North Dakota's Oil Boom Fuels Economic Growth
Post Date: Mar 03 2017
This isn't your father's Fargo any more.
That a state so sparsely populated and geographically remote stands among the top-five nationally in a broad measure of economic, educational, health and other metrics speaks volumes about an economic boom that North Dakota has experienced during the past decade.
Indeed it is the state's economic growth – No. 1 in the Best States rankings – that helped propel it to No. 2 in the overall measure of state economies.
With among the lowest unemployment in the nation and highest labor force participation, North Dakota also ranks highly in the roads, energy infrastructure – and even internet service – that it provides for just over three-quarters of a million residents. Its highly ranked higher education, with among the nation's most affordable tuition, has helped the citizenry reach a high level of attainment of college degrees. All measures considered, the state ranks No. 4 overall.
While 90 percent of North Dakota's land still is devoted to farming – with one-fifth of the population employed in agriculture that produces most of the nation's canola and flaxseed and ranks No. 1 in dry navy and pinto beans – it's what lies beneath the surface of this Canadian border state's wide open land that explains much of the recent growth of a domain that as recently as 2010 counted fewer residents than it had during the Great Depression of the 1930s.
It's oil and natural gas – and the technology for extracting it – that have both boosted the state's economy and also added a new dimension of social controversy surrounding pipelines that the industry is attempting to push through the state. Yet the state also is counting gains in manufacturing and high-tech ventures that have helped diversify the economy as oil has occupied a growing share of it.
"Energy and ag have always been very strong in our state, and the oil boom has moved us forward, but we've also worked to diversify," says Sandy McMerty, co-deputy commissioner for the North Dakota Department of Commerce.
Recently elected North Dakota Gov. Doug Burgum attributes the state's business sense to a long line of governors who came from the business world – in his case, the software industry. And he points to developments that hold promise for the future: A plant manufacturing the blades for 225-foot tall wind turbines employing 1,000 people, unmanned aerial aircraft mapping agriculture lands to amass mammoth data for improvement of crops, Microsoft "tapping in" to the state's well-educated workforce as the state attracts more young people.
"Our infrastructure is in great shape,'' the governor says – indeed, it ranks No. 6 in the Best States analysis. "The economic surpluses that we've had at the state level have allowed us to invest in infrastructure."
The Bakken Formation of oil and natural gas, among the largest contiguous deposits in the U.S., once was deemed infeasible for production. That was before hydraulic fracturing – an injection of water and chemicals into the black shale, siltstone and sandstone holding the oil, a process known as "fracking."
Before the oil boom, as recently as 2004, oil and gas production accounted for just 2 percent of the state's economy. By 2014, it accounted for almost 16 percent. And, while declining world prices for oil in recent years have dampened some of the Bakken boom's luster – and placed pressure on the small state's annual budget, forcing cuts in its esteemed public universities – overall oil production has held up for the most part.
There are fewer drilling rigs at work, but overall production slid to 1.17 million barrels per day in November from a peak of 1.23 million in December 2014 as drillers have pared operational costs. Drillers are employing new techniques that enable them to drill two miles down and then two miles horizontally, the governor notes, with the precision of someone picking the lock on a house.
"We've been a little bit down in production based on pricing,'' says McMerty, who is fluent in the daily price per barrel. "But energy companies are not short-term investment companies for the most part. They can ride out the lower prices."
The state's overall economic output more than doubled in 11 years, according to a Bureau of Economic Analysis report. The state's gross domestic product in 2013 reached a record $49.8 billion, up from $24.7 billion in 2002. In 2002, the state had the second smallest economy, ahead of only Vermont's. Still, some question the long-term sustainability of an economy hinging on a volatile industry.
"North Dakota has always been a boom and bust state – there hasn't been a time of expansion that wasn't followed by contraction," says Bill Caraher, associate professor of history at the University of North Dakota. "By and large, in terms of the billions and billions of dollars that have flowed into North Dakota's economy, very little has gone into producing the kinds of things that are sustainable long-term economic engines.''
In the state's bid for economic diversification, Northrop Grumman, John Deere and Bobcat are among the manufacturers that have added facilities and jobs – Northrop hoping to employ 100 people in Grand Forks. Caterpillar Remanufacturing recently chose between South Korea and North Dakota for a facility, and chose Fargo. And Grand Forks, inundated by the devastating Red River Flood of 1997, has rebounded 20 years later bigger and better, Caraher notes.
The state also boasts of the second largest campus for the software giant Microsoft outside of Washington state – in Fargo.
More than 80,000 jobs were created in North Dakota from 2011 from 2015, the data behind the Best States rankings show. And this state whose population had long hovered at Depression levels saw its populace grow from 674,000 in 2010 to 758,000 in 2016. Among all 50 states small and large, North Dakota ranked No 1 in the Best States ranking of net migration of people into the state. "Last check, we had 12,000 open positions across the state,'' McMerty says. "We're at a place where we really need that out-of-state population to come in."
The state's unemployment rate ranked No. 3 among all states in the Best States analysis, and running at 3 percent in December it remained the sixth-lowest and well below the national average.
All of this contributed to North Dakota's high ranking in the opportunity it offers citizens – ranking No. 7 nationally, with among the nation's lowest poverty rates, higher median household incomes and most affordable housing.
The state's oil development also has created its own issues. These include the challenges of housing oilfield workers in what have become known as "man camps." And a planned Dakota Access pipeline has generated strong public protest, particularly among the Standing Rock Sioux Tribe objecting to its construction near its reservation.
The tribe celebrated late last year when the Army Corps of Engineers announced it would seek alternative routes for the $3.7 billion pipeline. Then a new president signed an order directing the Corps to "review and approve" the pipeline "in an expedited manner." Allies of the tribe, including Earthjustice, contend that review already has identified problems with the pipeline, and this may end up in court.
The quality of the state's health care – No. 10 in the rankings – is borne out in some of the measures of public health taken into account in Best States.
This includes low mortality and infant mortality rates, 12th and 14th best respectively. One of the offshoots of this is a figure that's not counted in these rankings but measured by the U.S. Census: The nation's highest ratio of people 100 years old and older – with three centenarians for every 10,000 residents, double the national average.
The governor tells the story of a 100-year-old North Dakotan driver who was stopped running a stop sign on the way to his older sisters' place. "The police officer asked, 'Didn't you see the sign?' The man said, 'Sure I saw the sign. I didn't see you.""
The state's governmental services ranked No. 7 in the Best States assessment.
This included well-balanced state accounts – ranking No. 1 in financial health, No. 3 in its operating ratio of income and expenses, No. 6 in the digitalization of state information and No. 11 in the long-term funding of its pension system.
As a measure of that fiscal responsibility, when the state recently lost a sizable share of projected revenue for a two-year budget cycle amid a slowdown in oil drilling, the governor ordered budget cuts and drew $497 million from reserves to close a $1-billion shortfall in a $14-billion budget. Yet with cuts, come pain.
Assessing the cuts at the University of North Dakota – a system ranking No. 6 nationwide – Caraher notes: "People who keep hoping that the boom-bust economies can be leveraged into sustainable growth, these are the kinds of things that give people pause… Universities are one of the major leaders of innovation."
Yet in a world in which everyone holds a miniature "super-computer'' in their hands in their smart phones, the governor suggests, access to learning transcends the traditional boundaries of school buildings, and this too is a question of technology which the state must explore as it seeks to improve education.