Assessing the Future of Oil and Gas Production and Local Government Revenue in Five Western US Basins
This working paper models how oil and gas production and associated government revenue could change in five western US regions based on future oil and gas prices in three climate policy scenarios.
Abstract
Oil and gas production is a major source of economic growth, employment, and public revenue in many US regions, but considerable uncertainty exists over the future of demand for hydrocarbons, particularly due to the need to reduce greenhouse gas emissions. To inform decisionmakers at local, regional, and national levels, we model how oil and gas production and related government revenue could change in five western US regions (in four states) depending on future oil and natural gas prices under three scenarios of climate policy ambition. Our findings suggest there is substantial variation across regions and scenarios: the Green River (Wyoming) and San Juan (Colorado, New Mexico) basins experience production declines across all scenarios, while production in the Bakken (North Dakota), Permian (New Mexico), and Powder River (Wyoming) basins are more dependent on prices. Although we find that government revenue generally follows the direction of production, these relationships are not directly proportional. For example, under the lower price scenarios, revenue declines more steeply than production because it reflects both production and prices, which both decline. Long-term permanent funds, which are in place across all the states we examine, provide an important fiscal cushion for school districts, their primary beneficiary. These results highlight the importance of developing economic resilience in oil- and gas-producing regions to prevent the potential negative impacts of a long-term reduction in demand for hydrocarbons and of long-term thinking when managing volatile and unpredictable natural resource revenues.
