This Christmas season, Santa brought low gas prices to poor college students around the world.
But while University students were giddy with joy, Louisiana oil producers and politicians shuddered in agony at the sight of $1.89 per gallon. Low gas prices are good for a University student’s short-term pocket change, but it’s a bad sign for the state’s budget crisis and students looking toward the oil industry for future careers.
Gas prices began falling in June 2014, when there was too much oil in the world market and too little demand to keep prices high. Frederick Thurber, the undergraduate coordinator for the University’s petroleum engineering department, pointed to the downturn in Europe’s economy and slower economic growth rates in China and India as the reasons for decreased demand in oil.
“China and India account for about 50 percent of all the new growth for petroleum demand in the world,” Thurber said. “What we have seen this year is real-estate prices in China have tanked. This is a fear that the Chinese economy is cooling down. So the demand side reduces.”
The influx in supply resulted from the U.S. shale oil boom, coupled with increases in oil outputs in the Middle East, specifically in Iraq and Libya. Just as retail prices fall when stores have a lot of stock in an item that does not sell well, the price of oil fell, too.
Both Thurber and James Richardson, the director of the University’s Public Administration Institute, agree the low oil prices will not harm the overall U.S. economy, but it will surely affect states like Louisiana.
The International Energy Agency predicts investments in U.S. shale will drop by 10 percent in 2015, which puts Louisiana oil companies in the sights of an economic firing squad.
“They will not do nearly as well, and they will have to struggle,” Richardson said. “Some will decide to cut back and not invest as much. They may lay off some of their employees.”
Depending on how far prices drop and how oil companies deal with the crisis, petroleum engineering and geology may not be safe bets for a guaranteed job out of college.
Richardson described two historical cases when oil prices fell drastically: In 2008, the price dropped and then recovered rather quickly, creating a V-shaped rebound in price, and in the 1980s, the price fell and then slowly throughout the decade crept back up to its previous prices.
“I think if we are looking at it right now, it is very difficult to think it is going to jump back up very fast,” Richardson said. “It’s not going to bounce back to $85, $95 or $100 a barrel.”
With the price of oil’s potential slow creep to its previous spot in the world market, Louisiana oil companies will cut jobs, move locations and decrease production. The demand for petroleum engineers and geologists in Louisiana will drop and remain low for the next few years, putting current students looking for jobs in the oil industry at a difficult crossroads post graduation.
“Will all of these people find jobs?” Thurber asked. “No, not if the oil prices remain low. Those who score a 3.0 [GPA] or better and have a good work ethic and fit into the industry will find jobs. When someone with a 3.5 is applying and someone with a 2.5 is applying, the 3.5 is probably going to get the phone call. The 2.5 will not.”
Eventually, the increased demand for oil — thanks to the low cost of filling up an F-350’s 35-gallon gas tank — will raise the price back up to its previous rate. But it will not be soon enough.
Louisiana’s already festering budget crisis took a $1.4 billion shortfall with decreases to the state’s oil and gas revenues, which comprise 13 percent of the budget. With the budget shortfall and no short-term solution to low gas prices, Gov. Bobby Jindal will once again take up his budget-cutting axe of vain, presidential hopefulness. Jindal will thrust the state’s public universities and colleges upon the executioner’s block and add to the $700 million in higher education cuts he’s carried out since 2008.
Our cars might be cheap to fill up now, but when Jindal comes knocking at the door of eventual budget cuts, we will all pay for it.
Justin DiCharia is a 20-year-old mass communication junior from Slidell, Louisiana. You can reach him on Twitter @JDiCharia.