The legislature has historically relied heavily on oil and gas taxes as the central driver of state revenue, but the fall in demand for oil over the past year has left lawmakers with a pool much more restricted to work with.
The new budget forecast, which was approved by the House of Commons and Senate appropriations committees on Friday, includes several large budget compartments usually filled by the oil industry which are empty at the moment for this biennium and the next.
Allen Knudson, a senior budget analyst for the North Dakota Legislative Council, noted that the competing multibillion-dollar bond proposals before lawmakers this session will seek to fill some of those holes.
The new budget forecast comes as oil production in the state has slowly increased in recent months. U.S. oil prices finally cleared $ 50 a day with the start of the new year, but Lynn Helms, the state’s main oil regulator, predicted a long road to recovery, stretching to the end. 2022 before production begins to resemble pre-pandemic levels.
Still, recent oil price hikes and a revised forecast by IHS Markit consultants gave lawmakers a more optimistic picture this week.
“The outlook is a little brighter,” said Knudson, who sounded a week ago in a speech to lawmakers highlighting serious financial challenges for the state if oil markets do not improve. Knudson on Friday called the approved budget forecast a “very good” starting point while noting: “We still have a long way to go.”
By splitting the difference between an IHS Markit projection this week and that presented to the governor’s office in October, lawmakers approved a general fund plan of $ 3.95 billion for the next biennium. They predicted that oil prices would stay at $ 40 a barrel in 2023 and that production would stabilize from 1.1 million barrels per day to 1 million by the summer of next year.
Helms called these oil projections “very reasonable,” although he noted that lawmakers are playing on the safe side, especially with their forecast stretching to 2022, when he expects state oil production is on the rise.
“But when you look at these completion numbers that we see, and the number of rigs and the price of oil and some of those uncertainties, it’s pretty reasonable to try and stay on the conservative side of this production curve.” , did he declare.
North Dakota Director of Mineral Resources Lynn Helms testifies on January 19, 2017 before the North Dakota Senate Appropriations Committee. Forum press service file photo
The legislature will have the opportunity to change its forecast in March, a window that Helms says could leave some time to assess any additional benefits from the oil sector.
Oil production figures for the month of November, the latest data available, stood at over 1.2 million barrels per day. Helms noted that the recent price hike has put North Dakota “very firmly” back into economic territory for fracking to resume, a benchmark the state has hovered below for months of the pandemic.
Still, the timing of this price change with winter conditions should keep fracking to a minimum in the early months of this year, Helms predicted.
Industry activity is expected to pick up with warmer weather returning this spring, Helms said, but the price conditions needed to incentivize new drilling are likely more than a year away. By the end of 2022, he said, production is expected to resume a steady climb.
“I know that’s not what the revenue forecast says, but (lawmakers) still want to be on the conservative side of this curve,” he said.
Readers may contact Adam Willis, Forum reporter, member of the Report for America Corps, at [email protected]