Risk & Reward

Slowdown Threatens Energy Boom

By Richard Martin, 12-07-08

How much does the fossil-fuel industry really contribute to the economies of the West?

Not as much as you might think, according to a new study from Headwaters Economics, a left-leaning think tank based in Bozeman that is producing a series of reports on energy and economic issues facing the Rocky Mountain West.

Thanks to diversification (particularly tourism) that has largely occurred since the last energy bust, in the 1980s, Colorado now has a much more robust and varied economy, report the study authors, Ben Alexander and Mark Haggerty.

“By 2005, Colorado’s economy employed more than three million people and generated almost $175 billion in personal income, but only 27,000 of these workers (0.9% of state total) and $4 billion of the personal income (2.3% of state total) was in the energy sector.”

What’s more, Alexander and Haggerty claim, “recent evidence indicates that the natural gas surge on the West Slope [sic] is making it harder, not easier, for other sectors of the regional economy to thrive.”

The report doesn’t completely spell it out but the policy implications are clear: the oil and gas industry has impacts – on the land, on local and state budgets, and potentially on other businesses that rely on sparkling skies and pristine mountain ranges – that far outweigh the actual benefits it delivers, at least in Colorado.

To arrive at this conclusion the Headwaters number-crunchers have to do a bit of contrarian thinking: they produce an income chart, for instance, showing that energy jobs far outpace other types of work in average annual wages (in 2006, the gap was more than $31,000, meaning that oil and gas workers pulled in nearly twice the average income of non-energy jobs). But that’s not necessarily such a good thing: “This has enabled the natural gas industry to compete successfully for labor from other industries and put pressure on other workers as the cost of living increases.”

The risk, they conclude, is of re-specialization and volatility for a region (the report focuses on Mesa and Garfield counties, on the Western Slope) that was decimated the last time the fossil-fuel industry tanked.

At a time when gas prices have been shaved at the pump by more than two bucks, that’s a reasonable caution. The anodyne policy recommendations that wrap up Headwaters’ report, though (the state should “implement standards that protect communities and the landscape while offering a fair shake to energy companies,” county and town governments should “develop master plan guidelines aimed to minimize surface conflicts”) don’t seem as powerful as what’s happening as a result of Gov. Bill Ritter’s efforts to champion diversification in renewable forms of energy development.

Oil and gas industry figures I’ve spoken to say the recession hasn’t appreciably slowed down energy development on the Western Slope, yet, although funding for big-ticket, high-risk projects (like technology to economically extract oil from shale deposits) is certainly going to be harder to come by. Headwaters has shed a helpful light on the reality of revenues and impacts from energy development. How that data should be used is not entirely clear.

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