Sharing the wealth: The benefits of offshore drilling for North Carolina

Saint Johns NewfoundlandA view of St. Johns, Newfoundland, in 2010. Image credit: Flickr via Eric Harrison
Saint Johns Newfoundland

A view of St. Johns, Newfoundland, in 2010. Image credit: Flickr via Eric Harrison

North Carolina has a lot to look forward to as the Obama Administration slowly moves ahead with a proposed lease plan for oil and gas exploration along the Atlantic coast.

Offshore drilling has been “something equivalent to being revived from a coma” for America’s northern neighbors, according to one American reporter. For years, Newfoundland and Labrador were known for being net recipients of financial aid from other Canadian provinces. As the fishing industry struggled, they steadily lost population.

That all changed in the early 2000s when companies began drilling in earnest along their coasts. Between 1988-2002, offshore bids brought in $900 million; from 2003-2014, bids yielded $2.4 billion.

HertiageKatieTubbThe surge in offshore drilling activity generated jobs in the oil and gas industries, pumping millions directly into the local economies. But other sectors of the economy have benefited as well.  Growth in the energy sector fueled demand for more office space and housing, more hotels and airports, more school programs to develop the skills and knowledge sought by a growing economy. It has opened up the prospect of a promising future for the region’s young people wanting to come back home to live and work.

By 2008, Newfoundland and Labrador were no longer were net recipients of federal aid. According to Newfoundland and Labrador’s Department of Finance’s 2014 economic review, the provinces had also experienced:

  • $12.2 billion (Canadian) in investments in 2014, a tripling compared to 2002
  • 4.1 percent increase in weekly earnings in 2014, an increase from roughly $600 in 2002 to nearly $1,000 in 2014
  • 3.4 percent growth in retail spending in 2014 alone
  • 11.9 percent unemployment, one of the lowest rates in recent history compared with pre-boom rates in excess of 20 percent

St. John’s Mayor Dennis O’Keefe said, “I think it’s fair to say that the feelings of optimism and confidence in what’s happening in the province far outweigh any worry about the price of oil.”

North Carolina has already had a taste of what an energy boom can do for consumers.  Abundant energy supplies unleashed elsewhere in the U.S. by hydraulic fracturing have dramatically reduced prices across the country.

Energy savings are even more valuable in times when the dollar is stretched thin. A recent study by IHS Global Insight compared state energy costs from 2012-2013 to what they would have been without the energy boom. American public schools saved $1.2 billion in energy expenses; North Carolina’s cut of that was $27 million. Tarheel state and local governments saved $49.5 million.

Offshore resources are considered federal areas, and the feds let only a few states share the benefits of offshore drilling, along with the responsibilities that come with it. States get a cut of the royalties collected by the federal government from companies leasing and producing energy resources offshore. In fiscal year 2014, Mississippi received $1.28 million in offshore royalties, Alabama $5.18 million, Texas $10.72 million, and Louisiana $20.85 million. These funds get used for state programs, schools, and projects like road improvements. North Carolina, having not been included in federal offshore lease plans got $0.

Crayons are one of the many everyday products made from petroleum.

Crayons are one of the many everyday products made from petroleum. Image credit: Flickr via NoodleNoodle

Earlier this year, the Obama Administration proposed reopening the southern Atlantic coastline for a single lease sale in 2021.This was after Congress and President Bush lifted a leasing ban on the Atlantic and Pacific only for President Obama to reinstate it before it got anywhere. Though far from the ideal, the Administration’s new proposal would open up federal waters that have been off limits for years.

Oil and natural gas are the backbone of modern American life. We use it to heat our homes, cook our meals, keep the lights on at work, home and school, and get from point A to B— whether B is just cross town or across the country. And then there’s the almost infinite number of products made from petroleum or that require oil and natural gas to be made.

Despite this, most of us never think twice about where the energy comes from. For example, most of us don’t notice the more than 100 oil and gas rigs operating in the few places currently permitted off our shores when we use all the products and services that depend on the fuel these rigs bring up.

Ultimately, Congress should  allow states to manage energy production on federal lands and waters as they see fit. In the meantime, North Carolina has every reason to move forward to wisely manage the challenges and enjoy the benefits that offshore drilling provides.

Katie Tubb is a research associate and coordinator at The Heritage Foundation’s Roe Institute for Economic Policy Studies.


Editor’s Note:  As originally posted, this piece contained typographical errors within the bulleted list. All three percentages were cut off before the decimal, so that 4.1 percent read as 1 percent, 3.4 percent read as 4 percent, and 11.9 percent read as 9 percent. The errors were corrected above at 11:16 a.m. on July 13. The errors were the fault of J&B and we apologize.