The energy outlook in the United States has "fundamentally changed" because of the revolution in unconventional natural gas and oil production, generating strong job creation, economic growth and government revenues, IHS Inc. said in a new report.
"The entire upstream unconventional oil and gas sector will support more than 1.7 million jobs in 2012 at average wage levels dramatically higher than the general economy," said the IHS study, "America's New Energy Future: The Unconventional Oil and Gas Revolution and the Economy." The number of domestic jobs is expected to jump to 2.5 million over the next three years and rise to almost 3.5 million in 2035.
"The growth of unconventional oil and gas production is creating a new energy reality for the United States," said IHS Vice Chairman Daniel Yergin. "That growth has not only contributed to U.S. energy security but is a significant source of new jobs and economic activity at a time when the economy is a top priority."
The research was supported by the American Petroleum Institute (API), Institute for 21st Century Energy, the American Chemistry Council (ACC) and the Natural Gas Supply Association (NGSA).
The IHS study "highlights the extraordinary opportunities we have right here at home to develop our unconventional oil and gas resources and return our economy to a pro-growth engine," said API CEO Jack Gerard. "Polls show Americans' top priority is job creation and the oil and natural gas industry will be a driver for those new jobs, with nearly three quarters of a million new jobs added over just the next three years."
NGSA CEO R. Skip Horvath said, "The main takeaway from this study is that 94% of the jobs accrue to our customers, with just 6%...accounted for by producers. That's why people are justified in calling unconventional gas a renaissance for the entire U.S. economy."
"We've known for some time that shale energy is truly a game-changer for America -- and now we can prove it," said the Chamber Energy Institute's CEO Karen Harbert. "This new, comprehensive study demonstrates that shale energy is already contributing [more than] $200 billion to our economy, with much more to come, if policymakers at all levels of government don't stand in the way...
"Shale energy not only creates jobs, it will also strengthen our energy security. Thanks largely to shale, America now has enough natural gas to supply our nation for over 100 years. In addition, shale also will reduce the need for oil imports. In fact, our study shows that by 2020, net oil imports will decrease by 60%, and America will spend $200 billion less on imported oil."
The IHS study builds on previous research specifically on the economic impacts of unconventional gas in the United States (see NGI, (see NGI, July 9; June 18). The latest report is the first in a series of major studies measuring the economic impacts of unconventional oil and gas activity in the United States. Subsequent reports are to focus on the economic impacts on a state-by-state level and the potential for a U.S. manufacturing renaissance.
The report is based on the IHS CERA analyses of each play, which calculate the investment of capital, labor and other inputs required to produce these hydrocarbons. The economic effects of these investments are then calculated using proprietary IHS Global Insight economic impact assessment and macroeconomic models to generate the contributions to employment, gross domestic product (GDP) growth, labor income and tax revenues that would result from the higher level of unconventional gas development.
"The United States currently has the highest rate of growth in crude oil production capacity in the world and is virtually self-sufficient in natural gas, except for some gas from Canada," said Yergin. "This is a stark contrast from when, prior to the unconventional revolution, it was expected that the U.S. would soon become heavily dependent on gas imports."
Future growth in unconventional production will drive continued economic expansion in both the near- and long-term, researchers said.
Annual unconventional tight oil production -- projected at 2 million b/d this year -- is expected to increase 70% by 2015 to more than 3.5 million b/d and by 2020 hit 4.4 million b/d, according to IHS. Unconventional gas production, which includes shale and tight gas plays, is forecast to jump by 22% in 2015 to almost 42 Bcf/d -- 65% of total U.S. gas output. By 2035 domestic gas production should reach more than 76 Bcf/d in 2035, or 75% of total U.S. gas production.
Among other things, IHS research found that nearly $5.1 trillion in capital expenditures ($2.1 trillion in the oil sector, $3 trillion in the gas sector) will take place between 2012 and 2035 across the entire upstream unconventional oil and gas activity sectors. In addition, employment in the entire upstream unconventional oil and gas sector on a direct, indirect and induced basis will support nearly 1.8 million jobs in 2012, 2.5 million jobs in 2015, 3 million jobs in 2020 and nearly 3.5 million jobs in 2035.
The researchers also found that jobs created tend to be high quality and high paying, given the technologically innovative nature of unconventional oil and gas activity. Workers associated with unconventional oil and gas are currently paid an average of $35.15/hour, which is higher than the wages in the general economy ($23.07) and more than wages paid in manufacturing, wholesale trade and education, among others. They also found that unconventional energy activity will contribute $237 billion in value added contributions to GDP in 2012, a figure that will increase to $475 billion annually in 2035.
In addition, unconventional oil and gas activity is expected to generate more than $61 billion in federal and state government revenues in 2012, increasing to $91 billion in 2015 and to $111 billion in 2020. By 2035, the last year of the forecast period, government revenues will increase to more than $124 billion.
"A key reason for the profound economic impacts associated with unconventional oil and gas production is the lengthy, complex, domestically sourced supply chains, which support American jobs," IHS said. "The total employment contribution for overall upstream unconventional activity relative to total U.S. employment will average 1.5% over the short-term (2012-2015), 1.9% over the intermediate term (2015-2020), and 2% over the long-term (2020-2035)."
The energy industry, which is capital-intensive by nature, relies on suppliers in construction, fabricated materials and heavy equipment, but it also requires a broad range of material and services such as legal and financial services and information technology, said IHS Vice President John Larson.
"Unconventional oil and gas production is unique in that it combines a highly capital-intensive industry with a broad domestic supply chain," he said. "The United States is a world leader in all parts of unconventional oil and gas activity, which means that most of the dollars spent here stay and support American jobs."
ACC CEO Cal Dooley said the IHS study "delivers plenty of good news for the chemical industry and other American manufacturers. Abundant and affordable supplies of natural gas are revitalizing the chemical industry and providing a competitive edge for manufacturers in the global marketplace. This study confirms that these benefits from natural gas liquids are not a short-term phenomenon but an ongoing trend expected to last for decades."
Chemical manufacturers already announced 50 new projects to take advantage of new supplies of natural gas and expand their production. A recent ACC study found that the expected increase in natural gas production is not just revitalizing the chemical industry but could create 1.2 million new jobs across a broad sector of America's manufacturing base.
A cursory look at current and historical U.S energy industry employment data indicates some interesting trends, said NGI's Pat Rau, director of strategy and research. According to U.S. Bureau of Labor Statistics (BLS) data from September, there were 239,300 people employed in the oil and gas extraction, and pipeline transport industries. Of that number, 195,000 were employed in the oil and gas extraction sector, with the remaining 44,300 in the pipeline transport segment.
These BLS statistics include both conventional and unconventional activity, but even when combined, the numbers still fall far short of the IHS report, which indicates that the unconventional oil and gas industry will support 1.7 million jobs in 2012. This suggests that a significant portion of the IHS forecast of employment benefits from the unconventional oil and gas industry will spill over into other industries, Rau said.
The BLS defines industries in the oil and gas extraction sector as those that "operate and/or develop oil and gas field properties," while the pipeline transportation sub-sector includes transmission pipelines to transport products "such as crude oil, natural gas, refined petroleum products and slurry."
Job growth in the U.S. oil and gas extraction and the pipeline transportation sectors have outgrown overall nonfarm job growth since 2002, but by different amounts, and in different trajectories, said Rau. Employment in the U.S. oil and gas extraction and pipeline transport industries have grown at respective annual trend-line rates of 4.8% and 1.0% since January 2002, well above the scant 0.1% annual trend-line growth in nonfarm employment during that time period.
However, while growth in U.S. oil and gas extraction jobs overall has trended upward in the last 10 years, U.S. pipeline transport job growth has been a more recent phenomenon, Rau said. After falling from 43,300 jobs in January 2002, U.S. pipeline transport industry employment fell to a low of 37,600 in July 2005, and has since steadily rebounded to 44,300 in September.
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