The People of America's Oil and Natural Gas Indusry

Energy Tomorrow Radio: Episode 90 - Oil and Natural Gas Industry Vital to Economy

Jane Van Ryan

Jane Van Ryan
Posted September 22, 2009

This week's episode focuses on the recent PricewaterhouseCoopers study regarding the impact of the oil and natural gas industry on the U.S. economy. As the study shows, the industry supports 9.2 million workers and contributes more than $1 trillion to the economy. Art Wiese, API's policy analysis manager, discusses the findings with me.

Use the audio player below to listen to information on the study and follow along with the show notes. Also below, you can read the full study. I hope you find the podcast informative.

Show Notes:

00:18 Have you noticed how news reports quantify the importance of an industry to the U.S. economy? For example, in many news articles about the ongoing health care debate, reporters often say that health care is a multi-billion dollar business that makes up a large portion of the gross domestic product (GDP).

00:36 Here at API, we decided to conduct a study to gather similar information about the size and importance of the oil and natural gas industry, and Art Wiese, API's policy analysis manager, is here to discuss the findings.

00:52 This study was conducted by PricewaterhouseCoopers. Can you summarize the study's findings?

00:59 The study demonstrates the importance of the oil and natural gas industry to the U.S. economy, both in terms of U.S. employment and GDP contributions. The industry--through its operations and capital investments--supports 9.2 million workers in the U.S. economy, either directly or indirectly, and generates $1 trillion or 7.5 percent of GDP.

01:37 How does this information differ from the findings of earlier studies?

01:44 API conducted a study in 2007, and the current study differs in two respects: the 2007 study was based on earlier data. Since the industry has grown since then, we would expect to see bigger impacts in the latest study, which we do. Another differentiation is that the older study did not include the capital investments of the industry, which are very large because of its capital-intensive nature.

02:25 I noticed that the study discussed three different groups of jobs--direct, indirect and induced. Can you explain them, please?

02:34 The direct jobs are the number of individuals directly employed by the U.S. oil and natural gas industry, such as workers in upstream, at refineries and in marketing. Indirect jobs are created through purchases of the oil and natural gas industry for its materials and capital goods. For example, the industry needs to purchase large machinery and a lot of steel. Through these purchases--goods and services--many jobs are created. There are 7.1 million indirect jobs and induced jobs. The induced jobs come from wages earned by both the direct and indirect labor

03:53 Total jobs add up to about 9.2 million--very substantial.

04:05 The oil and natural gas industry is one of the most capital-intensive industries in America, meaning that many of its investments are made in equipment, like offshore platforms, rather than in hiring large numbers of people. Still, don't the new jobs figures indicate that the oil and natural industry is one of the largest industries in the country?

04:24 There is no question that, both directly and indirectly, when you are talking about 9.2 million jobs, the industry is capital-intensive and supports a significant amount of the U.S. labor force.

04:46 Did you look at the number of oil and natural gas jobs that exist in various states?

04:59 States with the largest jobs--the top five-- are Texas with 1.8 million jobs; California with 753,000; Oklahoma with 349,000; Louisiana with 330,000 jobs created; and New York with 281,000.

05:34 This would be a surprise to many people in those states because of the many links between the oil and natural gas industry and other industries in economy that supply goods to the industry. Many people do not realize how interconnected the industry is with others.

05:56 Which states had the fewest number of jobs supported by the oil and natural gas industry?

05:58 The fewest are the District of Columbia, although it is not a state, with 13,000 jobs; Vermont with 14,000 jobs; Delaware with 15,000; Rhode Island with 16,000 jobs; and Hawaii with 19,000 jobs created.

06:28 Even with those numbers, is it not fair to say that virtually every person and every industry in the country is touched in some way by the oil and natural gas industry?

06:40 That is correct because of the many linkages between the oil and natural gas industry and other industries in the economy. When the industry is producing and growing, it demands more goods and services from other industries. It touches the lives of a large part of the U.S. population.

07:09 Since those linkages exist, what is the impact on Americans, or American households, when government actions impact the oil and natural gas industry?

07:23 When the oil and natural gas industry is robust and growing, it is going to demand more goods and services. Therefore many other industries will grow and people will benefit from the growth and job creation. At the same time, if there are punitive government actions that stop growth or make it more difficult to grow as an industry, it is not going to develop and produce more of America's resources and refine its energy into useful products. Therefore it will demand less goods and services from other industries and you will have a negative impact on employment.

08:26 The administration has proposed repealing some long-standing tax incentives for oil and natural gas production. How could this affect the industry, and by extension, the entire economy?

08:36 If you raise taxes on the oil and natural gas industry, it could have several adverse impacts. It would raise the costs to explore, develop and produce domestic energy in the United States. History has shown that when this has been done in the past, if you decrease domestic production, you will increase imports of crude oil.

09:15 If you raise the cost of doing business, history shows that it results in fewer jobs.

09:24 So, it is fair to say that raising taxes on the oil and natural gas industry could have some very severe, unintended consequences on the economy?

09:31 It likely would--going back to how the oil and natural gas industry is interconnected with many other industries. If you impose punitive taxes on the industry, it will indirectly impact all of those other industries in the economy.

09:56 Art Wiese, thank you for explaining this today on Energy Tomorrow Radio.