The other Bakken pipelines: Water for fracking

Much pipeline development in the Bakken region of North Dakota and Montana is focused on transporting crude oil. But pipe is also being laid to carry a humble commodity essential to oil production in the region: water.

Copious amounts of water are required to extract oil from the Bakken’s shale beds. The fracking process—injecting a mixture of water and chemicals into shale rock to release oil—consumes up to 8 million gallons of freshwater per well. And along with oil and natural gas, wells produce even larger amounts of subterranean saltwater over their operating life. “The first thing that’s produced out of a well is water; the last thing ever produced out of a well is water,” said Rodney Wren, president of New Frontier Midstream, a Texas-based developer of oil and gas infrastructure.

Today, most freshwater used for fracking is trucked to wellheads, and tanker trucks also haul away saltwater and used frac (“flow back”) water for disposal in deep wells. Trucking water raises costs for producers—fees in the Bakken range from 2 to 10 cents per gallon, depending on miles traveled—and contributes to wear and tear on rural roads.

It’s cheaper to pipe water to and from the wellhead, especially in areas where wells are close together. Brigham Exploration, an oil company acquired by Statoil of Norway in 2011, was a leader in laying water pipelines in the Bakken, installing them simultaneously with crude oil and gas lines. Incoming pipe delivers freshwater for fracking from municipal or rural water systems; outgoing pipelines carry away wastewater for disposal.

There are no public data on oil-industry water networks in the Bakken, but Statoil, New Frontier and other petroleum and energy transportation firms are laying new water pipe to wellheads. New Frontier has plans to build wastewater gathering systems and disposal wells near Dickinson, N.D., and Sidney, Mont., to serve oil and gas producers in those areas.

The next step in oilfield water management is recycling frac flowback water. Statoil has tested a fracking method that uses a 50:50 mixture of flow back water and freshwater. The company aims to raise the proportion of flow back water used to 80 percent—greatly reducing the volume of freshwater that must be transported to the wellhead.

For much more on pipelines and other energy transportation infrastructure in the Bakken, look for the upcoming April issue of fedgazette.

Dusting off the construction hammers

It’s been a long road, but signs of the housing recovery continue to build.

The U.S. Census recently released annual housing data showing that last year saw significant housing growth across the Ninth District and the country (see Chart 1). While growth is good news, the data context is critical. The preceding year was one of the poorest on record. Still, five Ninth District states saw total permits rise at least 20 percent; all but Wisconsin saw permits increase more than 30 percent. Growth occurred in both single-family and multifamily categories; booming North Dakota was the only state to see a bigger increase in single-family permits.

But the show stopper was multifamily permit growth in Minnesota last year, which rose more than 200 percent over 2011. While the state’s outlier growth comes in part from a poor 2011, the 6,700 multifamily permits were the most since 2005. A dearth of new multifamily units since then has led to steadily tighter rental vacancy rates in the Twin Cities and across the state (see Chart 2), and is likely a major factor in the state’s hyper multifamily growth last year.

For more discussion about rental markets in Minnesota and the rest of the Ninth District, see the July 2012 fedgazette.

More evidence that businesses expect to grow, increase hiring

Signs are upbeat that the Ninth District economy will continue to grow, according to a recent poll of more than 300 business contacts from across the district (see methodology below).

For starters, 40 percent plan to increase employment at their firms, and nearly three-quarters of these firms cited expected high sales growth as the most important factor. Only 7 percent plan to decrease employment. In the same survey a year ago, 38 percent planned to increase employment and 10 percent planned to cut jobs.

Other important factors cited for new hiring were overworked staff, improved financial condition of firms and the need for additional skills. The majority of respondents plan to use word of mouth and advertising to get new employees. Twenty-eight percent plan to use a recruiting firm, and surprisingly few (9 percent) plan to raise starting pay.

For those respondents not planning to hire additional people this year, most expected low growth sales and a desire to keep operating costs low. Many reported difficulty finding skilled candidates. Though fiscal policy developments were not a factor for most respondents, 35 percent said they had a detrimental effect on hiring and 4 percent said they would increase hiring plans.

The survey also asked about wages and benefits; 36 percent expected wage growth of 2.5 percent or more, and a similar amount expected positive wage growth of less than 2.5 percent (see Chart 1). Respondents generally believed benefit increases would be larger than those for wages (see Chart 2).

 

Methodology: On Jan. 15, the Minneapolis Fed invited, via email, about 1,000 Beige Book contacts from across the Ninth District to answer the special question in a web-based survey. By Jan. 31, 303 contacts had filled out the survey. The respondents come from a variety of industries (see table below).

A long road back for wood products firms

There’s good news for the Ninth District’s wood products industry: After years of retrenchment caused by the housing collapse and subsequent recession, the bleeding appears to have stopped.

Sawmills and manufacturers have reported increased output and revenues this year as the U.S. economy slowly improves, increasing demand for construction lumber and other wood products. After bottoming out in 2010, industry employment in Minnesota, Wisconsin, South Dakota and Montana rose slightly last year, according to government labor figures (see chart).

The bad news is that the industry has a way to go to recover thousands of jobs lost over the past decade. Montana saw the steepest drop in wood manufacturing jobs; employment fell by more than half between 2001 and 2010. The state’s sawmills were already in decline before the housing crisis, due to rising operating costs and log prices.

Employment in Minnesota and Wisconsin followed a similar downward path after the housing crash as demand sagged for oriented strand board, paperboard and office paper. Wood products workers in South Dakota fared better; during the housing downturn, many firms shifted their focus to the home remodeling market, shoring up sales and preserving jobs. But wood products manufacturers in the state still shed about 250 jobs over the past decade.

It’s questionable whether wood products employment will ever return to the levels seen at the height of the housing boom. In recent years, rising productivity has reduced the number of workers needed to run sawmills, paper mills, particle board plants and other forest products operations. Neiman Enterprises, a large sawmill operation in the Black Hills of South Dakota, has ramped up its lumber production since 2010. But over the same period, investments in automation have allowed the firm to reduce its headcount, said resource manager Dan Buehler.

And in western Montana and the Black Hills, a persistent infestation of mountain pine bark beetles has killed millions of pine trees, threatening to restrict future log supplies. (For much more on the impact of the pine beetle outbreak on the wood products industry, watch the fedgazette website for the upcoming article, “The beetle and the damage done.”)

Research Assistant Dulguun Batbold contributed to this Roundup post.

Beige Book, Minneapolis: Ninth District economy slowly improving

The Ninth District economy expanded modestly during late summer and early fall, according the most recent Beige Book released this week by the Federal Reserve Bank of Minneapolis.

Each of the 12 Federal Reserve district banks drafts a similar report, which in sum are a summary of regional economic conditions across the country, in preparation for the Oct. 23-24 Federal Open Market Committee meeting, where interest rates and other monetary policy issues are decided.

In the Ninth District, improved activity was seen in construction and real estate, consumer spending, tourism and professional services. Energy and mining continued to perform at high levels, while agriculture varied widely, with crop farmers generally in better condition than animal producers. On the softer side, manufacturing activity slowed in late summer, and wage increases remained subdued, although stronger increases were reported in some areas. But labor markets tightened somewhat, and price increases were generally modest.

For those interested in other regional, national or historical Beige Book reports on economic conditions, the Minneapolis Fed offers everything in one spot.

Makin’ power while the wind (subsidy) is still blowin’

Like a nice, steady breeze, the nation’s wind power capacity has been expanding, with Ninth District states making a major contribution. But whether that arc of increase continues could well depend on what Congress decides regarding an expiring tax credit.

After five years of strong growth, the United States now trails only China in installed capacity (47 to 62 gigawatts, respectively) and has 1.5 times the wind-generating capacity of Germany and seven times that of France, according to a comprehensive August report by the U.S. Department of Energy. Wind still makes up a small portion of domestic power generation, at 3.3 percent, but that’s a fourfold increase just since 2006.

Texas is the leader in wind development, and by a wide margin (see Chart 1). But Minnesota and North Dakota are in the top 10 in wind capacity. Minnesota installed as much new wind capacity last year—542 megawatts (MW)—as many states have in sum. South Dakota also made its mark. It has almost 800 MW of wind capacity, virtually all of it installed since 2007, and representing almost all of the state’s increase in power generation over this period. Wind’s share of electricity capacity in the state leapt from less than 2 percent in 2007 to 22 percent, the highest rate in the country (see Table 1).

But the industry is nervously awaiting congressional action on a federal wind energy production tax credit of 2.2 cents per kilowatt hour—currently equal to more than $1 billion annually and set to expire at the end of the year. The credit was created two decades ago and has been extended numerous times or reborn after being allowed to expire. Its renewal is questionable this time around given sentiment in Congress about budget deficits.

The credit's expiration could affect not only future wind power generation in district states, but also district employment at a fair number of manufacturing facilities that supply the various components and services for wind farm development (see map).

Already there have been rumblings, according to local news reports. Otter Tail Corp., of Fergus Falls, Minn., has announced plans to sell DMI Industries, a maker of wind towers in West Fargo, N.D., with the eventual fate of 216 employees unknown. St. Paul-based WindLogics, a wind forecasting company, recently cut 10 employees because development work has stopped.

Officials with Mortenson Construction, one of the largest wind farm builders in the country and located in Golden Valley, Minn., said several hundred jobs could be eliminated if the tax credit expires. In Aberdeen, S.D., officials at the Molded Fiber Glass plant have reportedly put on hold a plan to add 100 to 200 jobs in light of the tax credit limbo.

 Source: U.S. Department of Energy

Plenty of vacancy when it comes to rental data

While there seems to be more local news today about tight rental markets and new apartment developments, you’ll read or hear very little about rental markets on a national, statewide or even regional scale, and you’ll see even less hard data connected to those reports.

That’s because macro data on rental markets are sparse and decentralized. Most data are very local, and there is little aggregation of market activity like demand, rent levels and other matters the public takes for granted in the single-family housing market. In terms of centralized sources for data across states and cities, they start and end with multifamily permits from the U.S. Census Bureau. These data show that multifamily housing construction dried up after the recession and has only recently started to rebound (see cover article in the July fedgazette).

Other surveys by the Census offer some broad-based data on local markets, but come with considerable caveats. For example, the American Community Survey (ACS) and Current Population Survey (both conducted by the Census) measure vacancy rates in the Twin Cities. Unfortunately, annual data for each run only through 2010—a turning point in many rental markets. CPS offers quarterly vacancy rates for the Twin Cities, but these figures can have seasonal volatility. In any case, results from these two public surveys do not conform particularly well with vacancy surveys conducted by private firms in the Twin Cities (Marquette Advisors, CBRE; see chart).

Other “large” cities in the Ninth District are not large enough to attract much attention from private market research firms. The ACS offers data for smaller metropolitan statistical areas, including those in the district, but they tend to suffer the same caveats about timeliness and congruence with local sources.

As a result, understanding local markets is a hunt-and-peck effort. Local data sources are notoriously spotty, in both their volume and reliability, even for fundamental measures like rent levels and vacancies. Industry sources widely acknowledged the lack of good information on rental markets.

“We struggle with a lack of data,” particularly in outstate markets, said Mary Rippe, head of the Minnesota Multi Housing Association. She said rentals were harder to track because historically there’s been no Multiple Listing Service (MLS) that is standard with home sales (more on this in a bit). Turnover is also much higher for rentals and thus harder to track. Even the definition of vacancy introduces some complexity, as a corporate office might have a different definition of vacancy than a building manager for the same unit (if it’s empty but being repaired or updated, for example).

Some rental associations gather data; some do not. In their defense, local associations need to be wary of market surveys so as not to encourage collusion or rent setting, industry sources pointed out. For those associations that gather local data, some make that information available, but many do not. In more than a half-dozen cities with a rental association, information requests to rental associations via both phone and email were either refused or ignored.

The information gap is partially filled in some cities that publish annual reports on city housing, which typically include a section on rental housing. But most local governments “do not track rents charged by owners, and many communities do not even have a rental registration or license program. So they don’t even know who is operating rental housing in the community,” said Sue Speakman-Gomez, president of HousingLink, a Twin Cities clearinghouse of affordable rental housing information. The organization is trying to fill that void, she said, but acknowledged that “we still have a lot of work to do.”

Private data firms are starting to get their rental toes wet. Companies like Zillow have increased their abilities to identify and market local rental properties; the downside is that aggregate data are thin—there are no historical benchmarks for comparison—and privately held. MLS also has started to include rental housing, but Realtor.com—home of the National Association of Realtors—currently lists fewer than 350,000 units nationwide; this for a nation with about 40 million renter-occupied households, according to the Census.

Even among subjects with a strong policy bent, like affordable housing, surprisingly little centralized data are available that might allow for the analysis of broader patterns. For example, the U.S. Department of Housing and Urban Development confirmed that it does not aggregate waiting lists for various housing assistance programs, nor does any state, despite the fact that local housing authorities are required to gather this information. A check of local housing agencies shows that wait lists for public housing and Section 8 assistance vouchers have skyrocketed. (For more, see the July fedgazette article on low-income rental markets.)

Workers’ comp rates trending downward, at least through 2010

During the sluggish economy, Minnesota employers are seeking ways to reduce costs, and many are likely thankful to see workers’ compensation costs trending lower, according to data in a recent report by the Minnesota Department of Labor & Industry.

Employers are required to have workers’ compensation insurance or be self-insured against workplace accidents. The report shows that firms have been paying steadily lower costs per $100 of payroll in recent years. This mirrors a similar pattern seen nationwide, according to an annual report by the National Academy of Social Insurance (see Chart 1).

One of the reasons for lower average costs is likely the result of steadily declining rates in workplace claims, which have dropped below five for every 100 full-time equivalent workers (see Chart 2). This has helped offset a rise in the average cost of individual claims over the same period, especially for medical benefits, which increased by 15 percent (to $5,550 per claim) from 2006 to 2009 (the most recent figures available). Average indemnity benefits—direct compensation to workers for lost wages—rose 3 percent per claim over this period, to $3,530, but that figure is down $170 from 2008. (All benefits are also adjusted for wage growth over this period.)

Claims are down for a variety of reasons, some of them related to the current economic slowdown, while others stem from long-term shifts in the economy. For example, employers are reportedly spending more time and money on workplace training in an effort to avoid workplace accidents and injury. The economy has also shifted away from manual-labor jobs in factories and elsewhere that are more likely to induce injuries and claims. The state report noted that the economic slowdown can also affect the claim rate.

In the same way the broader economy has moved away from manual-labor jobs, the recession dealt a harsh blow to construction jobs, which have a high accident rate. Work speed is also a factor in workplace injuries, and a sluggish economy can slow production rates. Employment losses during a recession affect less-experienced workers, who tend to be more accident prone. Workers might also file fewer claims during tough economic times for fear of job security.

But the workers’ comp coin has two sides. As the state report said, laid-off workers might also have a greater incentive to make a claim out of economic hardship “because lay-off is no longer a risk.”

A rising oil tide lifts all wages

Average wages have risen dramatically in western North Dakota, where rapid oil and gas development has transformed the economic landscape. Between 2004 and 2011, the average annual wage in counties with substantial oil activity increased over 80 percent in constant dollars, to about $56,000—a surge in compensation that dwarfed increases in the state and nation.

Some of the increase is due to a rising proportion of well-paid workers engaged in activities related to oil and gas—exploration and drilling, transporting oilfield supplies and equipment, building new facilities for oil companies and oilfield service firms. Jobs in mining (a statistical category dominated by oil workers in the region), trucking and construction have posted strong gains during the oil boom (see chart). In 2004, oil-related jobs accounted for just 12 percent of total employment in five core oil-producing counties; in 2011, that share was 41 percent. On average, workers in oil-related industries earned twice the pay of workers in other industries last year.

But most of the increase in oil patch wages stems from labor demand chasing supply, not just in oil-related industries, but in virtually every sector of the regional economy. In communities such as Williston, Watford City and Dickinson, N.D., few workers are available to fill thousands of job openings. Many employers—including those in industries that depend to a lesser extent on oil industry spending—have responded by offering higher pay. For example, in core oil counties, inflation-adjusted wages for hotel and food service workers increased 63 percent from 2004 to 2011. Over the same period, real manufacturing wages increased 21 percent.

An analysis of the relative impact of the two trends—a shift in employment to oil-related activity and across-the-board wage increases—shows that broad wage hikes account for close to three quarters of the average wage increase during the oil boom, while the shift in employment to oil-related activity accounts for about one quarter of the average wage increase. So the oil rush has lifted all workers in the region, not just workers tied to oil and gas extraction.

For much more on labor trends in the oil patch, see the forthcoming April issue of the fedgazette.

Minnesota job vacancies: Good news, with caveats

Job vacancies in Minnesota climbed 48 percent in the fourth quarter of 2011 compared with the same period a year earlier, according to a semi-annual survey recently released by the Minnesota Department of Employment and Economic Development (DEED).

That pencils out to almost 50,000 job openings last quarter—back to fourth quarter levels last seen in 2007, though short of the 65,000 vacancies in 2006. The survey also found that vacancies increased across a wide range of industry sectors (see Chart 1). In all, there were 3.2 unemployed people for each vacancy, compared with 5.8 a year earlier.

While certainly moving in the right direction, job vacancies still have some way to go before spurring the type of employment market many hope for. For example, DEED said 42 percent of the job vacancies were for part-time employment and another 13 percent were for temporary or seasonal work. The median wage offer for all job vacancies was $10.89 an hour—slightly lower than median wages seen in the same quarter of 2007 and 2008.

A breakdown of vacancies also shows that industry sectors with the greatest percentage of growth and the largest number of job vacancies generally offer lower wages (see Charts 1 and 2). This isn’t necessarily a surprise, or even a change. A look back at vacancies in the fourth quarter of 2006 shows a similar relationship regarding industry sector vacancies and median wages (see Chart 2).

Industry sectors like retail and accommodation employ many workers, are generally low-paying and typically see high turnover, which means they are perpetually looking for workers. In fact, health care traditionally has the most vacancies, reflecting the fact that it is a large and still-growing industry despite a sluggish economic recovery. Even though there are many high-paying jobs in the field, median wages for vacant jobs are just $11, a shade higher than the median wage for all vacancies. The biggest difference in job vacancy distribution among industry sectors is in transportation and warehousing, where vacancies remain considerably below 2006 levels (see Chart 2).