Thanks to shale, energy-producing states have been the strongest economic performers in the United States over the last decade, sharply improving their position compared with the energy-consuming areas of the country.
Only 13 of the 50 states produced more energy than they consumed in 2010, the latest year for which comprehensive data is available, according to the U.S. Energy Information Administration (EIA).
The other 37 states were all net energy consumers, relying on some combination of interstate commerce or imports to meet the shortfall (Chart 1).
But the shale revolution and the renaissance in U.S. oil and gas production have resulted in a stark contrast between the fortunes of the two groups.
Eight of the 13 energy-producing states improved their relative position between 2003 and 2013 when ranked by per capita GDP (Chart 2).
Energy producers accounted for 8 of the 18 states, almost half, that improved their relative position over the last decade.
By contrast, energy-states have fared poorly. None one of the ten states with the largest energy deficits has improved its relative position since 2003. Nine of them have seen their rank decline, in some cases sharply (Chart 3).
PEACE GARDEN STATE
Energy producers dominate the top of the table of the most successful states in terms of raising real output per capita over the last decade. Six of the ten states with the biggest increases in real per capita GDP are net energy producers (Chart 4).
But none of them can rival North Dakota. Thanks to shale, the Peace Garden State has been (by far) the biggest winner, with per capital GDP up by more than 67 percent since 2003, compared with nationwide increase of just 7 percent (Chart 5).
Rapid income growth has catapulted North Dakota up the prosperity league. In 2003, state GDP per capita was ranked just 33rd in the nation, at just $41,000. By 2013, per capita GDP had soared to almost $69,000, putting it second only to Alaska.
In 2011, North Dakota’s per capita GDP overtook California for the first time, and in 2013 it was more than $18,000 (29 percent) higher.
Other top-ten GDP gainers since 2003 include energy producers Wyoming (up 24 percent), Oklahoma (19 percent), Alaska (18 percent), Texas (17 percent) and Arkansas (16 percent).
Among the energy-producing states, only Colorado saw its ranking slide, down seven places from 10th to 17th, with per capita GDP growing less than 5 percent since 2003.
And the energy revolution by-passed Kentucky and West Virginia; their coal-based economies failed to lift them out of relative deprivation leaving them ranked in 43rd and 47th place respectively.
WINNERS AND LOSERS
It would be wrong to imply that energy production has been the only cause of success and failure among the states.
Some of the top performers are sparsely populated single-industry economies where GDP per capita has been easily lifted by rising energy prices and production.
By contrast, some of the worst performers, like California and Florida, were at the centre of the subprime housing boom and bust and have yet to recover.
Net energy-consuming states tend to have far larger populations and more diversified economies that are less affected by the cyclical performance of any single industry.
And recent declines in energy prices will tend to shift the balance back from producing to consuming states to some extent.
But there is no denying the shale revolution has given an enormous boost to the economy and lifted the fortunes of the main energy producing states significantly compared with the rest.
In turn, the energy boom has driven favourable shifts in employment, tax revenues and broader economic activity for the states concerned, and it is starting to show up in the political balance of power, too.
The Obama administration and congressional Democrats have struggled to identify themselves with the success of the shale revolution, given the party’s reputation as anti-fossil fuels.
That is piling on the pressure on the remaining elected Democrats in energy-producing states and leaving the party struggling elsewhere as voters question whether it is committed to local growth and job creation.
If the Democratic Party loses its control of the U.S. Senate following the mid-term elections, a small but significant part of the reason will be because it has found itself on the wrong side of the energy revolution.
Shale has remade the world in the past decade, but it is remaking the United States too, reshaping the contours of the economy and politics.
Senior Market Analyst