Oil and Gas Revenues in New Mexico Have Been Declining for Years: Clean Energy is What New Mexico Needs, not Dutch Disease

In late January, the Biden administration announced the suspension of new oil and gas leasing and drilling permits for US lands and waterways for 60 days as part of a Department of the Interior review. This move follows President Joe Biden’s campaign pledge to halt new drilling on federal lands and end the leasing of publicly owned energy reserves as part of his overall climate change plan. This announcement of course troubled the New Mexico oil and gas industry, who warned lawmakers that its moratorium could be economically devastating to New Mexico. 

Oil and gas revenues on federal lands in the state of enchantment made up about $1.5 billion, or 20% of our state’s budget in 2019.  New Mexico typically receives about $2 billion in direct revenue from oil and gas production through severance packages, property taxes, royalties and rental income, with added indirect income derived from sales and income taxes on oil and gas drilling and service. This added income generated an estimated $300 million for the state. New Mexico’s oil and natural gas industry provides 134,000 in-state jobs, and added $16.6 billion to New Mexico’s economy in 2018. In short, the industry accounts for 12% of statewide employment and 16% of the state’s economy.  The largest contributor to GDP growth in New Mexico is mining, quarrying, and oil and gas extraction, accounting for 0.94 percentage point of the total growth in real GDP. 

Given the fact that the oil and gas industry contributes 16% to the New Mexico economy, I understand that citizens employed in the oil and gas industry might be a bit jittery about the President’s moratorium, and a bit nervous about the possible decline in state revenue, and jobs as a result.  New Mexico is not a wealthy state. New Mexico ranks as the fourth poorest state in the nation.  The typical New Mexico household earns $47,169 a year which is $36,073 less than the typical household in Maryland, the richest state in the country.  However, oil and gas revenue for New Mexico’s oil and gas have been declining since 2014. From 2015 to 2019, prices fell an average of 44% before the COVID-19 pandemic.  Oil companies have experienced drops in profits during the past ten years, even in the face of increased production. An increase in drilling and oil well activity in 2019 resulted in a 47% increase in production of oil in New Mexico over fiscal year 2018, but didn’t result in a rise in profits.

More than 40% of the New Mexico’s income relies on the variable profits of oil and gas, and these funds are invested in education, public safety, infrastructure and other state programs. However, given the revenue generated by oil and gas, how is it that New Mexico ranks 49th in education, 47th in employment, and for the third year in a row ranks 49th nationally in child poverty. It’s hard to say that reliance on oil and gas has led to giant leaps in education, social welfare and employment.  

In a recent article by Jerry Redfern, the author describes a phenomenon called the “Dutch disease,” which is essentially a paradox of plenty, or the “resource curse.” Dutch disease is an economic concept that is associated with a rapid increase in the production of raw materials (such as oil and gas) which then causes a decline in other economic sectors: So when the the booming extraction of raw materials run out, the economy tends to be in a worse position than before. It occurs when a country has an abundance of developed natural resources, but underperforms both socially and economically, and the influx of cash and capital from one industry dominates the economy, and legislators are hesitant to disturb these “golden gooses.”  

Redfern also goes on the add that in addition to high rates of child poverty and low education rankings, New Mexico has two other things in common with the third-world countries of Venezuela, Angola and Nigeria: Exxon and Chevron, two of New Mexico’s biggest oil well operators.  The article quotes Jim Peach, regents professor of economics at New Mexico State University. Peach states that those states who depend on coal mining, oil and gas (i.e. West Virginia, Oklahoma, New Mexico) remain mired in poverty, despite profits. In the Land of Enchantment, oil and gas pumped money and jobs into just two or three counties, and the rest of the state saw few benefits beyond redistributed taxes through the state budget.

When I first moved to Colorado to go to graduate school in 1988, the bottom had dropped out of the oil industry there. At that time, state leaders decided to diversify the economy, to move away from dependence on oil and gas, and today the entire Front Range of Colorado has a booming tech and energy industry. Colorado evaded the effects of “Dutch disease.” New Mexico can do the same. With the ravages of climate change, and the urgency with which the world must act to shift to renewable energy sources, New Mexico can join the movement and move away from the volatile oil and gas industry. Sunny New Mexico has substantial renewable resources, particularly from wind and solar, offering significant wind energy potential on the high plains in the eastern half of the state. New Mexico also has the nation’s sixth-largest geothermal potential, mostly in the north-central and southwestern part of the state.  The transition away from oil and gas in our state will meet resistance from oil lobbyists, but the good news is that clean energy jobs are already a major part of our nation’s economy.

In 2019, more than 3.3 million Americans worked in clean energy occupations, which is more people who worked as schoolteachers, bankers, farmers or real estate agents, and almost three times the number of those employed by fossil fuel companies. Also, average hourly wages for clean energy jobs are about 25% higher than the national average, and they are more likely to come with retirement benefits and health care plan.  Clean energy jobs are growing faster than any other facet of the energy industry, and in the past three years, make up for about half of all net new energy sector job growth.

New Mexico can lead the way in renewable energy, we can invest in the training and education of those employed in the oil and gas industry, and we can diversify our economy. There’s no need for the Land of Enchantment to be another casualty of “Dutch disease.”