North Dakota's leading index for June predicts a 3.8% growth rate for the state's economy over the next six months, by far the highest expected growth rate among the 50 states (only No. 2 Ohio comes even close at 2.6%), and a rate of growth almost four times higher than the expected 1% at the national level.By the way, being an inveterate optimist, the chart at the link (for the US), is very, very encouraging, for the long-term investor. (Disclaimer: this is not an investment site; that's just my 3-cents worth).
Saturday, August 4, 2012
The "Miracle State"
Via CarpeDiem.com.
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The following comment was filled with spelling errors. I corrected them where I could, indicated by brackets if I was not sure of the original:
ReplyDeleteI know CarpeDiem has some good articles, but this is not one of them.
There are two problems. One, the ND GDP [is at] the bottom of the states in ranking.
[Further], the base upon which the "growth" is computed is low in actual magnitude compared to other growing state economies.
The second proem and by far more troublesome is the hockey stick pattern of the projected growth. The growth isn't sustainable for a whole host of reasons not the least of which is the capacity of the whole system (operators, drilling rig avail, regulatory pace, etc.) to expand at a significant rate.
ND needs to enjoy the "boom" while it lasts but prepare for the inevitable end/down cycle. I think the lag in infrastructure is an indicator that "investors" (including both govt and private) are hesitant to go all in on western ND when only agriculture and oil drive growth.
Ag is limited and govt sponsored. Oil is marginal at today's crude prices. P
You raise a lot of issues which would be impossible to address in a short book, much less the comment section of a blog.
DeleteBut quickly, the graph and Carpe Diem's comments promote thinking about what is going on. This would be just one of thousands of graphs that are used to follow macro-economics. For me, the graph is simply a snapshot in time, and "it is what it is."
With regard to the "second problem," the hockey stick pattern: that is not a problem. That is either a boom or a recovery. Of course, it's not sustainable. It's a boom; by it's very definition, it's not sustainable.
You are correct about the lenders. Many, many comments: a) oil is a boom and bust industry; b) regulators impose rules that limit investment; c) even if there was unlimited investment, ND is moving about as fast as it can (there simply is not the workforce or the housing for the workforce to keep up); d) even if there was unlimited investment, the rest of the country has not been able to keep up (lack of fracking sand, lack of ceramics, questions about adequate guar, lack of rail cars, lack of bigger rigs, just as starters.
With regard to "oil is marginal at today's crude prices" you're either a newbie or have a different accounting method for oil than others. But, let's say you are correct. The interesting thing is that five years ago, North Dakota was number seven (#7) among states in oil production; today it is #2. If the state of North Dakota imposed the same permitorium on exploration and production as the federal government and California (perhaps other states as well), North Dakota would not have moved to 2nd place in oil production.
Even the most conservative estimates suggest that drilling will continue for 20 years (through 2030) and production will continue through 2100. Those numbers were conservative, coming from university and government sources when proved reserves of the Bakken were estimated to be in the 1 - 3 billion bbl range. Newer estimates suggest the technically recoverable reserves could approach 24 billion. (My hunch is we will see an even higher number in a few years.)
I'm not sure what to say about your agricultural comments. Books could be written (and have been written). I don't think CarpeDiem was trying to bring agriculture into the equation.
At the end of the day, as I noted when I started this reply, the graph at CarpeDiem was supplied by others (not originated by CarpeDiem); it is one among thousands of graphs used to follow macro-economics; and, "it is what it is."
With regard to "enjoying" the boom: I don't think many long-term residents in the North Dakota oil patch are enjoying the boom. It's been a huge challenge, and I have great respect for those living and working there under very, very trying circumstances.
One comment with regard to agriculture: states like Indiana, Illinois, Iowa, Daschleland, and other corn states, have done incredibly well due to federal ethanol mandates. This year, of course, will be a disaster, for the corn farmers. Insurance will not make up for the profits that had been projected. North Dakota farmers for the most part, as far as I am aware, do not participate much in the ethanol windfall. If the starving children in the Sudan knew "we" were converting food into fuel ...
DeleteSpeaking of ethanol -- there are reports just coming in now of a train derailment near the Bakken -- probably on the Montana side of the border, near Highway 12. I haven't seen official news reports yet. First reports: ethanol. How ironic.
DeleteOne of the things that one sees with some comments that are sent in: lack of understanding what's going on in the North Dakota oil patch and in North Dakota in general. The growth rate in North Dakota may be 3.8% but the growth rate in the oil patch is astronomical.
ReplyDeleteOutside of the oil patch (see below), and two or three non-oil patch cities (Bismarck, Fargo, Grand Forks) growth is probably significantly less.
In surface area, the North Dakota oil patch in this Bakken boom may comprise about 15% of total surface area of North Dakota (maybe I should calculate that out some time). So, 3.8% GDP growth is spread out across the state. The boom is pretty much taking place in five or six western counties, particularly and specifically: Williams, McKenzie, Dunn, and Mountrail.
That was one of the reasons I started the blog: to try to educate folks about what is going on in the North Dakota oil patch. I guess there are reasons to continue the blog. Smile.