CMU study: Oil and gas contribute $1 billion to regional economy

Phil Castle, The Business Times

Nathan Perry
Nathan Perry

The oil and natural gas industry contributes more than $1 billion a year to the economy of a six-county region of Western Colorado, according to the results of a new study of the energy sector.

Employment fluctuates, though, with the number of drilling rigs operating in the region and natural gas prices — changes the study also quantifies.

The results not only confirm the role of the energy sector in the West Slope economy, but also offer a way to assess the local effects of commodity prices, said Nathan Perry, an associate professor of economics at Colorado Mesa University in Grand Junction who conducted the study and reported the findings.

The study is part of Perry’s ongoing research into how the regional economy works. “I can’t think of a more interesting issue for the Western Slope,” he said.

The Unconventional Energy Center at CMU funded the study, which Perry conducted during a sabbatical. He reported the findings at both an energy and environment symposium in Rifle and economic summit in Grand Junction.

The study included two parts, Perry said. One part calculated the economic contributions of the oil and gas industry in the Piceance Basin, an area that includes Mesa County as well as Delta, Garfield, Gunnison, Moffat and Rio Blanco counties. The second part analyzed the relationships between employment in the region and rig counts and natural gas prices and created models to quantify those relationships.

Perry said the study results affirmed his expectations about the role of the energy sector in the economy and labor force. “Once I got the data, it made sense.”

The calculation of the total economic contribution of the oil and gas sector includes wages, taxes and royalties as well as supply chain and household spending. Perry said he used a data and software program called IMPLAN to account for the different multiplier effects for various industries providing goods and services to the energy sector as well as the induced effects of spending by energy workers as that money passes through the economy.

Perry calculated the total economic contribution of the oil and gas industry at nearly $1.1 billion. The total contribution equates to 9.2 percent of gross domestic product in the region, the broad measure of all goods and services produced in the six counties, he said.

In terms of employment, the oil and gas industry directly and indirectly accounts for almost 11,000 jobs, 6.6 percent of the total estimated payrolls in the six counties, he said.

Those numbers make the energy sector among the top contributors to the regional economy along with health care, retail trade and construction, Perry said. The energy sector actually plays an outsized role with fewer employees because of the higher wages the sector pays, he said. The average weekly wage in the industry is $1,606 in Mesa County and higher still at $1,768 in Garfield County.

The total economic contribution of the oil and gas industry includes a direct effect of more than $776 million, an indirect effect of more than $67.4 million and an induced effect of nearly $240 million.

In terms of employment, the sector directly accounts for 6,660 jobs, with another 820 jobs created indirectly and 3,479 jobs created through the induced effects of spending and respending.

Along with the economic contributions of direct, indirect and induced spending and wages, the study also takes into account the effects of severance taxes and federal mineral lease royalties as well as ad valorem and sales taxes. In addition, the economic contributions of spending as a result of royalties paid to private landowners in the Piceance Basin were estimated.

What the study doesn’t include, Perry said, is the value of oil and natural gas produced in the Piceance Basin. Since the study focused on the effects of the so-called upstream activities of drilling and extraction, midstream and downsteam activities were beyond the scope of the analysis.

In addition to the economic contributions of the oil and gas industry, the study also explored the relationships between regional employment and rig counts and the price of natural gas.

Perry said he created a model that found the change of one drilling rig accounts for a total change of 208 jobs in Mesa County as well as Delta, Garfield, Moffat and Rio Blanco counties. Gunnison County was left out of the calculation because of insufficient information.

On a county level, the change of one drilling rig accounts for a change of 122 jobs in Mesa County and 70 jobs in Garfield County.

Th effect of the rig count on employment has generally trended downward, he said, because of advancing technology making drilling more efficient.

Another model found a change of $1 in the price of natural gas as measured at the Rocky Mountain Opal Hub in Wyoming results in a change of 1,183 jobs in the six-county region.

On a county level, a change of $1 in the price of natural gas results in a change of 828 jobs in Garfield and 646 jobs in Mesa County.

The models should serve useful, Perry said, in forecasting labor market changes in Western Colorado as a result of changes in rig counts and natural gas prices.

The full report on the economic contribution of the oil and gas industry in the Piceance Basin is available online from the Unconventional Energy Center at Colorado Mesa University at www.coloradomesa.edu/energy.