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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Oil Price Crash Crushes New Mexico’s Hope For Free College

New Mexico was, until recently, a lucky state. Despite being one of the states with the weakest economies—and high unemployment—New Mexico had the Permian, and oil revenues from drillers there flowed into the state's coffers. This is now over, and it could take years for the industry in this part of the country to recover. What happened in New Mexico is, in a much, much milder way, what happened in Venezuela: ambitious public spending programs, even plans to provide a free college education for all could be paid for with oil money from the shale boom. Unlike Venezuela, however, not all of these programs were passed by legislators, which in hindsight was the right move.

Last year, oil revenues made up as much as 39 percent of New Mexico's general fund revenues, according to a report by the state's Tax Research Institute. The oil industry's contribution translated to $3.1 billion in tax revenues, up by $910 million from a year earlier. For context, the general fund totaled $7.993 billion last year. And the outlook for 2020 was bright.

"We are estimated to be the - we're the third-largest oil and gas producer in the country," Governor Michelle Lujan Grisham told NPR last year as she made her case for providing free education for locals. "I think people, the experts believe we'll be second in the next year or so, so we know that that's not slowing up. And those revenues allow me to make these investments and grow the economy in other places."

Grisham went on to say that "Our fiscal house is in order. We're saving money. We do have an oil and gas boom. We're trying to be very smart about that, and we're investing in places where we know it makes a real difference."

Related: Norway To End Oil Production Cuts On December 31st

Sadly, no one could have anticipated the pandemic and the extent of the effect it would have on one of the biggest oil producers in the United States. Interestingly enough, data from the Energy Information Administration reveals that oil production in the New Mexico part of the Permian did not decline by all that much this year. In September—the last month for which there is data—the EIA reported New Mexico had pumped 30.708 million barrels. This is a little more than what the state produced in December 2019, at 30.571 million barrels. 

Production did drop sharply in May and June, falling below 30 million in each of these months, but quickly recovered and, on average, has this year exceeded 2019 figures. Oil revenues, however, are another story. When oil prices tanked because of the pandemic and the price war earlier this year, they tanked with a thunder. 

In May, a group of economists warned in a note that New Mexico was highly sensitive to swings in oil and gas prices. The pandemic could cost it between $2.1 billion and $3.9 billion in lost revenues over 12 months, NBC's Ben Kesslen noted in a recent analysis of the state's public spending programs. To date, the figures may be even higher given the path the pandemic has taken in the United States since May, and the path oil prices have gone.

New Mexico has a problem, and it is not necessarily an oil problem, although Governor Lujan Grisham is very serious about methane emission reduction. The problem, as described by Kessler is the classic vicious circle. The state needs a more diversified economy. To develop it, it needs more educated people. To provide this education, it needs money. The money has nowhere to come from but oil because the state's economy is not diversified. Solving this puzzle will undoubtedly be a much bigger challenge than cutting methane emissions from the oil industry in New Mexico.

By Irina Slav for Oilprice.com

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  • George Doolittle on December 01 2020 said:
    New Mexico has a very diversified economy including Federal largesse, being one of the most beautiful and visited States in the United States...by Americans...and of course a great source of culture and ingenuity as well as logistics. Oil is hardly at minus 40 us dollars anymore nor is Mexico proper a major producer of oil anymore as well. With the weak US Dollar the USA New Mexico economy is booming as is true of West Texas and parts of Arizona...plus Colorado and of course Wyoming, South Dakota, North Dakota, Montana and Iowa. There is no "energy bust" in this Region as happened in the 1980s. In fact the exact opposite is true.

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