Energy Works for America

Mark Green
Posted February 25, 2014

The energy industry is working for America. A new Manhattan Institute report finds that in the slowly recovering U.S. economy the oil and natural gas industry is creating jobs and generating broad economic stimulus. Top findings:

• While overall U.S. employment has yet to return levels predating the 2008 recession, the number of oil and natural gas jobs has grown 40 percent since then.
• The U.S. energy revolution is almost entirely the result of development by more than 20,000 small and midsize businesses. The typical oil and natural gas firm has fewer than 15 employees.
• Industry jobs are geographically dispersed. Sixteen states have more than 150,000 jobs in the oil and natural gas sector.

The report:

In recent years, America’s oil & gas boom has added $300–$400 billion annually to the economy—without this contribution, GDP growth would have been negative and the nation would have continued to be in recession.

Manhattan’s employment chart:

The study found that the oil and natural gas revolution, thanks largely to advanced hydraulic fracturing and horizontal drilling, is boosting other economic sectors:

In addition to the direct and induced jobs, America is beginning to see the economic and jobs impact of a renaissance in energy-intensive parts of the manufacturing sector, from plastics and chemicals to fertilizers. Examples include an Egyptian firm planning a $1 billion fertilizer plant in Iowa and a South Korean tire company with an $800 million plan for a Tennessee plant. Germany’s BASF recently announced expansion of its American investments, including production and research. BASF calculated that its German operations’ energy bill would be $700 million a year lower if it could pay American prices for energy. In every case, a low-cost reliable supply of energy was the clincher. Abundant, low-cost energy has already attracted over $70 billion in new investments in 100 chemical operations, according to a 2013 American Chemistry Council survey. Those plants are expected to come online by 2017 and will create more than 1 million new jobs and add $300 billion annually to the GDP.

Circling back to energy production, Manhattan finds that the U.S. narrative has been turned around in just a few years:

After decades of handwringing over the seemingly inexorable decline in U.S. energy production, the entire political, policy, and physical ecosystem of oil & gas has been turned upside-down. And all this new production did not arise from government programs, stimulus, or from new discoveries; the new production comes from hydrocarbon-dense shale fields that the U.S. Geological Survey mapped out a century ago, now unlocked by the modern era of smart drilling, a technological ecosystem invented in America. Smart drilling is a combination of hydraulic fracturing (“fracking”) with information technology sensing and control, with steerable horizontal drilling to follow the richest seams to release tightly bound oil and gas.

The study complements the U.S. Energy Information Administration’s latest projections, which see U.S. oil production reaching 9.6 million barrels per day by 2016, a level not seen since 1970. The domestic production trajectory, EIA reports, has reduced net oil imports and is the major factor in an improvement in overall U.S. energy trade. EIA’s chart:

EIA:

The combination of higher oil production and lower oil consumption in the United States has already reduced net imports as a share of U.S. liquid fuels use from 60% in 2005 to 40% in 2012, with a further decline of the net import share to 27% in 2015 and 26% in 2020 projected in the AEO2014 Reference case. Net import volumes of crude oil and liquid fuels on a volume basis are projected to decline by 55% between 2012 and 2020.

America’s energy revolution is having national impact in terms of jobs, economic growth, increased energy security and an improved balance of trade picture. It’s also having regional and local impact. A new survey by Ohio University’s Consortium for Energy, Economics and the Environment of the state’s 17 main energy-producing counties finds local economic growth. Cleveland.com reports:

Shale gas and oil development in eastern Ohio counties has increased tax revenues, sparked hotel development, beefed up restaurant business and led to migration of workers into the state. In the first survey of elected officials in counties where gas and oil producers are drilling horizontal wells into shale, laying pipeline, and building processing plants, Ohio University found few environmental concerns.

The above shows the interrelated nature of energy development and economic growth – nationally and regionally. There are more stories, more examples, that illustrate the sweeping reach of America’s new energy abundance. Colorado Gov. John Hickenlooper, speaking at this week’s Energy2020 event sponsored by Bloomberg:

“What this horizontal drilling/hydraulic fracturing, has done – it’s a technological innovation, which means that the recoveries and your ability to predict cost and quantities of energy is much more accurate, much more predictable. That’s a huge part of what we’re trying to get people to recognize. This is something in the history of this country that is one of the biggest game-changers we’ve seen, certainly in several generations.”

U.S. energy – the result of vast oil and natural gas reserves, innovative technologies and the willingness of companies to invest in domestic exploration and production – is creating a new reality for our country. With the right policies and leadership this revolution can be sustained an expanded, and with it expanded benefits to more Americans.