CASPER -  Headwaters Economics, a Montana-based, independent think tank, is casting doubt on the conventional wisdom that more drilling will result in lower prices at the gas pump for consumers.

The non-profit research group kicked off Energy and the West in late August - an ambitious, nine-part series of economic analysis and case studies that consider the impact of energy development on states, counties, and communities, from the perspectives of economic performance and fiscal health. The series, on the Internet at www.headwaterseconomics.org, is emerging once a week.

"Rather than generate a giant report, we broke it up into nine pieces," said Ray Rasker, executive director of the group. Rasker said economic research and government data indicates that while the country is largely self-sufficient in natural gas and coal, petroleum, however, is another matter entirely.

"The U.S. has 2.4 percent of the world's known oil reserves," said Rasker. Even if there was a magic straw that could withdraw all that oil overnight, he said, it isn't enough to make the U.S. into a price center or price influencer on the world stage.

"And yet, according to national polls, the average citizen believes that drilling more will lower prices at the pump," he mused.

The price of oil isn't based so much on geology, he said, but on a complex mix of politics, policy, world demand and events.

His report (Energy Development and the Changing Economy of the West) goes on to state that "western public lands contain an even smaller portion of world reserves-approximately 0.2 percent. In 2007, the U.S. produced 8 percent of the world's oil (6.9 million barrels per day) but consumed 24 percent of the annual global production of oil (20.7 million barrels per day), a 13.8 million barrel-a-day deficit. The U.S. oil reserves-to-production ratio is 11.7, which means that in just under 12 years we will deplete our proved reserves at current production levels. Developing all proved oil reserves in the Intermountain West would meet the oil needs of the country for 116 days, and have little bearing on world supply."

Citing the Minerals Management Service, the report estimated that of all the oil and natural gas believed to exist on the Outer Continental Shelf, 82 percent of the natural gas, and 79 percent of the oil is open for leasing. And onshore, 72 percent of oil and 84 percent of natural gas resources are either fully accessible, or will be as soon as land-use plans and environmental reviews are complete. In other words, the majority of offshore and onshore federal energy resources are available for development.

And finally, the report notes that "The U.S. stands a far better chance of achieving energy independence if we reduce oil consumption. Recent high prices have begun to do just that-Americans are price sensitive and are driving fewer miles in order to save money (12.2 billion fewer miles in June of 2008 than in June of 2007, a 4.7 percent decrease).



Local impact varies

Rasker's group also looked at how the energy boom impacts state and local economies (U.S. Energy Needs and the Role of Western Public Lands ), noting that "In the five energy-producing states of the West, energy is a relatively small portion of the economy, with the exception of Wyoming. The percent of total personal income from people employed in energy development is as follows: Colorado (2.2 percent), Montana (2.6percent), New Mexico (3.1 percent), and Utah (1.4 percent). The state the most focused on energy development is Wyoming (13.7 percent of total personal income). It is also the least economically diverse state in the nation (the most reliant on a single industry), and therefore the most vulnerable to change."

Change hit Wyoming hard in the last boom and bust cycle, he said. Unlike other Intermountain states, Wyoming has not been able to build a more diverse mix of service and professional industries. The result is the most volatile economy in the region. In the 1980s when energy sectors crashed, for example, Wyoming lost more than 11 percent of its population and 6 percent of its job base.

In contrast, said Rasker, western Colorado has diversified its economy, layering on an energy boom atop a pre-existing in-migration amenity boom as people moved in to take advantage of the natural amenities of hunting, fishing and the outdoors.



Wyo No. 1 in taxes

Yet Rasker said Wyoming, of all the western states, is doing the best job at capturing tax revenues from the energy boom. The question is what will Wyoming do with that wealth, he asked.

"The smartest thing would be to create a permanent endowment for higher education in Wyoming," said Rasker, all the better to attract and grow a highly educated workforce that can help Wyoming diversify its economy.

Still to come are in-depth case studies of the energy impact on Colorado, New Mexico, Montana and Wyoming, where the focus will zero-in on Sweetwater County, Rasker said.

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Wyoming Business Report Managing Editor Brodie Farquhar can be reached at brodief@wyoming.com or the Casper office, 307 577-1111 or 307 333-4024.