Carpe Diem

WSJ profiles a tale of two oil states – ‘Saudi Texas’ vs. ‘economic basket-case California’


From today’s WSJ editorial “A Tale of Two Oil States“:

Texas and California have been competing for years as U.S. growth models, and one of the less discussed comparisons is on energy. The Golden State has long been one of America’s big three oil producing states, along with Texas and Alaska, but last year North Dakota surpassed it. This isn’t a matter of geological luck but of good and bad policy choices.

Barely unnoticed outside energy circles, Texas has doubled its oil output since 2005 (see top chart above). Even with the surge in output in North Dakota’s Bakken region, Texas produces as much oil as the four next largest producing states combined. The Lone Star State now pumps nearly two million barrels a day, and Texas Railroad Commissioner Barry Smitherman says “total production could double by 2016 and triple by the early 2020s.” The entire U.S. now produces about seven million barrels a day.

More than 400,000 Texans are employed by the oil and gas industry (almost 10 times more than in California) and Mr. Smitherman says the average salary is $100,000 a year. The industry generates about $80 billion a year in economic activity, which exceeds the annual output of all goods and services in 13 individual states.

Now look to California, where oil output is down 21% since 2001, according to Energy Department data, even as the price of oil has soared and now trades in the neighborhood of $95 a barrel (see top chart.)

This is not because California is running out of oil. To the contrary, California has huge reservoirs offshore and even more in the Monterey shale, which stretches 200 miles south and southeast from San Francisco. The Department of Energy estimates that the Monterey shale contains about 15 billion barrels of oil, which is about double the estimated supply in the Bakken.

Another contrast is that most Texas oil is on private lands, which owners are willing to lease at a price. In California much of the oil-rich areas are state or federally owned, and leasing doesn’t happen because of political constraints. In California it can take weeks or even months to get approval for an oil rig. The average in Texas? Four days.

In short, Texas loves being an oil-producing state while California is embarrassed by it. And it’s no accident that Texas has been leading the nation in job creation since the recession ended. The energy boom is creating thousands of jobs related to drilling but also in downstream industries such as transportation, high-technology, construction and manufacturing. The Texas jobless rate is 6.4% while California’s is still the third highest at 9.4%.

California has the natural resources and technical expertise to be the next Texas if it wants to be. What it needs is the political will. California Governor Jerry Brown at least says he wants to drill, but his dominant Democratic Party is so beholden to the already-rich greens that the state is paralyzed.

So the oil remains locked in the ground, as one million Californians look for work, as its schools and roads deteriorate, and as it keeps raising taxes to balance the budget. What a tragedy. Imagine how fast the U.S. economy would grow if California were more like Texas.

MP: The bottom chart above shows the significant difference in job creation in Texas compared to California since January 2008. The shale-driven economic stimulus helped Texas recover all of the state jobs lost during the Great Recession by the summer of 2011 – and employment in the Lone Star state has been increasing to record high levels in almost every month since then. Compared to the onset of the recession in December 2007, Texas payrolls have swelled by 586,000 jobs and now number more than 11 million for the first time in state history. In contrast, California’s job growth over the last five years has been among the slowest in the nation, and the state’s payrolls are still down by 586,000 jobs since 2008.  So while “Saudi Texas” has added more than half a million new, well-paying shovel-ready jobs, largely because of the state’s shale boom, “economic basket-case” California struggles to create jobs. The Golden State’s payrolls are still more than half a million short of 2007 levels, and are even below the state employment levels back in the fall of 2004, more than eight years ago. It’s a dramatic contrast, and has a lot to do with the differences in approaches to developing the two states’ energy resources, as the WSJ points out.

26 thoughts on “WSJ profiles a tale of two oil states – ‘Saudi Texas’ vs. ‘economic basket-case California’

    • I understand your point, Sam. Unfortunately, Texas is not immunized against train fantasies. Most of the 6 million residents in the Dallas Fort Worth metro area are paying a 1/2% or 1% sales tax to subsidize the 40 to 50 thousand persons who use one of the three local train systems each day. Those train systems with their tiny ridership do nothing to relieve highway congestion, of course.

  1. California has a lot of oil offshore. That oil is a lot cheaper to develop and is quite economic. The first step is to put pressure on government to let that oil be developed. In a few years the data will show if shale is economic or a capital destroyer like shale gas has been.

  2. Mark, I agree that shale and other energy industries are responsible for a huge part of the Texas recovery from recession. But let’s not forget that Texas is more than just an energy state. Austin, Dallas, and Houston have all attracted $billions of investment by technology companies over the past three decades. Agriculture, including cattle, sheep, cotton, and rice, is an important sector. Aeronautics and transportation are thriving in the business-friendly Texas environment. Health research and health care are huge and growing (Houston’s Texas Medical Center is the largest in the world.) Food manufacturing has always employed a large number of Texas workers. While energy is king, it does not completely define the state.

  3. Texas supplies us with crude oil and natural gas (an all the associated and essential chemical feedstocks), California supplies us with Facebook and Google.

    I’ll take the crude and NG, hold the Google and Facebook. I can live without the latter.

    • LOL

      I’m sure that’s it. California is holding out for a higher price.

      Or perhaps some twisted Californians enjoy the prospect of all those rich Texans begging, little tin cups in hand, for just a little bit of oil.

      Actually it won’t matter. Taking oil out of the ground will most likely STILL be forbidden in CA in 10 years.

    • $200 barrel? Are you really that bad at economics and investing?

      Oil will *never* be above $120 again for any length of time, even with all the money-printing going on.

      If you knew about economics, you would see why this is.

      • $200 barrel? Are you really that bad at economics and investing?

        Oil will *never* be above $120 again for any length of time, even with all the money-printing going on.

        If you knew about economics, you would see why this is.

        Actually, if you knew about economics you would understand why oil will have to go over $120 again. It could hit $50 before that happened but any pullback would only make the very high prices, and $200 is not high, more certain.

  4. According to the U.S. Commerce Department’s Bureau of Economic Analysis regarding the Eagle Ford Shale, counties with wells permitted or in production experienced an average increase of 13.62 percent in per capita income between 2008 and 2011.

    Some of the counties that are benefiting from Eagle Ford Shale development have been amongst the poorest counties in the entire state.

    Between 2008 and 2011, Texas also saw an increase of 1.34 percent in per capita income – reaching an average annual pay of $40,147.

    Furthermore, the average per capita income in the counties surrounding the Eagle Ford increased from $28,148.92 in 2008 to $31,893.93 in 2011.

    Several of the surrounding counties even experienced an income growth that significantly outpaced Texas as a whole.

  5. How can Greens be *that* powerful?

    The general public wants the oil (and needs the jobs)
    Jerry Brown, the Governor, wants the oil
    The rest of the country wants the domestic oil production – this is not only a CA issue, but a national issue.

    Are we to believe Greens are that powerful? Or are they just useful cover?

  6. Note that a $100K job in Texas (which those oil and gas jobs are) easily enables the purchase of a very nice house in Texas.

    A $100K job in California enables no such thing.

  7. Still, I have “lived” in Texas, and I have lived in California.

    It ain’t even close.

    In Texas, you have cockroaches the size of small turtles roaming the rooms in your best houses, and it is hot and humid, and everyone thinks “chicken-fried steak” in grease, washed down by weak iced tea is fine cuisine.

    There is hardly a park in Texas worth visiting, while in CA you have the gorgeous Sierras, desert parks, beaches and I could go on. It is not hot and humid, it is pleasant.

    Texas has scrub and heat and not only your shirt stoics to back but your pants to your legs. Bugs everywhere. The feral pigs like it, though.

    Beyond all that, Texas has oil, and it is accessible and that has helped them in a era of $80 a barrel prices. It may yet help CA if the Monterey shale is exploitable.

    But how did the two economies do int he 1990s? CA whipped TX. It is all about oil.

    BTW, CA is reporting huge state surpluses now and house prices are rising nicely.

    CA will be king again, and TX still the southern orifice of the USA. That will never change.

    • I’ve seen CA house prices rise nicely, then crash 40% at least 3 times in my life. Texas also lacks the bankrupt cities like Stockton, Big Bear, and the ones soon to be bankrupt. Texas ain’t as pretty as CA, but at least we’re not running cities blessed with fantastic natural resources into the ground.

    • By just about every economic standard, CA is trailing the other states in the recovery. The highly touted big inflow of CA tax revenue is from the November tax increase that was RETROACTIVE to January of 2012 — it caught the rich by surprise. Plus many took gains in 2012 to avoid the “tax cliff.”

      BTW, starting this year, tax whales ($2 million+) lose 80% of the deductibility of their state income and property tax above that amount on the federal tax returns. Combined with our 29% state income tax hike on millionaires, and such CA whales will pay 83.6% higher NET California income taxes in 2013 than they did in 2011. Our capital gains tax (combined with the federal CG tax is now the 2nd highest in the developed WORLD!

      But, as any knowledgeable liberal will reassure you — tax rates don’t matter. None will move to other states.

      We shall see.

    • As a life long Texan I appreciate you pointing out these concerns that you have of our state.

      By all means please keep chasing business this way. But at the same time we would also apprecite it if you would keep as many of the indoctrinated people in your Liberal Mecca as possible.

  8. One interesting statistics problem is comparing California with the national average in such matters as unemployment. Since CA makes up about 12% of the nation’s population, our state has a disproportionate effect on the national average.

    I do such population percentage calculations taking this into consideration, comparing CA with the OTHER 49 states. As one would expect, that give a truer (and a bit more dismal) indication of where we stand.

    Here are my latest figures from my “California vs. the Other States” fact sheet:

    CA is in a tie for 3rd place with Mississippi for the highest state unemployment rate (March, 2013) – 9.4%. National unemployment rate 7.6%. National unemployment rate not including CA is only 7.4%, making the CA unemployment rate 27.8% higher than the average of the other 49 states.

    Using the 2012 U-6 measure of unemployment (includes involuntary part-time workers), CA is the 2nd worst at 19.3% vs. national 14.7%. National U-6 not including CA is 14.1%, making CA’s U-6 37.1% higher than the avg. of the other 49 states.

  9. More high-paying CA jobs are fleeing to Texas. Raytheon just announced it is moving its California HQ to the Lone Star State.

    But not to worry — it’s “only” 170 jobs. Average wage? $250,000.

    They are not moving to Texas for the oil. But they WILL like the lower commercial and industrial electricity rates.

  10. California’s version of profiting from “sweet crude” is to pass a bill to levy a penny per ounce tax on sodas, sweet tea and energy drinks — often an effective 40% tax. Much of the projected $1.7 billion annual proceeds supposedly will be used to deluge us with endless “public service” ads telling us that consuming sugar makes us fat (who knew??!!).

    Last November CA voters passed a MASSIVE “soak the rich” 29% state income tax increase, in large part because politicians assured the gullible that no further tax increases were on the horizon. It appears there’s a good chance this “soda tax” bill will pass and be signed into law by Governor Brown.

    • Yup, Texas is a dangerous state. All those plants blowing up every week, and the buildings collapsing left and right. Horrible place, Texas.

      Of course, a lot safer than NYC with its unarmed (lawful) citizens and high terrorist target priority.

      Oh yeah, I’d REALLY feel safer in NYC than Texas.

      Fortunately more and more “journalists” at the NY TIMES have found (or will find) themselves seeking gainful employment elsewhere, as their labor-union-crippled, liberal flagship sinks slowing into the Atlantic.

      My suggestion for these scorned scribes: Don’t move to dangerous Texas. Safe San Francisco needs a few more pompous progressives (and progressive panhandlers).

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