From the supercomputing work at our national labs to the out-of-this-world flights from our spaceport, evidence is abundant that New Mexico can meet current and future challenges with transformative solutions. Our legislators need to tap into our state’s well of ingenuity and knowledge and figure out how to accelerate the diversification of our economy and state revenue sources. And they need to do it now – while the oil and gas industry is still with us.
The oil and gas industry is in decline, and has been for at least a decade, according to a new economic report from the Institute for Energy Economics and Financial Analysis (IEEFA). This isn’t the fault of the coronavirus, but the pandemic has helped underscore some of the industry’s problems. The report gives new urgency for New Mexico to chart a new course for a more resilient, diversified economy, a more stable and equitable tax system, and a more prosperous future.
Pre-pandemic New Mexico saw a boom in oil and gas extraction, which was mirrored by an increase in state revenue. And while many state leaders opined that this boom, being different from previous booms, was going to last indefinitely, the reality for the industry was far more grim. “In short,” the report states, “while New Mexico posted record oil and gas revenues, the oil and gas industry itself was reporting steep losses.”
Among the key findings:
Prices for New Mexico’s oil and gas have been declining since 2014. From 2015 to 2019, prices fell an average of 44% – and that was before the pandemic.
The industry is so cash-poor that the five largest publicly traded oil and gas companies have been unable to pay shareholder dividends. Since 2010 they have funded shareholder dividends by selling off assets and taking on new debt.
Investors are taking notice. While there once were seven oil and gas companies in the S&P’s 500 Index top 10, today there are none.
The growth in electric vehicles is helping drive down demand for gasoline. A new report predicts that the electric vehicle share of passenger vehicle sales will rise to more than 50% by 2040. It concludes that oil demand from passenger vehicles will never recover to 2019 levels.
Fundamental changes in the economy now support growth strategies that require less dependence on fossil fuels. Energy experts now chart corporate strategies to address the decoupling of economic growth from fossil fuel growth.
We’ve long known that our oil and gas resources are finite, but we must consider the possibility that the demand for them may die before the resources themselves are depleted. IEEFA’s report gives new urgency to the state’s need to diversify its revenue sources to rely more heavily on those that are more stable and longer lasting.
IEEFA’s report concludes that years of over-production have been unprofitable and unsustainable, and the oil and gas industry in New Mexico may never rebound to previous levels. That means we cannot rely on oil and gas for the revenue we need to staff our classrooms and hospitals, pay our first responders, pave our roads and more.
Legislators can’t control demand for oil, but they have many ways to help stabilize the state’s revenue, and they should start by repealing failed tax cuts for the wealthy and out-of-state corporations. Since those tax breaks failed to produce the promised jobs, they stand simply as corporate welfare – something New Mexico can’t afford.
We can’t wait. New Mexicans need bold and innovative solutions from our policymakers to accelerate the diversification of our state’s economy, restructure our tax system with an emphasis on equity, stability and accountability, and strategically invest in our most precious asset – our people. This is how we build a more sustainable, prosperous future for our state.