Copyright © 2015 Albuquerque Journal
The holiday season is coming early for New Mexico motorists, with gasoline prices rapidly tumbling around the state.
But that joy at the pump caused by falling oil prices will be accompanied by serious pain for lawmakers trying to fashion a state budget, state workers who want raises and for people who live and work in New Mexico’s oil patch.
In Albuquerque and other places, some gas stations began selling at below $2 per gallon in mid-October. That includes the Smith’s station at Coal and Yale near Central New Mexico Community College, where drivers pumped fuel at just $1.95 per gallon on Friday.
“I’m loving it!” said Harley Tucker, a CNM student who filled up Friday at Smith’s. “I live on the West Side and drive back and forth to CNM two or three times a day. This is great for me.”
Nationwide, consumers are enjoying welcome relief at the pumps, thanks to a global oil glut that continues to drag down crude prices.
While that’s a boon for motorists, it’s a problem for New Mexico and other states that rely heavily on oil and gas production.
In New Mexico, where revenue from the oil and gas industry makes up about a third of state government revenue, declining prices are expected to gut production next year. That could force state legislators to sharply curtail spending – or raise taxes – during the legislative session that starts in January.
While the price of oil is already less than half of what it was 18 months ago, at about $44 a barrel now, experts expect Iran to ramp up production in the wake of the historic and controversial nuclear arms deal that included the lifting of sanctions.
Some experts are predicting the added Iranian production could push prices as low as $23 a barrel within two years – which would mean a loss of more than $200 million in state revenues.
The oil glut first began affecting markets last year, following years of production growth in U.S. oil and gas basins, where modern drilling techniques have allowed producers to suck out more crude from hard-rock shale formations. Increased production cut oil prices from above $100 per barrel in mid-2014 to below $50 by last fall.
Prices began to stabilize early this year, as producers cut back on new drilling and financial markets expected more balance in supply and demand. Crude hovered above $50 per barrel throughout the spring, and gasoline prices climbed to about $2.70 a gallon nationwide by late July, partly because of higher summer demand.
That all changed in August.
First, despite a drop in new drilling, production remained fairly steady nationwide, and output actually climbed in places like the Permian Basin in southeast New Mexico and West Texas.
Then, the U.S. and other countries signed a deal with Iran to curtail that country’s ability to produce a nuclear weapon. In exchange, economic sanctions could soon be lifted for Iran – traditionally one of the world’s largest oil producers – and that means a lot more crude could soon flood world markets.
As a result, crude prices have been dropping again, dragging retail gasoline prices down with them. Industry analysts now expect the downward spiral to continue at least through the New Year, pushing the average national price for gas to below $2 per gallon by Christmas for the first time since 2009.
“We’re predicting the national average to go below $2 by the end of December,” said Will Speer, senior petroleum analyst with Gas-Buddy, a Maryland-based organization that tracks prices nationwide. “There’s still a lot of supply and little demand on world markets, and that means refineries are getting cheaper crude, which translates to lower prices for consumers.”
Good and bad news
That’s good news for Tanya Thompson, a University of New Mexico student who also filled up Friday at Smith’s. She said low prices are helping her pay for weekend trips to Santa Rosa to visit her family.
“I go home every Friday and come back on Monday, so I’m saving a lot of money,” Thompson said. “Before, I sometimes didn’t have enough to pay for the trip. This is definitely helping.”
But in New Mexico’s oil patch in Lea, Eddy and Chaves counties, and in the San Juan Basin in the northwest, at least 6,000 people have lost their jobs. And the situation is expected to worsen next year as production begins to decline.
The state will likely need to revise its revenue projections for fiscal year 2017, said Sen. John Arthur Smith, D-Deming, who chairs the Legislative Finance Committee. Officials estimated $293 million in “new money” in August, based on an average price of $56 per barrel of crude. But the price has since dropped to about $44 a barrel, and some industry experts believe it could drop another $15 per barrel when Iran re-enters western markets.
For each $1 drop in the price of oil, Smith said, New Mexico loses between $7 and $10 million in revenue.
“I think going into the new session the revenue estimate is highly suspicious,” Smith said. “We’ll update it in January, but prudence would dictate that we move gingerly forward. We’re keeping a very close eye on it.”
Still, consumers are enjoying the low prices.
“Every little bit helps,” said Joe Roberts, who filled his VW at Smith’s on Friday. “It’s good for the economy. The more money people have in their pockets, the more they spend on other things.”