Expert Available: Look to Rural Communities for Impacts from Oil Prices

February 23rd, 2016

The views and opinions expressed in this “for expert comment” release are based on research and/or opinions of the researcher(s) and/or faculty member(s) and do not reflect the University’s official stance.

COLUMBIA, Mo. – With gas prices dropping, many Americans are feeling relief in their wallets. Meanwhile OPEC members, including Saudi Arabia and Iran, are discussing a coordinated oil production freeze that could lead to yet another shift in oil prices. While these price dips and increases have a definite personal impact, they play a much more significant role in rural communities that produce oil and energy. Thomas Johnson, a policy and economics professor at the University of Missouri, points to the complexity of understanding the role “wealth” plays in achieving sustainable rural economic development to understand the impact of lower, or potentially higher, gas prices.

“Wealth is much more than the amount of money one possesses,” said Johnson. “Wealth includes all assets that can contribute to well-being; it is not merely the wealth located within a region. The wealth of a community includes what is owned by the people in those communities plus what is accessible to the community from infrastructure to social investments in health care and education. Common ways to discuss wealth—for example income or how much we happen to have in our wallets—fail to capture the big picture of what wealth really pertains to: the future.”

Johnson notes that in order for rural communities to sustain economic development, they must focus on producing the commodities needed by the more urban centers—for example oil and gas. Johnson points to the use of fracking in the U.S. to produce oil and natural gas from underground shale as one of the reasons that currently the oil supply is larger than the demand, causing oil prices to drop.

In rural areas such as North Dakota, home to the Bakken shale, the oil production boom and bust cycle has a significant impact on the overall wealth of the area. As prices drop some oil companies are forced to cut jobs or completely shut down, impacting the economy. If the trend reverses, and oil supply and demand even out causing prices to rise, an influx of workers can put additional strain on social and structural infrastructure of a community.

“Fast changes in the economy are always costly” said Johnson. “Economic booms leave behind a mess for rural communities that do not have the population or tax base to support the social investments that urban communities have. North Dakota’s economy was booming due to high oil prices. Jobs were being created and homes were being built. Now with oil prices falling, the rural towns in North Dakota are feeling the pinch.”

Johnson serves as the Frank Miller Professor of Agricultural and Applied Economics in the MU College of Agriculture, Food and Natural Resources and professor at the MU Truman School of Public Affairs. His career has been committed to studying and understanding the idea of wealth and how wealth can be measured in rural communities. His recent research areas include: fiscal and economic impact analysis, rural entrepreneurship, land use and rural transportation. He is the co-author of “Rural Wealth Creation,” released in 2014. He is director of the Community Policy Analysis Center, which is affiliated with the Rural Policy Research Institute.