Oil and Gas Assets at Risk

How will clean energy's rise impact oil and gas communities in the United States amidst shrinking fossil fuel demand?

Contributors: Rystad Energy, Dr. Zeke Hausfather, Mark Boling, and Peter Liu

1. Executive Summary: Assets at risk and future impacts on fossil fuel infrastructure, economic activity, employment, government revenue, and politics

When shockwaves ripple across global oil and gas markets, local communities in oil- and gas-producing regions of the United States feel pronounced economic repercussions. While Russia’s war in Ukraine is currently stimulating public interest in global oil and gas production, it is clear that the long-term transformation of energy systems worldwide will continue. Given the potential of climate policies and technological trends to reduce future global oil and gas demand, efforts to quantify the resulting economic impacts at regional and local levels can help assess how the clean energy transition will affect communities across the country.

Often, commentators implicitly assume that the energy transition’s effects will be steadily and evenly distributed across oil- and gas-producing regions of the United States. In reality, local economic impacts are likely to manifest in a more acute and abrupt manner, driven by competition that pushes high-cost and infrastructure-constrained producers out of business first. As such, policy makers and community stakeholders must consider the heterogeneity of oil and gas competition in planning for economic transition.

Such dynamics highlight the continued need for public policies to support local economic diversification and labor market transition in oil- and gas-producing regions. For communities characterized by less-competitive production, climate policies and clean energy technologies will initiate local economic transitions sooner than many planners realize. Public policy frameworks that thus far have primarily aimed to support US workers in a declining coal sector will need to be expanded to cover oil and gas labor and the workers and businesses the oil and gas industry indirectly employs.

Our detailed analysis of oil and gas assets at risk illustrates possible future impacts on fossil fuel infrastructure, economic activity, employment, government revenue, and politics. Using a global assessment of the future competitiveness of the various oil and gas production fields in the world market under four different decarbonization scenarios, this report quantifies the potential significant reduction in demand for US oil and gas and the effects on oil and gas production at the level of the individual county, while also considering the potential effect of large-scale electric vehicle adoption.

As part of our study, we created an interactive map that visualizes future non-competitive oil and gas production at the county level and the associated declines in gross production, private capital and operating expenditure, local tax revenue, and employment. This tool can better inform local policy makers and stakeholders about the economic transformations their communities may face during the clean energy transition and can support more robust policy planning in response.Employment impact estimated with industry-wide factors adapted from Hartley, Peter R., et al. “Local Employment Impact from Competing Energy Sources: Shale Gas versus Wind Generation in Texas.” Energy Economics, vol. 49, May 2015, pp. 610–19. ScienceDirect, https://doi.org/10.1016/j.eneco.2015.02.023.

Interactive map: How will clean energy's rise impact oil and gas communities in the United States amidst shrinking fossil fuel demand?
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Click here to view the interactive oil and gas assets at risk map >>> Click here to download state-level map data >>> Click here to download county-level map data >>>

Key Findings

  • While the global oil and gas industry is unlikely to disappear completely by 2050, oil and gas production in many US counties may become uneconomic due to regional differences in cost-competitiveness and infrastructure.

  • US oil production is more severely affected than domestic gas production, even in middle-of-the-road climate policy scenarios:
    • US oil production declines by 50 percent of 2020 levels by 2050 in the International Energy Agency’s Sustainable Development Scenario and by 15-20 percent in middle-of-the-road scenarios.

  • The cost-competitiveness of US gas production and the expanding global liquefied natural gas (LNG) market make it likely that the United States remains a dominant global gas producer:
    • Even in the ambitious Sustainable Development Scenario, US gas production declines by only 20 percent of 2020 levels by 2050.

  • The widespread adoption of electric vehicles (EVs) could drive significant demand destruction in the global oil market. This could happen even in the absence of additional climate policy, with global oil demand falling by 32 percent in 2050, approaching the oil demand decline in the Sustainable Development Scenario:
    • Rapid global growth in EVs would disproportionately affect oil-dependent regions in the United States. A scenario with rapid deployment of 75 million EVs worldwide by 2030 renders almost half of Wyoming’s oil and gas production uneconomic by 2050 even under current climate policies alone..

  • For each oil- and gas-producing county in the United States, we provide an interactive map of county-level projections of future uneconomic oil and gas production, associated loss of local tax revenue, and oil and gas industry employment in four future climate policy scenarios.
    • The states with the largest volumes of uncompetitive oil production in the SDS scenario are Texas (47 percent), North Dakota (59 percent), Wyoming (84 percent), Colorado (56 percent), and Oklahoma (39 percent).
    • The states with the largest uneconomic gas production volumes in the SDS scenario are Pennsylvania (55 percent), Texas (51 percent), Louisiana (50 percent), Oklahoma (42 percent), and Colorado (48 percent).

  • Locally significant and regionally heterogeneous patterns of uneconomic future oil and gas production emphasize the high importance of public policy to support economic diversification in oil and gas communities and promote re-employment of workers dependent on the oil and gas sector.

2. Approach: Our climate mitigation and technology scenarios

The Breakthrough Institute commissioned Rystad Energy, a global energy research firm, to conduct a field-level analysis of the economics of oil and gas production in the United States relative to international market conditions under several demand-reduction scenarios. In particular, we sought to identify which US counties would undergo the sharpest declines in oil and gas production as demand for oil and gas products erodes. Identifying these highly impacted regions is important in the effort to design and target policies intended to facilitate economic transitions for fossil fuel workers and communities.

The evolution of oil and gas production was studied under three future climate change mitigation scenarios: the International Energy Agency (IEA) Stated Policies Scenario (STEPS), the Intergovernmental Panel on Climate Change (IPCC) Shared Socioeconomic Pathways scenario 4-3.4 (SSP4-3.4), and the IEA Sustainable Development Scenario (SDS). In these three scenarios, likely global temperature increase by 2100 relative to pre-industrial levels is limited to 2.7°C, 2.1°C, and 1.65°C, respectively. These three scenarios represent increasing levels of global climate action, with the SDS achieving the Paris Agreement target of “well below 2°C” of warming.

In addition to the climate scenarios, we developed an Electric Vehicle (EV) Manufacturers' Target (High-EV) scenario in which global EV deployment accelerates to meet automotive manufacturers’ stated long-term goals. In this scenario, 75 million EVs are deployed worldwide by 2030. This rapid deployment surpasses the EV deployment in other scenarios. In the High-EV scenario, oil production declines substantially, close to the aggressive SDS level, whereas natural gas production remains close to the STEPS level. The High-EV scenario enables an exploration of the effects of rapid cost declines and technological innovation in electric vehicles, which could occur independently of climate policy.

The scenario methodology illustrates how oil and gas production in the United States changes in response to global demand destruction associated with different possible futures for emissions and technological change. Since oil (and to a lesser extent natural gas) is a globally traded commodity, an approach that varies global demand is more appropriate than an approach that merely focuses on the impacts of domestic US oil and gas demand.

The modeling results in this report map out potentially noncompetitive oil and gas assets and the resulting economic and workforce impacts at different geographical resolutions and timelines. In each scenario, projections were developed for different outcome variables, including future production, future demand, methane emissions, and regional distribution of market share.

Scenario Descriptions

Our inputs and findings vary according to the following four scenarios:

  • SDS. The Sustainable Development Scenario, developed by the IEA in the 2021 World Energy Outlook, is a future aligned with the goals of the Paris Agreement to keep warming well below 2°C. In this scenario, all current pledges to decarbonize are achieved, with most advanced economies achieving net zero by 2050, China by 2060, and all other nations by 2070. Warming is limited to 1.65°C above pre-industrial temperatures. The SDS represents the achievement of aggressive global action on climate change.

  • SSP4-3.4. The Shared Socioeconomic Pathways 4-3.4 scenario, developed by the IPCC, is a future in which global inequality increases, but policies to mitigate climate change nonetheless progress. Unequal investments in human capital, in addition to increasing disparity in political power and economic opportunity, result in increased inequality and stratification. More division among nations leads to increased social unrest. This scenario also includes a diverse energy landscape with investments in carbon-intensive and low-carbon energy sources. Warming is limited to 2.1°C above pre-industrial temperatures.

  • IEA STEPS. The Stated Policies Scenario, developed by the IEA, is a future in which existing and planned climate policies remain in force, but no entirely new climate policies are created. This scenario is intended to reflect existing policy frameworks as well as those under development. It includes a more detailed analysis of individual sectoral pricing policies and efficiency standards with a conservative approach that does not assume all the announced non-binding country goals, like the nationally determined contributions under the Paris Agreement, will be met. Warming is limited to 2.7°C above pre-industrial temperatures.

  • High-EV. The High-EV scenario projects aggressive global growth in electric vehicles on top of the STEPS baseline. EV sales increase massively, particularly in China and Latin America, and displace internal combustion vehicles to drive down oil demand. This scenario was developed based on the announced targets of major EV manufacturers. All the top automakers have made varying commitments to electrification, including Toyota, which aims to attain 3.5 annual million vehicle global sales for its electric models by 2030. General Motors plans to go all-electric and phase out sales of internal combustion vehicles by 2035. The High-EV scenario aligns broadly with the expected increase in demand as global shares of electric cars continue to increase in China, Europe, and the United States, which combined account for approximately 90 percent of electric vehicle sales.

Influences on Global Demand

Three factors influence global oil demand and production: economic growth, international security, and climate policy. Growing economies tend to increase their energy demand especially for the transportation of goods from producers to consumers. Petroleum products such as diesel and gasoline are the fuels that keep the cargo ships, aircraft, and trucks that underlie supply chains operating smoothly. Under SDS and STEPS, global GDP is projected to grow at a rate of 3.0 percent to 2040, while the SSP4 assumes growth of 3.4 percent to 2040, with all scenarios exhibiting rapid economic growth for developing countries. This creates an interesting challenge for the global energy transition to encourage lower future emissions from low- and middle-income countries without impeding their development. However, numerous organizations such as the European Union have already enacted stringent policies against fossil fuel financing, which mostly impact the developing world. These policies often forbid expanding access to potential energy bridges such as natural gas, which developed nations have benefitted and continue to benefit from.

As the ongoing Russian war in Ukraine illustrates, international security issues influence oil and gas markets through the political contexts of the countries that produce and consume oil and gas. Political developments like wars, embargoes, sanctions, and subsidies can disrupt supplies, resulting in unpredictable price and demand volatility. In response, governments often devote more economic resources to protect energy supplies and ensure reliability. Such policies can further contribute to price spikes. International security also affects oil markets thanks to collusion between national governments, as exemplified by attempts to coordinate oil production among the members of the Organization of the Petroleum Exporting Countries (OPEC).

Climate policies can also exert powerful influences upon energy markets along the path toward decarbonization. For instance, carbon taxes may encourage businesses to seek alternative materials and production methods to avoid fossil emissions. Such policies may accelerate societal movement away from oil and gas and incentivize the adoption of cleaner alternatives. Governments may also use tools like indirect subsidies and land use policies to attempt to influence national oil markets. Climate policies are indirectly modeled in our analysis, as the emissions trajectories of the scenarios could theoretically be achieved by a multitude of policy approaches, such as carbon pricing, legal mandates, or innovation policy.

3. Findings and Discussion: The case for investment

The Global Oil and Gas Industry Will Not Disappear Completely

Despite potentially significant declines in global oil and gas demand across the climate scenarios by 2050, our findings clearly indicate that investment in new oil and gas fields may still be necessary to meet future demand for oil and gas in all three of the climate change mitigation scenarios. This need is primarily driven by declines in productivity over time from existing fields, as evidenced by a steep decline in the projected production of existing sanctioned fields. Even given aggressive global action on climate change, the global oil and gas industries may not disappear completely by 2050, as currently operating fields will be inadequate to meet future global demand. Figure 1 illustrates the gap between currently operating production and future scenario-dependent demand for oil (and related liquid fuel products).

Figure 1: Greenfield investment in global oil production is nonzero in all three scenarios examined (IEA Stated Policies, SSP4-3.4, IEA Sustainable Development). Greenfield production is equivalent to the vertical distance between the bottom Sanctioned Production curve (representing future production from currently operating projects today) and the scenario of interest. The Unrestricted Production curve shows the total potential production from greenfield projects yet to be developed.

As shown in Figure 1, approximately 10 million bbl/d of oil production from new fields is needed between 2030 and 2050 in order to meet global oil demand in SDS, the most ambitious climate scenario. Figure 2 shows that additional investment in new gas production will be required in the ambitious SDS scenario as well.

Figure 2: Greenfield investment in gas production is nonzero in all three scenarios examined (IEA Stated Policies, SSP4-3.4, IEA Sustainable Development). Greenfield production is equivalent to the vertical distance between the bottom Sanctioned Production curve (representing future production from currently operating projects today) and the scenario of interest. The Unrestricted Production curve shows the total potential production from greenfield projects yet to be developed.

New investment in oil and gas fields is likely to occur throughout the world, driven primarily by economic competitiveness and proximity to demand centers of each field. In the Rystad modeling, substantial greenfield investment occurs in all of the major producing regions in the world to 2050, including the United States. Even in the restrictive SDS, greenfield natural gas production in the United States in 2050 is projected to amount to 80 percent of current US production. Greenfield oil production for the United States in the SDS in 2050 is relatively lower, at 30 percent of current US production. Significant oil and gas greenfield investment also occurs in the SDS in low-cost regions like the Middle East and the Asia Pacific.

These topline results suggest that the global oil and gas industry is unlikely to disappear completely, even in a world on a path to less than 2°C of warming. To the contrary, new investment could be required in greenfield oil and gas production, including substantial new greenfield production in the United States, in order to meet future demand. Political initiatives to entirely ban oil and gas production or prevent investment may therefore be unrealistic or uneconomic.

Our estimates of future investment in greenfield oil and gas production are derived from expected future oil and gas demand across the selected set of climate scenarios. Limited greenfield investment in oil and gas appears necessary to meet future demand in all of the studied climate scenarios. These estimates of future demand could be too high, but restricting future oil and gas demand further would require more aggressive climate policies than those assumed and/or more rapid technological replacement of fossil energy than that projected in this analysis. For example, while significant greenfield production occurs in the SDS that limits likely future temperature increases to 1.65°C, a scenario that limits warming to 1.5°C would have lower future oil and gas demand and consequently less greenfield investment. The International Energy Agency’s Net Zero by 2050 study, which restricts likely warming to 1.5°C by charting a course for the global economy to reach net-zero emissions by 2050, prominently concluded that no new oil and gas fields, beyond those already under development, would be required to meet future demand.

US Oil Production Struggles to Compete in Global Market Amid Declining Demand

Our results find that the United States will possess a higher share of uneconomic oil and gas assets compared to other large oil- and gas-producing regions like the Middle East, Russia, and Europe. The model estimates that one-half (49 percent) of potential US oil and gas resources from 2021 to 2050 will be uneconomic to produce in the SDS scenario. This fraction is greater than those of the Middle East at 7 percent, Europe at 20 percent, and Russia at 24 percent.

In the less aggressive mitigation scenarios, 15-19 percent of potential US oil and gas resources become noncompetitive between 2021 and 2050, a share still considerably higher than those of the Middle East, Russia, or Europe. The United States possesses a particularly high share of oil assets at risk because US oil producers sit in the middle of the global oil supply curve, as illustrated in Figure 3. Many US oil producers, therefore, cannot break even and compete with other regions in the global market in demand-constrained scenarios.

Figure 3: Global oil supply cost curve by region, with prices in USD per stock tank barrel of crude. The United States sits in the middle of the cost curve, with 75 percent of its resources in the 25-48 USD/bbl range.

Costs of production, as expressed in Figure 3 in breakeven prices, are only one factor in determining the future course of oil and gas production. Other important determinants include transportation and market access (for example, export and import pipeline and terminal infrastructure), explicit or implicit government subsidies for production, land use constraints, subnational constraints on production, and environmental policies like carbon taxes and production bans. Although many of these factors, such as market access constraints, are incorporated into Rystad’s detailed global modeling framework, these factors are also likely to change dramatically over the next decades to 2050.

US Natural Gas Remains Cheapest in the World

The United States is less affected by declining demand for natural gas resources compared to oil since the United States has the cheapest gas production in the world on average, as illustrated in Figure 4. Additionally, gas demand is more resilient than oil demand in climate change mitigation scenarios due to its lower carbon intensity and broader range of applications such as in electricity, industrial processes, and heat production. However, since a much lower share of gas production is traded on a global market than oil, changes in domestic and regional demand matter more than global demand for US gas production, relative to oil production.

Figure 4: Global natural gas supply cost curve by region, with prices in USD per thousand cubic feet. The United States has the most competitive gas resources of all regions.

In the face of demand destruction, gas production in the United States remains stronger than oil production across the time period and climate scenarios considered. The differing impacts of demand destruction on US oil and gas production are illustrated in the difference between forecasted production in 2050 and present production levels. In the most ambitious SDS scenario, US oil production declines by 50 percent of 2020 levels by 2050, while US gas production declines by only 20 percent of 2020 levels by 2050. This difference is partially explained by the fact that global oil demand (-30 percent) declines more than gas demand (-26 percent) in SDS relative to STEPS. The relatively strong outlook for US gas production in ambitious climate scenarios, therefore, reflects the disparate impacts of the climate scenarios on global oil and gas demand trajectories, as well as the continued economic competitiveness of US gas production.

US Oil and Gas is Low-Emission Relative to Global Supply

One potential driver of declining production of oil and gas is carbon intensity. Governments may adopt carbon taxes that penalize oil and gas products based on their varying carbon intensity of production. For example, the European Union (EU) is developing a carbon border adjustment mechanism that covers high-carbon imports such as cement, steel, fertilizers, and electricity. While oil and gas products are not currently covered in the EU framework, they are also high-carbon imports that could be logically incorporated into a carbon tariff. The total greenhouse gas impact of oil varies quite substantially across the world based on the source and method of production, from 458 kg CO2e per barrel of US Eagle Ford condensate to 736 kg CO2e per barrel of Canadian Athabasca extra-heavy, a difference of 60 percent. A carbon tax or border adjustment mechanism would therefore likely penalize oil from Athabasca fields considerably more than from Eagle Ford fields.

Our field-level economic analysis demonstrates that US oil and gas production is relatively low carbon and, therefore, would be minimally impacted by carbon pricing in absolute terms relative to production in other regions, as illustrated in Figure 5. In particular, US oil is the “cleanest” on average in the world, although not the cheapest; US gas, by contrast, is the cheapest but not the “cleanest,” remaining the cheapest in the world even after incorporating an assumed global carbon tax.

Figure 5: Carbon price impact on oil and gas breakeven cost by production region of origin, assuming a flat global CO2 cost of 200 USD/tonne. Units for liquids are expressed in USD per stock tank barrel of crude (USD/bbl). Units for gas are expressed in USD per thousand cubic feet (USD/kcf).

This finding has implications for domestic US oil and gas policy. To reduce the marginal emissions of oil and gas production, while ensuring security of supply for the United States and its allies, policy makers should avoid penalizing or preventing US production exclusively. Rather, policies that promote more aggressive emissions reductions for US oil and gas production could also seek to displace higher-emitting products from other major regions of production, thus minimizing the climate impact of remaining global oil and gas use in a low-emissions future. While mechanisms such as carbon border adjustments might nominally support such an objective, carbon border adjustment policies would likely create tensions with major oil and gas trading partners such as Canada.

North American LNG Market Expands Even as Total Demand Shrinks

In all scenarios, total North American natural gas demand decreases while LNG demand increases. The largest projected change we found was in the SDS scenario, in which natural gas demand decreases by 4.2 percent compound annual growth rate between 2020 and 2040, while LNG demand increases its share from 6 percent to 35 percent of the North American natural gas market. In SSP4-3.4 and STEPS, North American gas demand declines by less than 1 percent per year, and LNG grows to roughly one-quarter of the global gas market by 2040.

Increased reliance on LNG could entail a greater dependence for the United States on LNG-exporting countries such as Trinidad and Tobago. This is in addition to the pre-existing reliance on LNG imports, especially in the northeastern United States, due to inadequate pipeline infrastructure to transport LNG across the country and restrictive federal shipping laws, such as the Jones Act, that constrain domestic shipping of LNG. Our results suggest that this reliance might increase further in the future, given that North America is projected to have the highest growth in LNG supply in each climate scenario, and the increasing importance of energy security might lead to policies and reforms friendly to increasing domestic LNG usage.

Figure 6: Market evolution for North American natural gas demand across the three scenarios from 2020 to 2040, in billions of cubic meters per year.

The Russian invasion of Ukraine in early 2022 demonstrated how the natural gas market can be wielded as a geopolitical weapon. Pipeline natural gas requires continuous political and market stability to ensure a continuous and secure supply along sensitive linear infrastructure. By contrast, LNG products are more flexible and globally fungible. In 2022, many European countries are seeking alternatives to the Russian supply of pipeline natural gas and are planning to rapidly scale up their LNG infrastructure. For this reason, US policy makers should continue to encourage the responsible development of new LNG infrastructure.

Expanding LNG infrastructure has the potential to improve the energy security of America’s European allies, while also being compatible with aggressive climate change mitigation trajectories, as depicted in Figure 6. Peer-reviewed estimates of the climate impacts of LNG exports from the United States to Asia and Europe suggest that LNG can reduce emissions relative to coal and Russian pipeline gas in those regions. While liquefaction and regasification increase the emissions of LNG relative to US pipeline gas, using LNG for electricity generation abroad was found to have only a 10 percent greater carbon intensity than pipeline gas for electricity generation in the United States. If expanding LNG infrastructure is coupled with aggressive policy to reduce fugitive emissions (leaks) in the natural gas supply chain, the emissions impacts could be improved further.

US Liquefaction Capacity Dramatically Expands in Most Scenarios

Since the United States is a globally competitive gas producer, US LNG export capacity dramatically expands even in ambitious climate change mitigation scenarios (Figure 7). In the SDS scenario, LNG liquefaction capacity will increase to 120 MTPA by 2040, a doubling of the currently operating and under-construction capacity. In less aggressive mitigation scenarios, LNG export capacity expands even more, to about 200 MTPA, which requires all currently under-construction, planned, and announced LNG projects to be completed. These results underscore that the United States is likely to be a major exporter of LNG even in aggressive climate change mitigation scenarios due to the fundamentally strong economics of US gas production.

Figure 7
Figure 7: Historical and forecasted North American liquefaction capacity and LNG demand under each scenario through 2040, in millions of tons per annum.
Figure 7: Historical and forecasted North American liquefaction capacity and LNG demand under each scenario through 2040, in millions of tons per annum.

The Rise of EVs Could Slash Oil Demand Independent of Economy-Wide Climate Policy

Electric vehicles have the potential to significantly displace global oil demand. By combining the published targets for electric vehicle manufacturers, we project 75 million EVs deployed globally by 2030, which surpasses many other published scenarios on future EV growth. The largest share of EV sales is projected to shift to China from the current core markets of the United States and Europe. The resultant High-EV scenario helps illustrate the potential impact of EV deployment on oil production trajectories in the future. Rapid growth in EVs could also occur independently of climate policy; for example, if EVs became lower cost or more preferred by consumers worldwide relative to vehicles with internal combustion engines. The large quantity of EV sales in this scenario could be achieved by transportation-specific climate policies or aggressive innovation in EV technology and manufacturing to drive down costs and improve performance. The High-EV scenario thus helps to isolate the potential effects of electric vehicle growth on oil demand destruction.

The High-EV scenario dramatically lowers future global oil demand, whereas future gas demand is minimally affected. Global oil demand in the High-EV scenario approaches the ambitious SDS levels by 2050, whereas gas demand remains at the STEPS level. Approximately 25 percent of all US oil and gas assets are uneconomic in the High-EV scenario. Fossil-producing regions dependent on oil revenues are particularly strongly affected: for example, Alaska, Wyoming, and offshore production all lose 40 percent of their oil and gas economic assets, while gas-rich states like Ohio, Pennsylvania, and New Mexico are minimally affected by comparison. The concentrated impact of EV growth on oil demand, combined with the relatively high-cost oil assets in the United States, implies that US oil production is likely to be less economical than gas production in the future. In a world of substantial growth in electric vehicle sales, policy makers should focus squarely on easing the transition in areas that are particularly reliant upon oil production.

3. Assets at Risk Interactive Map

We used the projections from Rystad to create an interactive map showing the quantity of oil and gas at risk of becoming uneconomic based on projected future demand in each emissions scenario: SDS, SSP4-3.4, and STEPS. The analysis is categorized by counties and states. Areas of dark gray show unavailable data. Areas of light gray have oil and gas production below 1 percent. Results can be displayed at either the state or county level, and the user can investigate more detailed protections of economic impacts by clicking on a state or county of interest. Projections are shown in terms of gross production, private expenditure, tax revenue, and jobs supported by the oil and gas industry up until 2049.

Disparate Impacts Across States

Our modeling results also highlight the wide variance in outlooks for oil and gas production across individual states. On a volumetric basis, the states with the largest quantities of uncompetitive oil production in the SDS scenario relative to production in the baseline scenario are Texas (47 percent), North Dakota (59 percent), Wyoming (84 percent), Colorado (56 percent), and Oklahoma (39 percent) (Figure 8).

Figure 8: Uneconomic oil production under the Sustainable Development Scenario at the county level for the contiguous 48 states. Circles are scaled based on the volume of uneconomic oil production and color-coded based on the percentage of uneconomic oil production in each county relative to the baseline scenario. Click on this figure to access the full interactive map tool.

The states with the largest volumetric declines in gas production in the SDS scenario are Pennsylvania (55 percent), Texas (51 percent), Louisiana (50 percent), Oklahoma (42 percent), and Colorado (48 percent). While subsequent states account for lower volumes of uneconomic future gas production, significant percentages of gas production in Wyoming (70 percent), North Dakota (57 percent), and Arkansas (77 percent) are also affected (Figure 9).

Oil and gas production in some states is particularly sensitive to climate policies even under middle-of-the-road (SSP4) or current policies (STPS). 26 percent of Pennsylvania gas production, 23 percent of Oklahoma gas production, and 12-28 percent of Wyoming oil production become uneconomic under these scenarios..

On a percentage basis, the low-cost and gas-rich states of West Virginia and Ohio are relatively unaffected even under the high-mitigation SDS scenario, with uneconomic oil and gas production of 14 percent and 28 percent in Ohio and 3% and 21% in West Virginia. The next-lowest state is New Mexico, which has a modest but very low-cost oil production base. 30 percent of oil and gas assets in New Mexico are uneconomic in the SDS scenario. At the other end of the spectrum, high-cost and oil-dependent states like North Dakota (59 percent) and Wyoming (84 percent) host the highest percentages of potentially uneconomic oil assets.

In general, low-cost and oil-rich states continue an upward trajectory of oil production in all but the most aggressive mitigation scenarios. For example, Texas oil production grows through the 2040s in the STEPS and SSP4-3.4 scenarios, while oil and gas production declines to approximately 2010 levels in the SDS scenario at approximately 5 million boe/d. Under the SDS scenario, half of Texas’s oil and gas production becomes uneconomic. In contrast, investment in higher-cost states is nearly eliminated in the SDS scenario; for example, oil and gas capital expenditure drops to approximately nothing in the 2040s in North Dakota.

Figure 9: Uneconomic gas production under the Sustainable Development Scenario at the county level for the contiguous 48 states. Circles are scaled based on the volume of uneconomic gas production and color-coded based on the percentage of uneconomic gas production in each county relative to the baseline scenario. Click on this figure to access the full interactive map tool.

4. Just Transition Measures

As the United States moves toward deploying cleaner energy sources, domestic oil and gas production capacity, infrastructure, and generating stations will increasingly face retirement. The oil and gas sector altogether employs approximately 1.5 million people in the United States, many of whom live in communities that are heavily economically reliant on these industries.

Counties and communities that face the greatest economic risks from potentially uncompetitive assets such as those in Wyoming and Colorado must begin diversifying their local economies by attracting investment in new industries and businesses.

Re-employment of the oil and gas workforce from an increasingly noncompetitive production field, on the other hand, depends on the larger structural labor market in the national oil and gas sector and in closely related industries. To re-employ oil and gas workers in a different industry, resources and support for retraining, relocation, and job placement will prove critical. New employment will need to provide comparable job quality to support workers and their families.

In the case of both communities and workers, critical analysis of the impact of the clean energy transition on local economic activity and employment and proactive policy action in response are necessary to reduce regionally disparate future impacts.

Existing Diversification and Retaining Policies

Few federal just transition policy proposals exist specifically for oil and gas workers at this moment, but some current programs have elements that could be incorporated into just transition policies. More general policy proposals include California’s proposed Just Transition Advisory Commission and the Clean Energy Worker Just Transition Act. Some policies have been designed to account for lost tax revenues from oil and gas leases and production, such as SA 653, which reserves funds for schools to compensate states affected by the federal moratorium on oil and gas leasing on public lands and offshore waters. More transition programs are currently aimed at coal industry workers. While understandable, such transition efforts will eventually need to similarly support oil and gas industry workers, both in terms of funding levels and the scope of specific transition programs.

Learning from past transitions may also be an important component of designing new policies for a just transition. A 1999 study focusing on workers displaced by the Cold War highlighted important lessons for what could become milestones for the coming just transition. Re-employment programs were more successful when the new jobs allowed workers to utilize the expertise and skills they already had wherever possible. Businesses were also able to retain more jobs in those cases, as they could focus on retraining workers rather than introducing new technologies.

Most transition programs thus far are primarily focused on fossil fuel workers (and communities) directly involved in resource extraction and processing, rather than on indirectly supported jobs such as gas station workers or gas appliance technicians. The prevailing focus on direct oil and gas sector workers may unfairly distribute assistance away from women and racial minorities, who are more highly represented in indirect, supportive roles in the larger oil and gas industry. For instance, freight laborers and construction workers include a large percentage of Hispanics and other workers of color and may be highly impacted by the clean energy transition. Such roles may not always be covered under re-employment policies such as reskilling programs and compensation packages.

International just transition strategies such as the Just Transition Fund coordinated by the EU also offer lessons for policy design. This fund designates €17.5 billion ($19.6 billion) for climate transition strategies, including the reskilling of workers and assistance with job searches. While EU member states must create specially tailored plans to apply for funding, the fund provides technical support to assist in ensuring the proposals are crafted with sensitivity to the region’s needs. In 2016, the Scottish Government launched the Oil and Gas Transition Training Fund to retrain and provide further education to transitioning oil and gas workers. Ireland has also launched its own National Just Transition Fund for similar activities meant to safeguard affected communities. Other countries are in the process of following suit, with an increasing number of programs aimed at specific needs including job searches, retraining, and protection of pension and retirement funds.

What Should States and Federal Governments Do to Support At-Risk Regions?

Overall, enacted just transition policies for US oil and gas regions and workers are severely insufficient to meet current and projected needs, which is alarming in the context of the increasing number of mid-century climate targets globally, coupled with current stated US climate commitments that include national economy-wide decarbonization by 2050 and national power sector decarbonization by 2035. This policy gap must be addressed as soon as possible to ensure that workers and communities have adequate support to navigate potential economic instability caused by the clean energy transition.

Environmental organizations have proposed numerous federal policy options for supporting a just transition. Current federal programs support economic development efforts focused on maintaining and improving local economies; workforce development to provide workers with training, job search support, and financial assistance; public benefits to safeguard against financial insecurity including unemployment insurance and subsidized healthcare; and infrastructure and environmental remediation to spur local economic activity while strengthening environmental clean-up and decommissioning efforts. This mix highlights the need to pursue multiple policy pathways as part of a just transition rather than taking a one-dimensional approach.

Wyoming, for instance, is a high-risk state with 70 percent of its counties exhibiting large shares of uneconomic oil and gas production in the SDS scenario, based on this report’s findings. High-risk states like Wyoming must take proactive steps to diversify statewide industries and sources of public revenue as much as possible. Wyoming already has a strong mining industry, which could provide a strong foundation for the state’s economic future amidst the clean energy transition. The state contains, for instance, known reserves of rare earth elements, which are vital elements of permanent magnets used in wind turbine drives and electric vehicle motors. As the leading uranium-producing state, Wyoming can also play a pivotal role in supporting worldwide efforts to expand clean nuclear energy. To the state government’s credit, Wyoming has already begun opening to new economic opportunities as part of its long-term energy transition planning, as demonstrated by state and local policy maker support for siting TerraPower’s new Natrium advanced nuclear demonstration reactor at a retiring coal plant near the city of Kemmerer.

In contrast, gas-rich states like Texas and California may fare somewhat better, particularly under the SSP4-3.4 and STEPS scenarios, due to their larger focus on gas production relative to oil production. Based on these scenarios, in which demand for natural gas in the international LNG market may continue to increase, it is not unlikely that gas-rich states may fare better overall despite the decline in overall global demand. Regardless, continued efforts to promote economic diversification in local areas of at-risk production will be vital.

Economic diversification will rely upon policies that encourage new local investment and attract new businesses. Incentives should include public and private initiatives and partnerships to encourage re-employment of local workers who were directly or indirectly dependent upon the oil and gas sector. This could include tax benefits for establishing a local hiring preference. Temporary tax credits could also be offered to oil and gas workers to lessen burdens from the loss of income, just as the American Rescue Plan eased the financial burden of national unemployment due to the COVID-19 pandemic.

Union collaboration and support are key aspects that will help provide transitioning workers with the necessary additional training to secure new jobs. For instance, associations of automotive mechanics might aim to promote certifications for servicing electric vehicles so those workers’ skill set is suited to the changing market. Automation is also a factor that workers must watch out for in strategizing how to adapt. Construction labor is at high risk for automation, for example, potentially making it more difficult for existing workers to find entry-level construction positions in the future. The key would be training current workers for more senior positions.

Meanwhile, oil and gas companies are themselves contemplating the long-term transformation of their traditional business models to play new and different roles within a future clean energy system. Different industry actors are displaying different levels of ambition in their energy transition efforts, with even the most ambitious companies having largely limited themselves to commitments on paper. However, the sector as a whole faces the long-term phasedown of its existing operations, including a large-scale, unavoidable transition for its employees. Corporate decision-makers have a responsibility to maximize retention of their workforce throughout the clean energy transition while meeting obligations to workers who cannot be retained. This mainly entails ensuring the security of worker benefits as well as ambitious strategic planning and skills development to adapt the company’s core operations, products offered, and workforce to the provision of new goods and services in the clean energy landscape. Public policies should adopt measures that encourage coordination with private sector energy transition planning where possible and should set expectations for employee support where necessary.

5. Conclusions

This study’s findings make it clear that, even under stated and middle-of-the-road global climate and energy policies, the international oil and gas sector will likely undergo major structural changes in the next two decades. These shifts present challenges for regions and communities in the United States that are heavily economically dependent upon oil and gas production that may not remain economically competitive in the future world market.

Under existing policies, global oil demand begins declining later this decade. Considerable further decreases in global oil demand occur if electric vehicles achieve manufacturers’ targets for market penetration—even in the absence of any additional climate policies. Regional gas demand in North America also declines under existing and middle-of-the-road scenarios, with implications for US gas production even if global gas demand remains stable.

However, with progressively intensifying international commitments to reduce fossil carbon emissions, both stated and middle-ground climate and energy policies are likely a lower bound in terms of their ambition. Strengthened climate policies and added market penetration from clean energy technologies will severely reduce demand for oil and gas in the global market. At the same time, our findings project that the United States will remain a major producer of oil and gas, particularly given the cost-competitiveness of US gas production and modeled future expansion of the transoceanic LNG trade.

Yet the regional and local economics of oil and gas production across the United States are highly heterogeneous, and this study identifies counties nationwide where current production may become non-competitive over the next two decades as the shrinking market eliminates high-cost producers.

Our interactive national map explores the magnitude of estimated non-competitive oil and gas production and the potential losses of associated tax revenue and sectoral jobs associated with reduced future production for a range of future dates and different scenarios. Cost-competitiveness is but one of numerous factors that influence oil and gas production, with myriad considerations like access to markets, local policies, or product characteristics affecting operational decision-making. Even so, by spatially visualizing and quantifying the potential impacts faced by higher-cost producers, our interactive map can serve as a guide for local policy makers and community stakeholders seeking to assess future economic risks.

Heterogeneous but structural oil and gas demand destruction across the United States also emphasizes the acute need for public policies to promote economic diversification and workforce reorganization in communities highly dependent on the oil and gas sector. Historical policy measures as well as existing local, state, and international policies provide numerous models for potential federal measures to support oil and gas workers and communities.

Federal policies that can help economically safeguard US oil and gas communities and labor throughout the clean energy transition remain sparse. Given how shifts in global oil and gas markets could significantly affect American communities within the next decade or two, federal action to fill the existing policy gap is critical. Priorities include support for local economic diversification, policies to promote workforce retraining and re-employment, and strategic initiatives to pair economically high-risk communities with new, broad clean energy sector activities.

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