Given the major drop in the price of crude oil, states that are dependent on the revenue from oil and gas, such as Texas, Alaska, and Louisiana, are now preparing for the effect the falling prices will have on their local economies.
The Advocate reported that oil prices, which dropped from $106 a barrel in June, to $55.73 a barrel in December, experienced a “47 percent price decline in less than six months.”
According to Reuters, this major drop in crude oil prices was met with “at least a dozen U.S. energy companies” being forced to cut spending plans for next year, which is “bad news for states that rely on jobs, wealth and tax income they provide.”
The Associated Press reported that the Governor of Alaska, Bill Walker, “halted new spending on six high-profile projects,” on Friday, citing the state’s “$3.5 billion budget deficit, which has increased as oil prices have dropped sharply.”
According to the New York Times, in Texas, after “2,300 oil and gas jobs” were cut in October and November, Hercules Offshore in Houston has announced that it will “lay off about 300 employees who work on the company’s rigs in the Gulf of Mexico” by the end of December.
Reuters reported that following the layoffs, realtors in Texas are “predicting a sharp decline, up to 12 percent, in home sales next year.”
According to RT, Louisiana’s 2015-16 budget will be “$1.4 billion short, with 162 state government positions already eliminated and more to be discontinued.”
Dale Doucet, an energy trader for Brock Investor Service in Lafayette, Louisiana, told The Advocate that the price of oil could fall further, but he predicts that the cut in production, along with the rising world demand, will raise prices in 2015.
“When you go into these pricing extremes, it really stresses the system and exposes vulnerabilities,” Doucet said.
Kristy Nichols, the chief budget advisor to Louisiana Governor Bobby Jindal, said that when creating future budgets, they are re-examining everything in the oil and gas industry.
“Our approach to the 2016 budget includes a full review of every activity in every agency’s budget and the cost associated with them,” said Nichols. “Nothing is off the table at this point.”
While the current decline in oil prices has had a major effect, the New York Times reported that the situation today “could have been far worse if oil-producing states had failed to diversify their economies,” following the last major drop in the 1980s.