Northwest businesses reap benefits

Washington state, led by its farmers, fishermen and retailers, is emerging as a winner in what some hope will be a lasting age of cheap oil.

A global oversupply of crude, stemming in part from the spread of hydraulic fracturing or “fracking,” has reset oil prices at nearly half of what they were in mid-2014, a level that experts say may become the new norm for the foreseeable future.

That means big savings for businesses like farming, where fuel accounts for 25 to 30 percent of production costs, said John Stuhlmiller, CEO of the Washington Farm Bureau. Farmers will benefit “as growers refill large home-storage tanks in preparation for spring work,” Stuhlmiller said.

The realignment of energy prices, however, threatens the economies of energy-producing states such as Texas, North Dakota and Alaska.

Alaska’s Department of Revenue said last month its general fund’s unrestricted revenue for fiscal 2015, largely reliant on oil money, will be less than half last year’s $5.4 billion.

States with big manufacturers geared to producing pipes and materials for the Oil Patch are also suffering; U.S. Steel said last week it is laying off hundreds of workers in Ohio and Texas.

But Washington’s industries will either be unaffected or will benefit, said Patty Edwards, managing director of investments at U.S. Bank Wealth Management.

“The good news is that we live in Washington, and not North Dakota or Texas,” she said.

For some of Washington’s largest economic sectors by gross domestic product – government, real estate, and information technology – cheaper fuel doesn’t move the needle in any direction, Edwards said.

But other big sectors such as durable-goods manufacturers and retail win, due to lower energy costs and more money in the pocket of consumers.

“The real beneficiary is obviously the consumer,” who can spend more in restaurants and stores, and should expect savings in the cost of travel, Edwards said.

The EIA estimates the average U.S. household will spend $1,962 on gasoline in 2015, about $550 less than last year and the lowest level in 11 years. Stephen Lerch, executive director of the state’s Economic and Revenue Forecast Council, said the savings amount to nearly 1 percent of the median household income in Washington.

Airlines, for which fuel expenses represent up to half of operating costs, should reap a windfall. But that doesn’t mean they suddenly are going to radically alter their capital spending, mainly because they don’t know whether the low oil prices will stick.

“For us to make an investment decision, we’re going to need to see low fuel prices for a lot more than three months before we start turning on the capital spigot and going out and buying a bunch of planes,” Alaska Air Group’s chief financial officer, Brandon Pedersen, said at an investors’ meeting last month. “We’re going to move cautiously on that.”

That also means airlines are not likely to drop fares by a lot. For Boeing, the biggest private employer in King County, the impact is hard to predict.

Cheap fuel diminishes the need for fleet operators to upgrade older fuel hogs with newer, more efficient planes such as the 737 MAX. But it all depends on whether prices stay low long enough to change perceptions among the top airline executives holding the purse strings.

Cheaper fuel means a big break for the fishing industry, a key segment in the Pacific Northwest. Most fishermen spend between 10 and 30 percent of their revenue on fuel, a survey by the Alaska Sea Grant Marine Advisory Program found.

While Washington is not an oil producer, its railways play a critical role in the new U.S. energy landscape, funneling crude oil from North Dakota to a major refining hub around Anacortes. Those refineries, too, will benefit from even cheaper crude, said U.S. Bank’s Edwards.

Restaurateurs also stand to win as people have more money in their pockets. Anthony Anton, head of the Washington Restaurant Association, says it’s too early to have data, but that most restaurants see an uptick when gas prices go down.

“The appetite for that extra glass of wine is directly tied to discretionary income,” he said.

There are some losers regionally, as well. One particular type of industry always suffers when gas and diesel prices go down: alternative fuels, which find it hard to compete on price even when gasoline and diesel are expensive.

John Plaza, CEO of Imperium Renewables, which built one of the largest U.S. biodiesel facilities on the Washington coast, blamed regulators for fostering fossil-fuel research and not holding oil producers accountable for carbon emissions generated by gasoline and diesel.

“Petroleum isn’t bearing the cost of its carbon production on society as a whole,” he said.