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.