Natural gas in Wyoming | Boom and doom | Economist.com

From the latest Economist: an article about the booming natural gas industry in rural Wyoming (as if there’s such a thing as urban Wyoming) and the impact it’s having on the economy of one small town.

You’d think a booming industry offering high wages for low-skilled workers would be a godsend for a remote Western town like Pinedale, Wyoming. Think again; this article points out some of the downsides resulting from the natural gas boom since 2000, when oil shortages led to an increase in the price of gas and lots of new drilling in Wyoming, America’s least populated state.

Pinedale is at the centre of a Rocky Mountain gas boom that began in 2000 and accelerated five years later after Hurricane Katrina knocked out Gulf supplies, forcing up prices. On a mesa south of Pinedale, Wyoming’s busiest field is laced with dirt roads and pock-marked with well-heads and drilling rigs.

The influx of gas workers has increased the population of the area by 40% since 2000. The new business has meant more tax revenues for the county, “In 2001 Sublette county raised $16m in sales and other taxes. Last year it took in $53m.” What does all this mean for residents of Pinedale and the surrounding county? Higher wages and low unemployment.

Next year Pinedale’s school district will pay newly qualified teachers a base salary of $43,000—about the same as in Chicago.Teachers nonetheless earn less than rig hands, most of whom have no more than a high-school education. They are paid at least $49,000 plus overtime, according to a survey last year. The ready availability of well-paid work, albeit hard and dangerous, means that unemployment has almost disappeared (see chart). So have seasonal fluctuations. Jobs used to disappear when the snow fell. But the gas rigs now keep going through the winter.

The wage hikes enjoyed by government employees and gas workers, while good for some, means doom for local businesses not directly linked to the gas business, for whom the tight labor market makes it increasingly difficult to operate. The housing market has also experienced a shock since the gas boom, as properties away from the gas fields have barely increased or even decreased in value.

The interesting connection I see in this article to our Economics course lies in the affect of low unemployment and high wages on the business environment. See if you can identify the connection through the questions below.

Discussion Questions:

1. What led to the increased drilling for natural gas in 2000? Which determinants of demand and supply led to the changes experienced in the oil and natural gas industries?
2. What kind of labor market is the Wyoming gas industry most like, perfectly competitive or monopsonistic? How do you know?
3. Are gas companies in Wyoming wage takers or wage makers? What’s the difference?
4. If low unemployment and high wages are assumed to be good, then why does the article indicate that they are actually bad for some in Pinedale?
5. Why has “the number of retail and entertainment outfits in Sublette county” fallen “even as disposable income soared”?

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