state coffers have benefited greatly from taxes on oil and gas production, with that revenue more than doubling over the past decade. Expect it to decline. Other states are even more vulnerable to the oil glut because their economies are less diversified than that of Texas, where energy accounts for just 3 percent of all jobs. Most at risk, one study found, are Wyoming, Louisiana, Alaska and North Dakota.

Louisiana had to cut the state budget by $170 million—and that was when oil was still above $80 a barrel. Wyoming could see its annual revenue fall by more than $100 million. As one Wyoming state legislator put it, “We could be entering a rainy season that could be more than a rainy day.”

What is bad for states like those is good for states like Illinois, which has only a little oil production. But we shouldn’t gloat too much. It takes more than an oil bust to make ours a more enticing place for business.

For that matter, the cheaper the gas, the less it costs to load up the truck and move to Dallas or San Antonio. But at least people here are now seeing there was a benefit to missing out on the oil boom: missing out on the bust.