COVID-Induced Drop in Oil Demand Continues to Take its Toll

The COVID-induced drop in oil demand has created significant challenges for the skilled workers, the industry, and the states that heavily rely on oil tax revenues. More than 100,000 jobs have been lost this year in the oil and gas sectors.

Now, E&E News reports oil-producing states are bracing for spending cuts as the coronavirus pandemic continues to put a damper on the industry. Less oil production as a result of the lessened demand means a significant decline in tax revenues – which impacts public services from education to roadways to hospitals:

North Dakota’s oil production stayed near a seven-year low in June at 890,000 barrels a month, for instance. That’s a slight increase from May but still about 40% below the state’s output in December.

Oil production tax revenues are 15% lower than forecast for the two-year budget cycle and a whopping 83% lower in July, according to North Dakota budget figures.

The state tucks away most of its oil money in dedicated funds that are reserved for one-time expenditures, Lynn Helms, the state’s top oil regulator, said on a conference call Friday.

But those fiscal buckets “aren’t going to get filled,” he said. “There are water resources projects that won’t get funded, infrastructure that’s not going to get funded.”

North Dakota isn’t the only state facing these problems, however:

In Oklahoma, the Legislature was faced with a gap of $1.3 billion when it met to write its spending plans for the 2020-21 fiscal year, which started in July. Lawmakers were able to avoid cuts to education, but they largely depleted the state’s $1 billion reserve fund, said Paul Shinn, a budget analyst at the Oklahoma Policy Institute, a progressive-leaning think tank.

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In Texas, Comptroller Glenn Hegar (R) told state legislators in July the state will have $110.2 billion to spend in the 2020-21 biennium, down from an estimate of $121.8 billion in October.

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In New Mexico, Gov. Michelle Lujan Grisham (D) called a special legislative session in June to trim the state’s budget. Lawmakers cut about $415 million in general fund spending, leaving $7.2 billion to spend in the fiscal year that started in July.

While the coronavirus pandemic has introduced unprecedented uncertainty and new challenges, it is critical the oil and gas industry is positioned to bounce back after the pandemic subsides, ready to provide affordable and reliable access to the energy that fuels the American economy.