The People of America's Oil and Natural Gas Indusry

Energy Benefits - 'Real and Tangible'

Mark Green

Mark Green
Posted September 6, 2013

During a conference call with reporters to discuss IHS’ new report on the economic impacts of U.S. unconventional oil and natural gas development, IHS Vice President John Larson noted that while many of the report’s big numbers – including 3.3 million jobs that could be supported by 2020 and more than $468 billion in annual contributions to GDP – might be abstract to many Americans, the projected benefits to individual U.S. households from this energy activity are “real and tangible.” Let’s take a closer look.

ihs_disposable_growthIHS calculates that U.S. individual household disposable income will rise from increased activity in the unconventional oil and natural gas value chain and in energy-related chemicals to $2,000 by 2015 and to slightly more than $3,500 by 2025 (from $1,200 per household in 2012). “This is the cumulative impact of higher household wages and lower costs for energy and energy-intensive products,” IHS says.

Specifically, American households would see reduced home and water heating costs because of abundant, affordable natural gas, IHS says. Meanwhile, various consumer goods are likely to cost less as manufacturers’ input costs, such as those for electricity, decline because of natural gas. IHS also sees increased wages for Americans as the U.S. manufacturing renaissance – driven in large part by affordable natural gas – increases broader industrial activity:

Natural gas prices are and will continue to be substantially lower than they would have been without the unconventional revolution, generating positive immediate and medium-term contributions to GDP, employment, and real disposable income. These positive forces are reinforcing the US economy during a period of economic uncertainty and slow growth. Over the longer term, sustained improvements in industrial production are contributing to a renaissance in US manufacturing.

In other words, IHS projects that U.S. households will have more disposable income – directly, as the growth in unconventional oil and natural gas lowers home-heating costs, and indirectly as the economy improves around them, resulting in higher wages and lower costs for the producers of many consumer items. Real and tangible.

Another way to look at it – and IHS did – is to consider how things would look with constrained development of U.S. unconventional reserves. IHS modeled the impact on household disposable income if these reserves are restricted by policy and/or regulation – for example, if New York-like moratoria on hydraulic fracturing spread to other states, if EPA gets more involved and if there is “regulatory ambiguity” among federal, state and local agencies. A chart comparing disposable income under IHS’ growth scenario and a restricted scenario:

ihs_household_income_compared

Then there are the jobs – the 3.3 million IHS says could be supported by 2020 and the 3.9 million by 2025 – well-paying jobs in a robust, growing industry. Many will require strong science, technology, engineering and math aptitudes, as ExxonMobil’s Rex Tillerson noted in a guest opinion piece for the Wall Street Journal (subscription publication). Many also will be transformative.

It’s a golden opportunity, one that depends on policies to increase access to U.S. reserves, onshore and offshore, while taking a common-sense approach to regulating energy development.  We have the resources, the technology and highly skilled workers to build on what is being achieved through hydraulic fracturing and horizontal drilling. With the right policies more is possible.

ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.