BISMARCK — North Dakotans may pay less at the pump than they have in several years due to the far-reaching economic effects of the coronavirus pandemic. However, low prices could spell major trouble for the state's oil industry and the local and state governments that depend on it.
Regular gasoline prices at some eastern North Dakota service stations have dipped below $2 a gallon amid a global crash in oil prices. The average price of gasoline in the state was $2.16 a gallon as of early afternoon on Monday, March 16, while the national average fell 13 cents over the last week to $2.26, according to AAA motor club.
Current average gas prices per gallon in North Dakota's cities and counties, according to AAA:
- Fargo - $2.03
- Grand Forks - $2.04
- Bismarck - $2.22
- Minot - $2.14
- Stutsman County - $2.12
- Stark County - $2.25
The price of diesel has also dropped to a statewide average of $2.56 a gallon and $2.46 in Fargo and Grand Forks.
The coronavirus epidemic's stranglehold on the Chinese economy caused an initial drop in global oil prices at the beginning of the year. Chinese demand for oil declined dramatically during the spread of the virus as manufacturers and freight companies suspended operations.
Oil prices then took a further nosedive a week ago when Saudi Arabia and Russia, two of the world's largest producers, began engaging in a "price war" after Russia refused to join the Organization of the Petroleum Exporting Countries in cutting production to drive up global prices during the pandemic. Saudi Arabia hit back by lowering its own prices and flooding the market with even more oil. The conflict has caught American oil producers, including those in North Dakota, directly in the crosshairs and contributed to a worldwide collapse in stock markets.
The West Texas Intermediate crude price sits just below $29 a barrel as of Monday afternoon. That represents a drop of nearly 53% since the beginning of the year.
Most producers in North Dakota's Bakken formation can turn profits around $50 a barrel, but it becomes more difficult when the prices are much lower than that mark, said Ron Ness, president of the North Dakota Petroleum Council.
Oil and gas producers in western North Dakota are now cutting low-hanging costs and some have likely shut in wells because of harsh economic reality, Ness said.
"Most (producers) are settling in for this to be a longer-term situation than we probably hoped 10 days ago," Ness said. "I don't know what's going to happen with the price of oil, but I certainly think that this isn't going to be something that's done at the end of March. Let's hope by mid to late summer, we begin to see some significant recovery."
Ness, whose organization represents more than 650 oil and gas-related companies in the state, said the next step for companies if the bleak conditions remain could be production cuts to save money. However, Ness noted that many North Dakota companies will likely continue producing oil at the lower prices "to keep paying the bills" since the wells are already drilled.
Low gas prices might be favorable to the general public in the short term, but Ness said the industry's woes have serious statewide implications. Ness said low oil prices could jeopardize American energy independence, the jobs of residents who work in the industry and the funding on which the state heavily relies.
State legislative forecasts predict the state will bring in about $4.85 billion in oil and gas tax revenue during the current two-year budget cycle. That figure doesn't count the sales and property taxes paid by companies and employees of the industry that provide significant funding to local governments in the western part of the state.
Office of Management and Budget director Joe Morrissette said the agency has delayed the performance of a formal budgetary forecast because of the uncertainty surrounding oil prices and the spreading virus, but he mentioned that if prices don't recover, it could have "a huge impact" on the state's budget.
Morrissette said any updated projections in the future would likely account for a drop in oil production, and as a result, a drop in state revenue coming in from the industry.
Prior to the plunge in prices, state oil and gas revenues were tracking about $77 million over projections for the budget cycle, but he said the sudden decline could mean not all of the state's funding "buckets" get filled up. Currently, oil and gas tax revenues are diverted to about a dozen "buckets," including those that supplement the state's General Fund and the Department of Human Services.
If prices stick around $30 a barrel, Morrissette said it's likely that most the $230 million planned for local governments in non-oil producing regions wouldn't get distributed. The 2019 Legislature approved "Operation Prairie Dog," which sets aside the money for local infrastructural projects outside the Bakken.
Morrissette said there is some potential for a repeat of the state's 2015 budget shortfall because of the precipitous drop in oil prices. Back then, lagging revenue resulting from low oil and farm commodity prices forced the state to tap into reserve funds and state agencies to slash their budgets.