North Dakota Boom Shaken by Oil Price Collapse

January 12, 2015

Come live the Good Life!

Williston, North Dakota is ground zero for the Shale Oil boom.  In part due to the success of that production, oil prices have collapsed by half in the last few months.  Places like Williston are now threatened with a classic Bust cycle after an expansive, and expensive, boom. Infrastructure and commercial spending stimulated by the boom may result in stranded assets, empty buildings and unemployment, if oil prices do not rebound.

So while a few have made big, short lived pay checks during the fat times, the price in misery for many in the area has been high.  The transformation from quiet, bucolic heartland to bumper-to-bumper ratrace has taken a toll.

Hollywood Interrupted:

In a country with an unofficial underemployment rate of 20%, the tiny railroad whistle-stop of Williston, North Dakota near the Montana border (population 17,000 and spiking) is currently at capacity: There’s not a motel room to be had in the city, housing prices are double what they were a year ago ($300,000 for a two-bedroom home), and the daily onslaught of new arrivals is reduced to living in their cars, RVs, sporadic tent cities or the rapidly proliferating “man camps” – clusters of trailers in an open field that pack in oil patch workers dormitory style, sometimes six to a room.
Access to running water and simple sanitation is so rare that public businesses have had to lock their bathrooms to discourage makeshift sponge baths or the dumping of wastewater. Meanwhile, throughout the region, fast food professionals can make $15 an hour and waitresses start at $25 an hour, with a bonus if they’ll stay in the job for at least six weeks. (Pizza Hut brought in campers-vans just so its counter help could afford to live there.)

Welcome to Potterville. Brought to you by Big Oil.

 

Think Progress:

According to a recent survey from Apartment Guide, the region around the town of Williston, North Dakota has the highest average rent in the U.S., beating out other traditionally expensive areas such as the Washington D.C. and New York City metropolitan regions. A renter in Williston can expect to pay an average of $2,394 a month for a 700-square-foot, one-bedroom apartment — space that would cost $1,504 in New York and $1,411 in the Los Angeles area.

Williston is in the heart of the oil patch — one of the most active oil-producing cities in the second largest oil-producing state in the country. In 2012, the number of oil rigs in the town increased from increased to about 200, a jump from the 70 or so that the town held in 2010. With that growth in oil rigs came a spike in population — the number of people in Williston has more than doubled from 14,700 people in 2010, to up to 33,000 people in 2012. But the housing market in the town hasn’t been able to keep up with the influx of people looking to make their fortunes in the oil field, which explains the inflated rent prices. Pam Winter, Apartment Guide’s Regional Sales Executive for North Dakota, said housing projects are rushing to keep up with demand.

Ecowatch:

Williston, North Dakota, which is in the heart of the boom, grew from 13,000 to more than double today, which meant major invests in housing and infrastructure. The city is currently $300 million in debt and four years behind in paying off that debt, and plunging oil prices could impact its ability to do so. Williston Mayor Howard Krug talked to Peter O’Dowd of NPR’s Here and Now about the challenges his town faces. (interview here)

“We got real big real quick,” admitted Krug, saying that Williston’s population could actually be as high as 37,000 and eventually grow to 60,000. He said that the city’s housing stock has grown from 5,000 to 10,000 units since 2006 and that another 5,000 units are needed.

Asked how Williston would cope if oil prices continue to stay low or even decline, he said, “Oil prices can go even lower and we’ll still be OK here. It will just take us longer to pay for our infrastructure needs. I am optimistic that oil prices are going to go back up. As long as it doesn’t stay down for a long period of time, we should be just fine here in western North Dakota.”

“Let’s say prices do stay lower?” O’Dowd asked. “What sort of tough decisions will you have to make as mayor?”

“The state of North Dakota has enough money to make Williston whole right now,” said Krug, referring to its billion-dollar surplus thanks to the shale oil boom. “Also we’re doing things internally to watch where that oil price goes so if we need to collect some more taxes on user fees and those kind of things that’s the things we’ll do. If we have to make the hard choices of cutting back on personnel or projects that would benefit Williston, then we’ll just spread them out.”

But just in case that fracking thing doesn’t pan out, Krug touted the area’s agriculture.

“We have some of the most fertile farm land in the entire world. We’re number one in lentils. We’re number one in durum.”

Reuters:

CROSBY, N.D. (Reuters) – Just over a decade ago, this sleepy farming community on the fringe of North Dakota’s Bakken shale formation hosted the state’s first horizontal oil well to be hydraulically fractured, or fracked, helping set in motion an economic revolution that shook the world.

Today, Divide County may be another vanguard for the state, this time ominous, as the first to feel the full effect of a collapse in prices that has lopped more than 50 percent off the price of oil since the summer.

Only five oil rigs were drilling in Divide County this week, down from 12 last August, according to state data. While those only account for a handful of the more than 162 rigs still drilling in North Dakota, the drop has been much steeper than elsewhere in the state and could signal trouble across the No. 2 U.S. oil producer behind Texas if prices continue to slide.

A “Coming Soon” sign still marks the spot on a patch of fallow farmland just outside of Crosby, the county seat, where a 200-person “man camp” to house oil workers was set to be built. Late last fall, Timberline Construction Group, an Alabama-based contractor, put the project on hold after an oil company pulled out of a housing contract.

In downtown Crosby, restaurants and bars report fewer rig workers, and foot traffic has noticeably slowed. Two businesses have been put up for sale.

“We realize this is all part of the commodity-price cycle,” said Bert Anderson, Crosby’s mayor. “This is the nature of it.”

No one really knows what kind of oil price is needed to keep the Shale gravy train rolling, but we are going to test that.  What we know is that the boom grew in response to new technologies that made sense in an era of $100+ per barrel oil.  Now prices are half that, and dropping – in part, some say, because Saudi Arabia is willing to continue pumping large volumes of oil even at reduced prices (Saudi oil is much easier and cheaper to extract than “exotic” oils like Shale, or Tar Sands oil.

USAToday has published an interview with a Saudi Prince, in which his Highness tells us that the days of $100/barrel oil are gone.  If you have not read this week’s Weekend Wonk post on this, do so now. I’ll wait.

USAToday:

Saudi billionaire businessman Prince Alwaleed bin Talal told me we will not see $100-a-barrel oil again. The plunge in oil prices has been one of the biggest stories of the year. And while cheap gasoline is good for consumers, the negative impact of a 50% decline in oil has been wide and deep, especially for major oil producers such as Saudi Arabia and Russia. Even oil-producing Texas has felt a hit. The astute investor and prince of the Saudi royal family spoke to me exclusively last week as prices spiraled below $50 a barrel. He also predicted the move would dampen what has been one of the big U.S. growth stories: the shale revolution. In fact, in the last two weeks, several major rig operators said they had received early cancellation notices for rig contracts. Companies apparently would rather pay to cancel rig agreements than keep drilling at these prices.

Q: Will prices continue to fall?

A: If supply stays where it is, and demand remains weak, you better believe it is gonna go down more. But if some supply is taken off the market, and there’s some growth in demand, prices may go up. But I’m sure we’re never going to see $100 anymore. I said a year ago, the price of oil above $100 is artificial. It’s not correct.

Q: You said the price of oil will dampen the shale revolution in America. How?

A: Shale oil and shale gas, these are new products in the market. And we see big ranges. no one knows for sure what price is the breaking point for shale. Wells have a higher production cost. And very clearly these will run out of business, or at least not be economical. At $50, will it still be economically feasible? Unclear. This is a very much developing story.

So, the question arises – if Oil is entering a new era of wild volatility and price swings, at the same time that an expanding suite of alternatives, especially in the transportation area, is coming on line, and renewable energy offers flat and predictable (like, zero) fuel costs for the infinite future – what does that mean for the oil industry?

 

 

Advertisements

6 Responses to “North Dakota Boom Shaken by Oil Price Collapse”

  1. MorinMoss Says:

    “#1 in lentils, #1 in durum” – both of which need water, relatively clean water, not that “produced water” poison that flows back from fracked wells.

  2. cmaxracer Says:

    Now is the time for the State to Triple Wind and Solar Projects, if they want JOBS.

  3. Sir Charles Says:

    Shale gas/oil has been a ponzi scheme from day one.

    Deborah Rogers (economist):

    “We went in and looked at 65,000 shale gas wells in the United States in every formation, and what we found is that – contrary to what industry told us, that these wells would go on for decades and decades to come – they’re actually usually played out about 85% by year 5. Year 5.”

    “And the companies themselves are struggling. We’ve seen two rounds of massive asset write-downs in shales, just since 2009. Even as recently as about a month ago, companies the size of Royal Dutch Shell and Exxon have taken huge hits to their earnings, and it’s from shales. So you know that there’s an underlying problem there. So all this talk about shale providing cheap and abundant energy — it’s not going to be abundant unless they can keep this drilling frenzy up, and it’s not going to be cheap because the companies will simply go out of business if it stays cheap for too long.”


  4. […] North Dakota Boom Shaken by Oil Price Collapse (Climate Crocks): Places like Williston are now threatened with a classic Bust cycle after an expansive, and expensive, boom. Infrastructure and commercial spending stimulated by the boom may result in stranded assets, empty buildings and unemployment, if oil prices do not rebound. […]


  5. All major commodities have dropped, oil, copper, iron ore, grains.


Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: