Lex Anteinternet: Issues In the Wyoming Election. A Series. Issue No. 1 (a). The Economy again. . . the extractive industries

More on the Wyoming economy. . . which is sitting there just to the right of the photo.

I just posted on Wyoming's economy, in the context of the election, here:

Issues In the Wyoming Election. A Series. Issue No. 1. The Economy

In this post we don't propose economic solutions.  Indeed, while we have in the past, and will do so again in the future, this post doe...

In that I borrowed Harriet Hageman's stool analogy, which all other other candidates essentially use in one form or another, and then went on to place the economy in context, I hope, in terms of the election.

In doing that one thing that I think perhaps came through is that while all of the candidates talk about the economy, they all tend to do so on a superficial level, or even on an unrealistic level. That was made pretty plain in the Trib's interview of David Dodson, Republican Senatorial candidate, who essentially thinks that simply being a salesman for the state would cure our economic ills.

Not so much.

Here we look at one of the "stool legs".  More will follow but as the first leg of the stool I mentioned is so often cited, it's worth taking a closer look at.

The extractive industries.

To listen to every major candidate except for Democrat Throne you'd get the idea that (Republican controlled) Washington D. C. has the extractive industries in chains and that this is keeping the industry down.

This is a bit surreal for a variety of reasons

And as noted before, I've covered that before, which I'll set out, in part, here again in a long winded way (but for a reason):

The Wyoming Economy. Looking at it in a different way.

 

 Big Horn foothills. There's a reason why I've posted this here, but you'll have to slog through the post to discover why.

I thought about starting this thread just the other day.  On what must surely be a "Great Wyoming Minds Think Alike" type of day, Neil Waring, on one of his blogs (like me, he keeps more than one blog) posted this item on the same topic:

Let's look at how I summarized this stool leg earlier.  Here's what we wrote:

The extractive industries

Almost all of our real industry and almost all of our government revenue derives from the extractive industries.  Everyone depends on them.  The way it works is this way.  The resources is taken out of the ground and taxed.  That's where the state gets most of its revenue.  If the lease if public, the Federal government or the State gets more revenue, depending upon who holds the lease, and if that lease is Federal the Federal government pays back to the state an additional amount.  Obviously, the people working in the extractive industry make their money there. But so do all the vast number of support industries.  And that ripples out from there. As oil companies lay people off, for example, the support industries start too. And soon, not all that long thereafter, the hotels are empty, etc.

 

Early Wyoming oilfield.

Indeed, the Alaskan fishing industry was down in town the other day recruiting laborers used to hard physical labor to work on fish processing boats.  Seems odd, but makes sense.  When we couldn't find laborers in this state we recruited in depressed Michigan for the same reason.

Anyhow, with coal, oil, natural gas, and uranium all in a slump. the state's really hurting.  And it should be noted that this always tends to happen in this freakish way. There's no reason that the price of petroleum oil should fall along with coal, let alone uranium, but that's happened to us before.  An entire town in northern Carbon County disappeared just as the coal mining towns were starting to nearly disappear, and this in the 1980s.  Here we go again.

Well, whenever a slump happens we tend to wring our hands and declare, like The Who, that "We Won't Get Fooled Again" by the cyclical nature of the extractive industries.  Here we must note that some are so invested in the concept that the extractive industries are Wyoming that to even say that is taken as some sort of slam against them, which isn't true at all. Rather, we have to acknowledge the nature of those industries, which is that they boom and bust.  When they are booming, the income and revenue stream they provide to the state is great.  When they crash, however, it's a problem if we haven't prepared for it, and we seem not to.

As part of that, and here we need to be thinking of coal and its future, some of our former extractive industries do indeed disappear over time.  Wyoming at one time mined iron and gold.  It doesn't anymore.  Indeed, I posted some photos of a former gold mine at South Pass on a thread at Holscher's Hub, that thread being this one:

The Carissa Mine, South Pass Wyoming
 

Even within the last fifteen or so years there's been speculation about the possibilities of opening the mining at South Pass back up.  Well, I suppose its a remote possibility, but the key word  there is remote.  Sometimes the bust is for keeps.

Indeed, one of  my grandmothers on my father's side was from Leadville Colorado.  She was born there.  Her father had come there as a gold miner originally.  He switched to being a merchant, and they later moved to Denver, but Leadville provides a good example.  Leadville's mines closed and the town limped along for decades before remaking itself into something else, finally accepting that gold and heavy metal mining was not going to come back.

Now, I'm not saying that petroleum oil and natural gas will not come back. They may not come roaring back, but they'll come back.  But we should be cautious about assuming that they'll come back in the same way that Rick from Casablanca assured Elsa about regret, that it would come "maybe not today, maybe not tomorrow, but soon, and always."  The reason we should be cautious here is that there is reason to believe, at least with petroleum oil, that we may in fact be living in a new production regime.  For years people worried about "peak oil", with people who enjoy being alarmed particularly enjoying worrying about it. But it turns out that the problem here may not be peak oil, but we don't need the oil as much anymore, and that this trend will grow.  It seems to be.  In fact Saudi Arabia is literally banking on it, ramping up production to dominate the market while it scoops up what it thinks is the last of the oil bucks.  This doesn't mean oil will go away entirely, but it might mean that in an environment in which it is used increasingly less as a fuel it won't have the value it once had.

It seems unlikely that we fact the same story with natural gas, which is likely to be used more in the future.  The problem here is, right now, that there's a lot of it, so the price is depressed.  We shouldn't assume that this will be the situation for eternity, however, and therefore we ought to really pause when we see gas being flared, as someday we may wish that we had it to sell.  Right now, however, the price is in the basement.  This past week the industry pinned some hopes on being able to export gas to China, which a recent Federal statute encourages.  We'll see how that goes.

With both petroleum oil and natural gas we'll also have to watch the advance of technology, which has been a huge factor in the recent boom. Hardly noticed it was also a factor in the slow revival of uranium with technology advancing so much in regards the mineral that scares the dickens out of the very people who should embrace it ardently that we don't really mine it in the conventional sense anymore. We drill for it and "mine" it in solution.  So here, the mineral that once created enormous mines with high paying jobs does not even with the price is good.  It still provides jobs, bu they're drilling jobs and infrastructure jobs.  Indeed infrastructure in some ways turns out to be the long term stable set of jobs for petroleum, gas and uranium.

I'll omit addressing the sad state of coal as I've written about it so much recently.

Anyhow, all that is really background for the observation that Wyoming has had a strong attachment to the petroleum industry since day one, but we've had a hard time ever accepting the boom and bust nature of it.  This isn't a criticism of the industry so much as its an observation on the reality of our blindness to problems in this area.  So this has always been a part of our economic picture, and that's what I propose to examine here, our long term economic picture.

The state's economic constants

As far back as you can go in Wyoming's history there are certain economic constants.  Some of them are that we have a collection of industries all related to one thing that just keep on keeping on.  Another is that we have hoped for the extractive industries to work economic miracles from our very onset of existence.  A third is the background role of government in providing jobs, even when we've been hostile to that.  Let's look at that.

And let's look again at oil.

Oil, and the other extractive industries, but oil very much in particular has been the expectant economic hope of Wyoming almost from day one.

July 15, 1891, Natrona County Tribune, reporting on both oil and gas production. 

This may be surprising, really, for those who think of the early history of Wyoming all in the context of cattlemen, or perhaps earlier in the context of Mountain Men and Indians.  And it is certainly the case that cattlemen and Indians are part of the story (and still are, and we'll be looking at that shortly), but oil was expected to bring big returns early on.  Indeed the first time I realized that was in trying to research the Johnson County War back when I was in high school, as I plowed through a pile of microfiche issues of the Natrona County Tribune.  Issue after issue discussed oil finds, not, I expect, what we expect to see from a Natrona County newspaper in the 1890s. But it's there. 

Okay, well so what? 

Well, the point is that oil, gas, and coal are there and always have been.  But the boom and bust nature of those industries has always been part of them.  When the price rises, as it always has, we leap into them great guns.  After awhile we expect the boom to be eternal, even though there's always good indicators that the boom will not be.  And we are always surprised by the crash. 

Wyoming Oil World, June 15, 1918.  A crash was soon to occur with the end of World War One. 

A real change, it should be noted, has occurred in the oil industry since the 1980s, and that's been the demise of the local refinery.  This has to be noted here as its significant, and ties into what I'll later note.  Wyoming had refineries almost from the onset of oil exploration here.  Casper had three refineries here in town up until the 1980s. Every town in Wyoming had one, it seemed.  Glenrock had a refinery.  Laramie had a refinery.  Now we have four operating refineries of which I'm aware.  Maybe there are more, but I'm not aware of them.  Refineries provided good blue collar jobs for decades, now they provide very few.  In fairness, gas plants have come in whereas up until fairly recently we didn't have many of them.  But that points out what I intended to note above.  Gas builds and is still building infrastructure in Wyoming.  Petroleum oil does as well, but not in the way it once did. Refining has tended to shift to super huge refineries on the Gulf Coast, which can take in U.S. production, and also take in imported production.

 

Standard Oil Refinery in Casper. 

So what we can accept here is that oil and gas will remain, but in looking at this aspect of our economy, can't we do more to build local stable jobs from that?  We'll round back around to that towards the end.

And so how did I sees that in the context of the economic future and building a more stable Wyoming economy?  Here's what I had to say on that:

So where do we go?

So then, what to make of this?

Well, usually when we go through a crash, we start to talk about diversification.  We also usually start to take about cutting back government spending.  And we're going to have to talk about a new government revenue sources, or having a state government that matches the money we take in.  It's probably time for all of that.

Maybe its' time to talk about building upon what we have, and actually realizing what that is.  And, as we can see from the above, in terms of private industry, that's agriculture, tourism and mineral extraction.  And, like it philosophically or not, we have a lot of government employment in this state and government entities that are pretty darned involved in some sectors of the economy, particularly oil and gas, already.

So, what do we have to build with?  Let's start with mineral extraction. 

Mineral extraction?  Perhaps you're thinking "why I thought you were arguing against relying on that?"  No, I'm really not. I'm arguing that we have to be smart and realistic about that.

The boom and bust nature of much of the mineral industry is a feature of it that is pretty fixed, long established by history, and that's all largely beyond our control.  We have to accept that.  But these industries aren't going completely away.  Even coal, which is in real trouble, isn't going completely away and indeed even right now there's an effort by one coal company to start a mine near Sheridan. 

The thing we can do, therefore, is to be smart in our planning on these industries.  And that would have to accept that they're going to have rocky periods. 

We may also want to be very careful, and we very rarely are, about thinking that when times are good that they're going to go on forever.  There are those who will act that way and they nearly take any suggestion to the contrary as a hostile comment.  Planning for the crash ought to go on during the boom, rather than waiting until it occurs, and that's just smart. 

It's also smart to recognize long term trends, none of which are hugely favorable towards the fossil fuel industry.  Recognizing that isn't being hostile, once again, it's just recognizing it. 

And perhaps we also ought to at least ponder that, like the oil exporting nations of the Middle East, we really don't do much with the raw product anymore.  We did at one time with petroleum oil, in that we did refine it here, but we no longer do that.  Natural gas, because of its nature, is "refined", or rather processed here, and that will go on.  We ought to consider all of that, however.  We never processed the iron we mined, for example, even though we had all the things necessary to do it (except, perhaps, the large scale shipping necessary for that). 

Now, at this point in time, I may have to admit that the ship has sailed on all of these things.  Down to a handful of refineries, I don't see that industry coming back.  There's a reason that super sized refineries are all located on the Gulf Coast.  But if we're not going to process our raw products here, maybe taxing slightly what we export would be a good idea.  Nothing radical, but to add a little bit of a tax in addition to the existing ones for what is departing would not impact the price and might help us out quite a bit in lean times, particularly based upon how the funds were earmarked.  And who knows, maybe that would encourage a little processing here as well.

All of which might do nothing at all, I'll concede.

Okay, at this point I'll admit that all I seem to be doing is repeated myself.  As I'm repeating myself.

But everything I wrote there I think still holds up.

Indeed, I think recent evidence shows that my analysis in this are was fully correct.  The petroleum industry has partially rebounded, indeed significantly own, all on its own due to market forces and not anything else.  The coal industry has reestablished a new normal at a lower production level, again all its own, but it's clear that long term power industry fuel trends paint a bleak future for it of slow decline. As we've also noted, that decline has been going on for a century.  There is an anti regulation President in the White House and regulations, I'm told have been very much curtailed.  In spite of all of this Wyoming's candidates keep talking of "cutting regulations" under the theory that this will, at this point, do something.  It's been done.

What is also the case, as I've described before, is that the industry has now changed technologically and at the exploration end, and maybe even downstream, it will require fewer employees per unit than before.  Our local politicians also seem to miss that.  Everyone is also missing the fact that petroleum consumption, but not gas consumption, is on a long term decline nationally as a new generation of Americans have seemingly lost the American love affair with the car.

The long and the short of it is that, in terms of production, there's not much the state can do.

Would this mean that the state can't do anything about jobs associated with the petroleum industry.

Well. . . .it probably can, but I doubt that it would want to.

Wyoming lost jobs on the exploration side during the recent downturn. But before that, it lost jobs on the manufacturing side back in the late 70s and early 80s. That's when our refining industry started to slide. And its never come back.

As an example, up into the late 1970s Casper had three refineries.  It now has one.  If we look back to the mid 20th Century a lot of towns and cities in Wyoming had refineries that no longer exist.  Laramie, for example, had a refinery, now just a rusting hulk south of town.  Thousands of jobs existed in those facilities.

Since that time, we've acquired a lot of gas plants, as gas has to be processed locally.  Petroleum does not, however, and throughout the United States refineries in the interior have been closed as giant refineries on the Gulf Coast replaced them.

This is the one area in the petroleum industry where local jobs could be created. ..  but the industry isn't going to take that step.  I.e., if new refineries were built in Wyoming, and plants that processed petroleum into various products such as plastic, there would in fact be thousands of local jobs  created.

That isn't going to happen, and in fact the opposite is going to happen.  Long term, the industry wants Gulf Coast refineries for a variety of reasons.  And those reasons make sense for the industry.

But, and this is a radical thought, the state could do it.

But it won't.

You are familiar, of course, with Dakota Mills and South Dakota Cement.  Indeed, you read about them here.

Okay, its one thing to point all of these things out, but what of it.  We don't have packing plants, mills, etc.  What, a person might ask, do you propose? 

Well, I'd propose something that Wyomingites hate, state assistance for private enterprise, or even direct involvement in it. 

Now, before people have their hackles up too much, let me point out that we only oppose this to a limited degree.  We're actually okay, based on our track records, of supporting start ups with grants.  We're also okay with investing in doubtful technologies, if they relate to the mineral industry.  Witness there all the money the state is sinking into Clean Coal Technology.  I'm not opposed to that by any means, but we must admit that the chances of it ever paying off are remote. 

So, before we get too much further, let us consider North Dakota Mill and Elevator. 

Eh? 

Postcard of the North Dakota State Mill, 1915. 

While nearly a neighboring state (it doesn't border us, but you can sprint across the corner of South Dakota and be there in no time at all), North Dakota, which we will return to when we discuss education, has a really different cultural history compared to Wyoming.  With a heavily Scandinavian immigrant population from early in the 20th Century, North Dakota had and still has a political culture that, quite frankly, was occasionally sympathetic to socialism. 

Now, let me be frank, I'm not terribly sympathetic with socialism, but we can take a page out of an example of something that works, if it works.  And here's something that has worked for North Dakota. 

It's a state owned operation, formed to address problems that farmers were experiencing, but it doesn't receive a subsidy from the state and its self supporting.   

This is the same model used by the other Dakota, South Dakota, for South Dakota Cement, an operation so successful that it has expanded even recently and markets its product in every state bordering South Dakota.  It even had a plant, at one time, here in Casper. 

Now, I'm not suggesting that we need state run or owned industries everywhere.  But perhaps we can take an example where there isn't a private industry.  Critics would say, and they should be listened to, that if a private industry isn't operating it's for a good reason. But, we also have to admit that there are a fair number of industries that get their start from some sort of government support.  Indeed, the entire transcontinental railroad was such an example, getting state support in the form of massive land grants, which is essentially the same as a massive infusion of capital.  There's no reason to pretend otherwise.

So, where we don't have a local industry, perhaps we should consider if the state should help. The state's already helping the coal and petroleum industries via various studies at the University of Wyoming, including clean coal.  The very day I wrote this part of this entry, Governor Mead was appearing on the front page of the Tribune at a state funded facility studying clean coal.  And let's not forget the pile of administrative entities that help business one way or another, from the Farmers Home Administration to the Small Business Administration.

So, suing the North and South Dakota models, could the state infest in the infrastructure for milling, packing and wool processing?  Perhaps it could. And, after an initial start up, perhaps it could require those industries to run on a self-sufficient basis.

Now, granted, this is a species of socialism, albeit of an odd type that differs from the classic economy destroying the government owns everything variety.  The concept would only be, on sort of  Distributist basis, to form those entities aiding major Wyoming industries where we aren't able to finish the product ourselves on an reasonably economic level.  We can't, for example, create refineries and have them compete.  Nor power plants. But packing plants are another matter, and mills are a demonstrated different matter.  This wouldn't bring in an economic miracle by any means, but it would allow us to further make use of the resources that we do have, right here. And there would be a market for the product, including a small market right here, in that the state is already in the lunch business for kids up to age 19.  Moreover, tags like "Wyoming beef" do have a local price and maybe even a regional one that could be useful for a product grown and finished here, and that is already the case.

This would be a massively expensive undertaking.

I'll be coming back to them again.

Anyhow, it would be possible, but it won't occur, for the state to play a direct role here by building one or two refineries in the state, perhaps one in the Pinedale region and another around Douglas.

But this won't happen.

It would be massively expensive, to be sure.  And that would draw the ire of people like Representative Chuck Gray who would be horrified by the expense.

And expensive it would indeed be.

But, frankly, so are the "clean coal" efforts, and we seem comfortable enough with that.

And such an effort, if on the South Dakota Cement or Dakota Mills model, could probably at least break even, and would likely have a ripple effect on the economy.  It would, bare minimum, employ hundreds and creates hundreds of more jobs, using a raw product that we produce here locally and then send out of the state for processing.

Which is not too say that this has a ghost of a chance of occurring, or that its uniformly a good idea.

It certainly would be problematic for a host of reasons. For one thing, it would put the state into an industry that is associated with massively expensive environmental problems.  Indeed, one of those Casper refineries, the one that basically built the town, was subject to just such a clean up.  It's now the Three Crowns Golf Course. No way the state would want to be tied up in something like that.

For another, it would put the state directly into competition with private industry, which is problematic for obvious reasons (although apparently not if you are North or South Dakota).  

And it's politically unrealistic in this industry.

Which brings us to something less unrealistic, which is not to say realistic.  The state could encourage the building of such infrastructure locally. . . with the only really realistic way to do that through taxation.

Now, any time taxation is mentioned in Wyoming people have a fit. Heck, we barely passed the coal severance tax that funded our schools for years.  But we could do that.  One purpose of taxation is to direct spending and development, in addition to raising revenue.

This would be hard to do, but you could put in place a Raw Products Tax to attempt to encourage local infrastructure in this are. But you'd have to be careful doing it so as to not end up deterring production, and that would be tricky.

And that's not going to happen either.

So, what's the point?

Well, just this.  In the major healthy extractive industry, oil and gas production, there's actually next to nothing that the Governor or our Congressional representation can do to impact it positively or negatively.  It's all pricing.  And that price isn't determined here.  Habits of consumption aren't either.

So the only opportunity is in the end product end.

But nobody is talking about that, and nobody is going to either.

So this gets back to this.  If this is an area of our economy that we largely can't do anything to influence, other than those things which have already been done, why do we keep kicking it around as though there's a political issue here to be discussed.  The economics of the extractive industries are economic realities that can only be influenced around the margins.  We can impact those margins to greater or lesser degrees through policies or direct actions, but big actions in this area would require big, and radical, efforts that we're not about to undertake.

So, dare we say, perhaps the topic of Wyoming's economic situation ought to just flat out skip over this area.

Addendum

Some times this morning, well after I posted this, I received an email from candidate Mark Gordon that sort of freakishly relates to the topics here.  It reads:

Wyoming’s energy industry has long been the backbone of our economy and has served our state, people, communities, businesses, and schools tremendously well. As the industry and markets change, so must our approach to protecting and promoting our natural resources!My new Power WYO Forward platform will foster and grow our state’s energy sector.The 6-point plan is simple:

• Building Infrastructure to Export Wyoming Resources - I’ll pursue opportunities with other sovereign funds, including the Alaska Permanent Fund and the Alberta Investment Management Corporation, to explore building infrastructure to export Wyoming’s high-quality minerals. Investing in private-sector endeavors or supporting them with bonds to do just that is a win-win.

• Driving Advanced Energy Technologies - I’ll work to position Wyoming as the leader in advanced energy technologies including Carbon Capture and Storage (CCS), Enhanced Oil Recovery (EOR) and new carbon-to-product markets. We’re seeing promising research come out every day that shows the potential for turning carbon into marketable products we can make money off of – like petrochemicals, asphalt and plastics.

• Streamlining Regulations - I’ll drive a shift on the state and federal level towards regulations that reward people for doing a better job – be it through expedited permitting, faster response times, or other incentives. The free market can, and will, address many of the environmental concerns that come with energy production, but we have to give them reasonable room to do so.  

• Localizing Decision Making – Working with Federal Agencies - Wyoming people, Wyoming leaders need to be empowered to make decisions. It is critical for the next Governor to leverage action with a strong relationship with the BLM and other federal agencies to expedite processes and keep projects moving.

• Streamlining & Aligning State Energy Resources - Streamlining and better aligning Wyoming’s energy agencies and resources will not only better serve taxpayers, but business – energy producers, innovators and those adding value to the chain. I’m committed to ensuring the state does more with less to direct people and companies to the resources Wyoming already has in place.

• All of the Above Energy Policy – There is Room for It All - Be it oil, gas, coal, uranium or wind, when it comes to natural resources, Wyoming has it all. As a lifelong conservative, I strongly believe that the market should pick winners and losers when it comes to energy sources – not government.

A person can take this for what it is worth, of course.  The thing I think is interesting about it is that it obviously advocates for the use of state funds in regards to the oil industry.  An irony of this is that the use of state money for private enterprise is generally not supposed to be a Republican thing, but apparently here it is.  Another factor to be considered, or that perhaps should be, is that some of the targets for state money under this type of program would seem to be areas that, if they are viable, the largest sector of our economy would invest in itself.

Other things go back o regulations although not in a way that's stated radically.

Anyhow, I'm not opining on the outline above in any fashion, just keeping this newly posted post, somewhat contemporary with the campaign.