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Director of the Steven C. Agee Economic Research and Policy Institute Oklahoma City University’s Meinders School of Business
In spite of anecdotal evidence and popular refrains that the world is flat, the economic reality is one of accumulating wealth, income and employment in urban centers.
The Interstate 35 corridor from southern Texas through Oklahoma is among the fastest-growing population and employment centers in the nation.
From San Antonio to Oklahoma City, employment and home prices maintained growth longer going into the recession, and recovered more quickly coming out. Strategic investment and amenity development have Oklahoma City on the verge of becoming a regional, innovative jobs cluster with aggressive growth in productivity and income.
At the center of the city’s economic landscape is an expansion and concentration of oil and gas activity. Oklahoma continues to play a key role in the nation’s energy supplies, ranking fifth in oil production, and fourth in natural gas production. Active rig counts across the state are at their highest levels since the recession gave way to recovery.
The Continental Resources relocation, Devon tower completion, SandRidge Energy renovation and Chesapeake campus expansion serve as daily reminders of the industry’s dominance. While employment and income growth are strong in the industry, its future impact is not without concern.
Insufficient pipeline and distribution infrastructure development have left new fields of extraction severely restricted or completely disconnected from their end users. The result has been a domestic crude oil price that is significantly lower than its comparative international Brent crude price, leaving Oklahoma producers selling their product at a discount of nearly 20% relative to global markets.
Likewise, increased natural gas field production combined with an unseasonably warm winter, which drove the working storage of natural gas to its highest level in recent years, have effectively driven natural gas prices to 10-year lows. The stress on the income and balance sheets of producers is undeniable, but the future need not be grim.
Growth in large sections of the developing world will continue to demand access to energy, and technologically sophisticated recovery efforts of unconventional resource fields will supply the market.
The industry paradigm is shifting from exploration to optimal extraction, which is expected to result in an ebb and flow of prices in a tighter bandwidth and steady demand driving growth. The next 10 years will look different than the last 10 years, but they should be a productive 10 years.
Inside our local firms, the occupational mix is evolving to meet the needs of this new paradigm. It is not surprising that growth in this industry has required increases in occupations such as petroleum engineers, geologists and associated technicians.
Not as expected, however, has been the growth in occupations such as accountants, auditors, compliance officers, network administrators, industrial production managers, and property and real estate managers.
The occupational mix inside the doors of a typical energy firm is now sufficiently diverse that it facilitates the expansion of nonrelated industries by ensuring a critical density in the city of highly educated, highly skilled labor. Regional universities are adapting their programs to meet these needs.
This critical mass of activity and impressive amenity development of the city’s center are expected to be key drivers of aggressive economic growth in the decades ahead.
At both the state and local levels, the industry continues to serve as the state’s most defining. A recent study for the Oklahoma Energy Resources Board found that the industry accounts directly for more than 83,000 jobs in the state, with an average labor income (compensation plus benefits) of more than $113,000 per year.
Industry activity is tightly linked to local production in other industries, and generates significant spillover impacts. In total, the industry directly or indirectly accounts for more than $50 billion of our gross state product, and more than 344,000 state jobs.
Fiscal impacts are just as impressive, with the industry accounting for an estimated $700 million in state personal income tax collections, $563 million in state sales tax collections, and another $503 million in sales tax collections to local governments across the state.
Oklahoma City is fortunate to have a robust and expanding energy industry at the center of its economic landscape. Continued efforts to support the industry, while simultaneously exploiting the labor pool they require to attract and expand other industries, will leverage our economic advantage in the years ahead.