A Modest Rationale for Ending “Economic Diversification” Efforts

If you live in Midland, you’re familiar with the Midland Development Corporation (MDC), the quasi-governmental agency that uses some of our taxes to bribe entice companies to either locate in Midland County or expand their operations if they’re already here. The special sales tax that funds these efforts has been in place for a decade, and our newspaper recently ran a series of articles about the results of the so-called economic development efforts. Those results are rather dreary, to say the least.

The impetus behind the economic development movement in this area is to diversify the economy, which has been completely dependent on the petroleum industry for decades. The theory is sound. If we have a wider variety of industries employing folks in the Permian Basin, we’ll be better positioned to weather the next bust in the cycle of oil prices.

But I can’t help wondering: what if that bust never comes? What if the petroleum industry continues to to enjoy uninterrupted success for decades to come? What if the roller coaster ride is over? Would that change how we look at the need for so-called economic development? 

I think it should, and I also believe we’ve entered a fundamentally altered landscape for the petroleum industry that supports the idea that we don’t need economic diversification. And it’s a good news/bad news situation. 

First, the good news, at least for those of us in the oil bidness (or whose livelihoods are directly tied thereto). I don’t know if we’ve entered the era of “Peak Oil,” where the physical availability of oil and gas will steadily dwindle from now on, but I do believe we’ve hit the point where global supply and demand are balanced at a point to ensure a price that’s high enough to sustain the current level of activity as far out as one can reasonably look. 

The bad news is that the only thing that will make this not be the case is a global economic meltdown that kills demand, and sends the industry spiraling down into another bust. This would imply that China and India and Brazil and the other emerging drivers of economic expansion hit a wall. I don’t mean to be dramatic, but this would be catastrophic for everyone, not just the oil and gas industry. 

In addition to these economic considerations, the argument that the Permian Basin cannot physically support significant industrial expansion grows more defensible as the drought continues and water becomes increasingly scarce. I think it’s a fair question to ask if we’ve reached – or passed – critical mass in the region in terms of population. 

Yeah, I know the counterargument to all of this: if we’re not growing, we’re dying. Call me a pessimist, although I prefer to think I’m simply a realist, but we’re dying anyway, and not just individually, for many different reasons. But none of those reasons include the inability to diversify our local economy. 

I think it’s time to man up, and own the fact that this is oil country, and always will be. Our economic diversification could be defined to include both kinds of energy – oil and gas – to borrow a line from The Blues Brothers. We should make the most of what we have in terms of natural resources for as long as we can, and continue to provide relevant technology to the rest of the world, but have no illusions about the end game. Because barring a breakthrough in quantum physics and/or collective mindset, when the oil bidness finally dies, so does global society as we know it. I’ll let you decide whether that’s good news or bad.