State begins feeling weight of high energy prices

TULSA, Okla. (AP) _ For almost 99 years, ever since Oklahoma's first major oil strike in Glenpool east of here, high oil and gas prices have been a boon to the state's economy. <br/><br/>While

Wednesday, November 24th 2004, 2:04 pm

By: News On 6

TULSA, Okla. (AP) _ For almost 99 years, ever since Oklahoma's first major oil strike in Glenpool east of here, high oil and gas prices have been a boon to the state's economy.

While business in other states wither under rising energy prices, Oklahoma flourishes because the expansions these price spikes bring to the state's oil and gas industry outpace the losses in other sectors.

But now a recent report by an Oklahoma State University economist says that effect has greatly diminished and the days of Oklahoma being insulated from the high-energy-price blues are numbered.

The reason: Oklahoma's economy has become more diversified, meaning there are more non-energy business being hurt by higher prices.

``Energy no longer drives the overall economic rate in Oklahoma like it may have during the oil boom,'' OSU economist Mark Snead said in an interview Tuesday. ``We're becoming like other states in that we have to become more concerned about the rise of energy prices.''

Industry officials agreed that the sector doesn't pack the same economic clout it did in the early 1980s and that its benefits will eventually wear down and even disappear, but not until the distant future.

``Are we going to sway the economy? No, not unless the prices get a lot higher,'' said Bruce Bell, chairman of the Mid-Continent Oil and Gas Association.

At the height of the oil boom in 1982, when oil prices were higher in real terms than even the recent $50 per barrel, expansions in the state oil and gas sector raised employment by 35,000 jobs, or almost 3 percent.

But since 2000, the state's energy businesses have added just 6,000 jobs, according to recent employment numbers cited in Snead's September study. That's because this price spike is milder than that in 1982.

Also, those job gains are less able to overcome job losses in other parts of the state's economy because oil and gas workers make up just 2 percent of workers now compared with 8 percent in 1982.

``This suggests that, although the current price episode is meaningful, it is not capable of generating an economic stimulus to the state that is in any way comparable to that enjoyed in the oil boom,'' Snead says in the report.

Meanwhile, Oklahomans and state businesses have experienced the first real increase in energy costs in more than two decades, Snead says.

Oklahoma spent $11.7 billion on energy in 2003, a 38 percent increase from the $8.5 billion spent in 1999, when oil and natural gas prices were about a third the 2003 levels, his study says.

Those increased costs are offsetting the diminishing gains the state economy gets from higher employment and profits in the oil and gas industry, which is the nation's No. 2 gas producer.

``Is it possible for the state to be better off at current energy price levels? Maybe,'' Snead says in the report. ``But only modestly at best, and it would require that prices remain at these levels for an extended period of time while not triggering costly major adjustments in energy usage by households and firms.''

Further, the positive effect will eventually disappear as the state's energy industry continues to mature (much of its oil reserves are depleted and its gas reservoirs are harder and more expensive to harvest) and as prices fall from their current highs, Snead says.

``It is inevitable,'' says Snead, director of the school's Center for Applied Economic Research. But he, like the industry, sees the state's energy sector's demise as a long-term phenomenon.

``We'll be talking about Oklahoma as an energy state for at least the next couple of decades,'' he said. ``It's not going to happen today.''

But even after the drawbacks of higher energy prices outpace their pluses, Oklahoma will continue to benefit from its oil and gas sector during price spikes.

A booming Oklahoma oil sector will help temper the recessionary effects that high prices bring to other states, and state government will benefit from increases in taxes on oil and gas production, Snead says.

For example, higher gross production tax receipts from the recent high oil and gas prices, which have been near $7 per thousand cubic feet, have helped offset smaller state revenues from other sources.

In fiscal year 2004 that ended June 30, the tax brought $645.8 million into state coffers, a 20 percent increase over receipts in fiscal year 2003 of $539.9 million, according to the Office of State Finance.

``We have an awfully long time before the oil and gas industry in Oklahoma fades into the past so much that we cost more than we're worth,'' Bell said.