While the US invests in climate-related initiatives and alternatives to fossil fuels, domestic oil production is also at an all time high. The oil and gas boom in the Permian basin has resulted in a large financial windfall for New Mexico. The state is investing its oil and gas royalties in diversified assets and using the returns on those assets to fund expansions and improvements in childcare and education. It will be interesting to follow the results over the next few decades.
The Boom
By the number of barrels produced, the current oil boom in New Mexico, adjusted for population, is larger than the oil boom that propelled Norway’s national wealth. In September 2023, New Mexico produced 1.8 million barrels of oil per day, equivalent to 0.86 barrels per person per day. At the height of oil production in Norway in 2001, the equivalent rate was 0.76 barrels per person per day (see chart).
It looks like 2023 will be a record year for oil production in New Mexico, or very close to it. In some ways, the stars aligned for New Mexico’s oil and gas industry. The Permian basin has been very productive, oil prices were high, and geopolitical developments put pressure on the US to produce more oil.
In a matter of a few years, crude oil production quadrupled in New Mexico and the state became the second largest producer in the US. The largest producer, Texas, has 30 million residents compared to 2.1 million in New Mexico. New Mexico has fewer residents than Queens.
While the boom in oil production is a relatively new development, New Mexico has been one of the poorest states in the US for many decades. And, there’s no guarantee in the US that nearby residents benefit from increased mineral extraction. Air and noise pollution and spills all increase. Crucially, however, among the poorest states in the US, New Mexico is the only one where the Democratic party is able to enact laws1. The combination of the oil boom with these factors presents a fascinating set of possibilities for the future.
Investing in Kids, Reducing Poverty, and Hopefully Mitigating Environmental Impacts
When New Mexico became a state in 1912, the Land Grant Permanent Fund was created to invest the revenue generated by mineral extraction. The fund has grown to become one of the largest government investment funds in the country, and the state has since created additional investment funds.
Essentially, similar to Alaska and Norway, New Mexico invests its oil and gas royalties in diversified global assets like stocks, bonds, and real estate. These investments generate returns which are distributed to the state each year, to fund government services. Traditionally, the distributions have been used to supplement school funding in the state. Now that the amounts are fairly large, the state has been building out a comprehensive child care system that looks very promising.
For example, New Mexico is one of the states offering universal pre-k. New Mexico has funded the extension of universal free school lunch, an extremely popular pandemic era program. Over the past few years, the state has had the most generous child care voucher system in the country. New Mexico also offers tuition-free college to residents, and in addition to all of this, the state has bolstered rainy day funds.
In November 2022, voters approved a constitutional amendment making New Mexico the first state to guarantee the right to child care, paving the path to a universal childcare system. This will not be not an easy lift and will mean building out a child care workforce through subsidies, education grants, and wage standards, and building a system to connect parents to providers. I imagine other states are watching closely.
Of course, the growth of oil and gas production also presents serious environmental and public health issues for residents. There are more spills and more air and noise pollution, which lead to illnesses and contaminated land. Rapidly increased production of oil has meant a lot more venting of natural gas, as well. Further, the boom will eventually end. Eventually the wells will run low enough so that further extraction becomes expensive and production slows. Once the boom is over, the state and its people will be left with the mess.
As I understand, there have been fewer victories in regulating the oil and gas industry. State regulatory departments are understaffed and rely on the Federal government and self-reporting by the industry in many cases. In an ideal world, the state or federal government would own most of the companies involved, but absent that, increased oversight is important.
For New Mexico and the US as a whole, there’s a need to balance domestic energy production and the revenue and opportunities it brings with the costs of this production which can be long-term and geographically concentrated. Success overall will depend on reining in the worst environmental practices and making good investments.
- Republicans take full control of Louisiana starting in 2024, and hold supermajorities in both chambers of the Kentucky General Assembly. ↩︎
BD Economics 