It hasn't been my habit here to do end of the year reviews, and indeed there are no doubt more items on Medieval history on this site than there are on the year 2015. So, this is an exception and departure from the norm. Perhaps it will become the custom, or perhaps not. We will see.
This year I'm doing one, however, as this year has really been an exceptional year for Wyoming, and not at all in a good way, but in a way that has been somewhat predictable. We entered an oil crash.
Early Wyoming oil field.
Now, oil crashes aren't new to Wyoming, but this one may prove to be unique and a watershed. Only time will tell, but the evidence sort of eerily suggests that it might be.
Our prior oil crashes, to the extent I'm aware of them, came in 1919, 1946, 1964 or so, 1981 or 82, with a mini crash in 2008. 2008 gets tossed around a lot in reference to this, but it was actually a fairly small downturn. A lot of Wyomingites truly did not notice it at all or just viewed it as background noise to the larger Great Recession which was threatening to take the country into a Depression for the first time since the 1930s.
The 1919 crash was caused by the end of World War One, which caused almost all of Wyoming's industries to enter into a downturn. Likewise, the 1946 downturn followed the end of World War Two. I'm not sure what caused the downturn of the 1960s, although I do know that from the way my folks spoke of it, things were tight. The 1981 crash was simply a cyclical crash in the industry following the overheated 1970s, which had been overheated due to the real arrival of OPEC as an industry force.
Every time these things happen there's a lot of introspection and regret, and we ponder "diversifying" the economy. But we never actually do. And while we tried to do that some in the 1980s and 1990s, once oil came back on strong again, brought about by high prices and huge advances in drilling technology, we forgot about that. Now, maybe, we're set to pay the price.
The number of rigs operating in Wyoming fell last year from 60 in 2014 to a present 10. That's a stunning drop off. There have been a lot of oil industry layoffs nationwide. The price at the pump has dramatically fallen. Yesterday I saw gasoline for sale in Casper for $1.68, and diesel for sale at $2.09. It drops a little almost every day. Oil is at $37.00 bbl.
All of this has been brought about by Saudi Arabia taking the stops off of Saudi production and not allowing OPEC limits to be set. There's some debate as to their intent, but it now seems clear that the goal was to crush increasing North American production. North American production had increased so much that, with other things added in, the US once again became an energy exporter. Beyond that, however, there's the question as to why Saudi Arabia would so desire to do that. It only makes sense, really, if they have a definitive goal in mind, which would seem to be to dominate production for the next twenty years. If that's the case, that's because they themselves figure that they'll either be out of the market in that time or that petroleum will no longer be the global transportation fuel it now is. My guess is that they've calculated the latter, and therefore they need to maximize their return until they can shift their economy to something new. They are working on that.
However, they aren't actually crushing North American production. Rather, they're crushing new exploration. American production, oddly enough, hasn't dropped at all. It's keeping on keeping on. And that means that Saudi Arabia is now in giant game of chicken.
Nobody quite expected this, or the remainder of the things that seem to go along with it. Production hasn't declined. Prices are dropping. Consumption isn't rising. It may simply be that the new world arrived sooner than anyone anticipated.
And as part of that new world,
Coal is in the ICU, and the prognosis isn't good. If petroleum is in trouble right now, coal look like it's just checking out entirely. Ironically, one of Wyoming's other principal extractive industries, natural gas, is largely responsible for that. If people would get over their entirely irrational fear of nuclear power, uranium would undoubtedly show up for the coup de grace.
Coal truck in a static display in Wright Wyoming.
So what, exactly, is going on? Well, it would seem that we're in a new era in terms of fossil fuel demand. Coal is out of favor, and even though Wyoming has continued to hope for a "clean coal" technology that would change that it appears unlikely that this is going to occur any time soon. Indeed, concerns over global warming have all but put coal on the terminal list.
While that's been occurring, natural gas has been on the rise, but there's a lot of it. So, not only is it a cleaner fuel than coal, and perhaps just an easier one to use in general, its very abundant. This has depressed the cost here and indeed gas remains so abundant that the state continues to allow it to be flared, which is something that the state may come to regret at some point in the future.
Gasoline, jet fuel, and diesel fuel are, of course, all transportation fuels, which coal has long since ceased to be. But here, even though they are now in surplus and the price has dropped production isn't decreasing and demand isn't rising. That's the first time that's every occurred. And it appears to be occurring as Americans have sort of moved on from being real fans of automobiles. They're switching to other means of transportation and they're comfortable with automobiles that are fueled by other means. So, the Petroleum Age may actually be on the way out.
Of course, as I write this, Saudi Arabia has severed relations with Iran, so we may be on the cusp of a big fuel price jump, and the state's worries will be partially over. We'll see. Having said that, on the first business day of the crisis, the price of oil went down, not up.
The decline of fossil fuel production here puts the state's workforce really in jeopardy. The fact that things haven't gotten any worse than they have, and that the state's economy has basically remained stable during this period, is due to two other primary industries in the state doing well last year, with those industries being construction and agriculture. Things are not as well situated, however, for 2016.
Large scale construction has kept on keeping on as there were some huge projects that were funded earlier, and begun earlier, that are keeping the construction industry going. Massive school construction, often started as much as three years ago, keeps on keeping on, and will for the next couple of years. After that, however, it will drop off on its own and, beyond that, as its funded by coal severance taxes the means of starting new projects is severely imperiled.
Highway construction has also been going on, and at least that is funded in part by the Federal Government, as is Abandoned Mine recovery. So some of that will at least continue.
The irony of all of that, of course can't help but be noted as Wyoming has never been a state that has been very keen on the government boosting the economy through projects, but that sort of thing kept our economy from collapsing last year. Therefore, we're in the ironic situation of having a sort of New Deal type of economy going on here, even though we'd be loath to intentionally cause that to occur. This is something that the legislature should ponder in the upcoming budget session for a number of reasons. For one thing, it's been a major factor in keeping the state's economy from collapsing. Secondly, since Wyoming no longer funds school construction locally, and perhaps can't given the Wyoming Supreme Court's decisions on school equality over the past couple of decades, some other source of school income is going to have to be found.
Agriculture and tourism were the other elements of our economy that kept the state afloat last year. High cattle prices for most of the year combined with lower fuel prices boosted agricultural income in the state. And tourism did well as well.
Indeed, I tend to think of tourism and agriculture as part of the same land based section of the economy. I don't know that they fully appreciate that they're part and parcel of the same larger section of the economy, but they really are. Without the type of agriculture we have, the state would be much less attractive to tourist. And people who come in to hunt and fish wouldn't to the same degree. This is something that should be kept in mind by those in the legislature who boost land "reversal" schemes against the Federal government.
Agriculture did well in 2015, but whether this continues on into 2016, with cattle prices very much fallen, is an open question.
Speaking (or reading) of the legislature, that body is about to go into its biannual budget session and it has a lot on its hands. Indeed, all governmental bodies presently do. The state appears set to dip into the "rainy day fund" for the first time ever, in spite of a reduced budget. A hiring freeze in on in state government. The counties are hurting, and the City of Casper is running a deficit. Things will have to be addressed.
Part of what will ultimately have to be addressed is where money is going to come from in the future. Coal does not appear to be set to return, so severance taxes appear to be a poor future bet for school funding. The state's resistant to any sort of personal taxation. Something is going to have to give on the money raising, or money spending, end, and new ways to generate revenue are ultimately going to have to be explored.
If there's a positive legislative side to this, what it would appear to be so far is that people appear to be fairly realistic, and extreme positions such as those backed by some recent libertarian groups do not seem to be getting much traction so far in advance of the upcoming sessions. Bold ideas to get the Federal government out of this or that no longer appear to matter much. It's clear that its the Saudi government, not the US government, that's impacting the price of oil and the ship has sailed on the concept that but for the Federal government coal would be doing fine, so we need to get the government out of this our that. People are more worried about just working.
Indeed it might be a time that the state could actually look towards the two sections of our economy that are working and ponder if some state intervention in that category might be warranted. We've been loath to follow the Depression Era examples of North and South Dakota, which started state owned flour and cement mills, but the fact remains that we don't do anything to do produce our raw products. We have no packing houses, woolen mills, etc. Perhaps the state ought to consider the example of North Dakota Mill (which actually started in 1922, prior to the Great Depression but in a farm depression) and see if there's a way to recapture some of that processing money.
So much for the grim economic news of 2015.
Other things did happen, of course.
New state officials took office, following a quite contentious election in 2014. That election saw libertarian elements, which seriously challenged the GOP establishment, do poorly. The extremely controversial Cindy Hill failed in her bid to unseat Governor Mead in the primaries and a new head of State Education took her place, leaving that office in a state of present low controversy.
One Federal office holder, the recently widowed Cynthia Loomis, announced that she was stepping down at the end of term as Congressman.
A couple of interesting things happened in the Courts. One is that Federal District Court Judge Skavdahl held that the 10th Circuit's ruling anticipating the Supreme Court's ruling on same gender marriage was the law in Wyoming. His opinion struck at least me as harsh in some respects and he drew some criticism on the opinion. The Federal judiciary nationwide has not had a good year in my opinion, as its most notable opinion was so blatently devoid of a sustainable concept of legal reasoning, no matter what you think of the issue at hand, so this fits into that mix, a mix which seems to have created an increased degree of contempt for the Federal Government.
Locally, the charade of a CLE being part of the
Uniform Bar Exam was dropped and the State Bar's total surrender to any element of Wyoming law as part of the process of being admitted to practice law in the state was complete. Over the year, as predicated, out of state admissions increased steadily in a trend that does not bode well for the state's lawyers or its population. So here too we suffer an economic detriment. Law, which was long a career option for Wyomingites who had been dropped out of the mineral industry while young, or who had no place on the family ranch, or who were from a Wyoming town or city and they desired to stay here, will no longer be as much of a realistic option. The new "Wyoming" lawyers are increasingly located in Denver Colorado, so while the mineral industry sustains an economic disaster due to Saudi Arabia, law starts to suffer an economic downturn due to the Wyoming Supreme Court's insistence on adopting the UBE.
Where all of this leaves us, of course, is unknown. Human beings are notoriously unable to predict the future. But to take a stab at it, it appears that the Petroleum Age may have entered a new phase, and combined with the demise of coal, we may have entered a new economic age in Wyoming. That age might feature somewhat of a return of agriculture to center stage. What that means in the towns and cities is yet to be determined, but a long term gravitational pull of Denver and Salt Lake City is becoming stronger due to modern economic forces and, in the case of the law, the push of the state's bar south.
2016 should be interesting.
