Why Surging Energy Prices Won’t Save America’s Oil ‘Boom Towns’ From Becoming ‘Ghost Towns’
As we have pointed out time and time again over the past year, the US is finally beginning to understand the true cost of the Democrats’ green agenda (an agenda that is also being set by the ruling elites of Wall Street – just ask Larry Fink) as surging energy prices squeeze those consumers least able to afford it.
And now, with President Biden pledging to ship more LNG to Europe, one would think that the American energy industry would be booming again.
But as Bloomberg point out in a recent piece about the existential risks faced by America’s energy ‘boom towns’ (which are on the verge of becoming ‘ghost towns’), this couldn’t be further from the case. Across the Permian Basin, small towns are contemplating the long-term consequences of diversifying away from the fossil fuel industry that has sustained them for decades, with many worried that the green revolution will only further the exodus of workers and people from these communities, as the jobs created by the green energy boom fail to even come close to replacing those lost by the fossil fuel industry.
Energy prices are soaring now after years of capex under-investment which left the American energy industry to ossify while being starved of capital by Wall Street. This has created structural issues that will make ramping up investment once again more difficult.
The imminent “green revolution” has made firms reluctant to invest too heavily, lest the war in Ukraine comes to a sudden end, and prices quickly ease lower. And fewer worker are willing to re-skill for jobs that might end up disappearing a few years later.
In the past, periods of low capex across the energy industry have been followed by surging cash flows. But there are serious structural obstacles that could prevent this cycle from playing out again today.
To be sure, some locals – many veterans of the energy industry – aren’t ready to give up the fight just yet. While the younger generation remains fixated on the need to “diversify” the local economy away from fossil fuels, the old timers remain skeptical – and with good reason.
In its latest piece on this trend, Bloomberg interviewed Morse Haynes, a local official in charge of economic development in Andrews, Texas, explained that energy his the backbone of his community. And he believes this will remain the case for decades to come.
Recent volatile swings in the oil market are a stark reminder that even as prices rally, the next bust could be just around the corner. The current geopolitical situation makes the contradiction even more acute. If Russia’s invasion of Ukraine means prolonged disruptions for energy supplies in the coming months, the world will become even more dependent on U.S. oil. But in the bigger picture, governments across the globe have pledged to wean themselves off of fossil fuels, and some analysts say peak oil demand could become a reality within a decade.
For America’s small oil communities, getting the timing right can mean the difference between losing out on the last great boom and turning into a ghost town. At stake is not only hundreds of thousands of U.S. jobs, but also more than $138 billion generated annually through tax revenues for localities, states, tribes, and the federal government.
Morse Haynes, 63, runs economic development for Andrews, Texas. Having spent all his life in or around the Permian Basin, Haynes knows what the industry means for his town of almost 15,000, and he’s not ready to move on.
“So much of our community, that’s just who we are. All these businesses, they’re here because of the oil field,” Haynes said. “We still think fossil fuels will be around a while.”
But on the other end of the spectrum, we have Haynes Apple-watch-sporting son, who has a drastically different vision for his community that’s built around “future proofing” it by bringing in more renewables.
But Morse’s son, Heath Haynes, sees things differently. He followed in his father’s footsteps and is also in charge of economic development for a small West Texas town. But unlike dad, Heath has his eyes farther down the field.
“We have conversations like that all the time, going back and forth,” Heath, 29, said. Sporting an Apple watch and grey dress slacks, Heath doesn’t dress much like a cowboy. His eyes light up with anticipation when he talks about wanting to “future-proof” his community of Denver City, named for a petroleum company, not the capital of Colorado. It’s impossible to miss the scores of rusty crude wells scattered around town, even bumping up against City Hall – at sunset, the bobbing heads of the pumpjacks are silhouetted against the horizon, like a herd of grazing donkeys on the open plains.
The younger Haynes sees potential for investment in ESG projects like wind farms. Of course, those who endured the 2021 Texas cold snap that killed dozens in the state as frigid temperatures wreaked havoc on the state’s energy infrastructure should remember all too well how this strategy has worked out so far.
To the old guard, focusing on renewables at the expense of oil and gas is tantamount to “staring into the abyss”.
For Heath, thinking about transitioning into solar or wind, and planning for the day when oil no longer supports these corners of the U.S. can feel a bit like an adventure. For his father, Morse, it’s more like staring into the abyss.
“It’s him kind of talking about, ‘Well, that’ll never happen, we’re never gonna do that,'” Heath said of his father. “I’m like: ‘There’s opportunity out there.'”
And as the fossil fuel industry tries to rally for ‘one last boom’, the severity of the last bust has created structural inefficiencies, one of the most vexing being a shortage of labor.
For a century, oil has basically done right by these regions (the occasional bust not withstanding). And in the immediate future, things still look prosperous.
Houston oil giant Halliburton Co. is forecasting a multi-year boom, and many companies have said hiring enough workers has been a challenge. Disruptions for wind and solar power mean the energy transition has run into its first big setback. And even the administration of President Joe Biden, who campaigned on promises to combat climate change, has signaled it won’t get in the way of companies that want to increase crude production right now.
In the midst of a boom, it’s hard to see why any city should start turning its back on oil. But that short-sightedness could leave these communities destined to encounter the fate that befell coal towns years earlier, with the global energy transition threatening to blindside this swath of the U.S. with a huge and dramatic bust.
Out of all the major energy-producing states in the US, Texas has the most to lose from a long-term transition away from the fossil fuel industry. The ESG revolution being planned by Fink and a coterie of Wall Street banks (who are now reluctant to lend to any firm that doesn’t meet their stringent ESG standards) could deprive the state of billions of dollars of tax revenue a year.
But it’s Texas that stands out as having the most to lose. Even after rapid diversification in its economy over the last several decades, the state still generates almost $15 billion annually from fossil fuels, the most in the nation. That’s about 7% of all state and local own-source revenue, the Resources for the Future data show.
Put another way, if oil goes away, it would leave Texas with gaping holes for funding that would normally go to schools, hospitals and public services. By 2050, a worst-case scenario could mean an annual budget shortfall of $5.8 billion for K-12 education alone, according to research from Rice University’s Baker Institute.
Already, the Biden Administration’s policies are contributing to these imbalances by making it difficult to recruit workers, who fear that the administration has no intentions of keeping its promise that no jobs will be lost during the transition away from fossil fuels. Demand for these workers is higher than it has been in years. And yet, headcount in the US oil patch still remains about 40% below 2014’s peak levels at 315,700 workers today.
To prevent their communities from transforming into ‘ghost towns’, older locals like the elder Haynes – who remembers the energy crash of the 1980s all too well – have come to accept that the renewables industry could create a potential lifeline, even if he doesn’t agree with the younger generation’s view that the local economy must inevitably transition away from fossil fuels. The elder Haynes fears that the ‘green revolution’ could eventually make the 1980s bust look mild by comparison.
“All of a sudden there’s 2,000 less people,” he said. “That town got run down.”
But one major problem with renewables is that they just don’t create the number of jobs that fossil fuels do – even if many of the communities dominated by the fossil fuel industry are also among the most competitive areas for renewables production.
As Wall Street uses the war in Ukraine to justify further “diversification” away from oil and gas, the old notion that high prices are self correcting is facing a serious test. And by the looks of it, the American people will be paying the price.
Sat, 03/26/2022 – 22:00