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U.S. Unconventional Activity Boosting Supply Chain Jobs, Revenue, Says IHS

The economic benefits from unconventional natural gas and oil development in the United States are spilling over to diverse industry groups that support thousands of jobs today and should support even more in the years to come, a study by IHS Global Inc. has found.

Employment related to unconventional production supply chain industries was estimated at 524,000 total jobs in 2012. That number is expected to leap by 45% to 757,000 jobs in 2025, resulting in 41% of total direct and indirect jobs supported by unconventional activity by that time.

"Supplying the Unconventional Revolution: Sizing the Unconventional Oil and Gas Supply Chain" is an assessment of the entire domestic unconventional energy supply chain, which continues previous IHS economic research on allied contributions. The study was prepared for the Energy Equipment and Infrastructure Alliance (EEIA).

"It is an important part of the story that the unconventional oil and gas producers sit atop long and diverse supply chains that run through the U.S. economy," said IHS Economics and Country Risk Managing Director Brendan O’Neil.

"The growth in unconventional production has become an important source of economic activity for these industries at a time when many of their other primary markets were experiencing decline as a result of the Great Recession."

The new study issued on Tuesday focuses only on contributions of economic activity measured across 56 sectors of the North American Industry Classification System that are specific to industries that directly and indirectly support unconventional oil and gas activities in the upstream, midstream and downstream segments. Examples of supply chain industries include manufacturers of steel pipe, construction equipment, railcars, sand and gravel producers, and professional and technical labor.

Supply chain industries should contribute more than $16 billion in federal revenues in 2015, up from $13 billion in 2012, and increase to about $23 billion in 2025, researchers found. Total gross output from this group of industries is expected to rise from $145.7 billion in 2012 to $205.9 billion in 2025, contributing the equivalent of nearly 0.05% of total gross domestic output every year.

“These are very well-paying jobs, and they exist throughout the country, not just in the shale production areas,” said EEIA President Toby Mack. “And the taxes paid by these companies and workers are benefitting every citizen of the nation...lawmakers can keep this jobs boom on track by continuing to support safe and responsible shale energy development.”

In Pennsylvania alone, firms supplying goods and services to producers should create more than 30,000 jobs over the next decade, adding to the 46,000 now on the books. By 2025, the allied workforce in Pennsylvania should grow by 67% and account for 1.3% of employment.

Last year the state's wage earnings within the energy supply chain earned on average more than $76,000, compared with $49,000 for all Pennsylvania workers.

Total labor income nationwide generated by employment in affiliated industries is estimated to reach nearly $60 billion in 2025, up from $41 billion in 2012. The average income per employee also should increase, rising to almost $79,000 over the course of the study, exceeding the average annual U.S. wage of $68,000.

Supply chain benefits are being felt by industries in states with and without unconventional production.

"Though unconventional producing states predictably experience a larger portion of supply chain economic activity, a sizable portion also occurs in nonproducing states in industries such as steel-making, machine tool manufacturing and sand and gravel production," researchers noted. "The study notes that many of the supply chain sectors analyzed maintain lengthy supply chains of their own, which adds further to the economic impact."

Jobs supported by supply chain activity in producing states totaled almost 460,000 in 2012 and are expected to increase to 630,000 jobs in 2025, with construction and support activities for oil and gas operations the highest source of employment contributions. Total employment contributions for nonproducing states are expected to increase to 127,000 in 2025 from 64,000 in 2012, with the capital goods sector contributing the most jobs.

Also examined was the impact of unconventional production on supplemental construction, such as infrastructure, housing and commercial/industrial building activity that occur in addition to direct spending by oil and gas operators.

Supplemental construction spending should amount to nearly $4 billion in 2014 and support more than 15,000 workers, the study found. The cumulative impact of supplemental construction spending is expected to total more than $49 billion through 2025, supporting an annual average of 12,300 jobs over the period.

Supplemental construction for housing is expected to have the largest impact, representing nearly $3 billion in 2014 spending and peak at more than $5 billion in 2021.

"The supplemental construction spending driven by unconventional oil and gas activity has had a major impact on the construction industry, particularly residential construction, which was so hard hit by the Great Recession," O’Neil said. "In many ways, the unconventional oil and gas boom could not have come at a better time for the construction industry."

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