The recent boom in unconventional oil and natural gas development is igniting a sequence of far-reaching contributions to the U.S. economy, particularly in boosting trade, rejuvenating the manufacturing sector, and increasing household incomes, a new study says.
And that domino effect is likely to go on, the report suggests – unless regulations on hydraulic fracturing get in the way.
The study by IHS Global Insight, titled America’s New Energy Future: The Unconventional Oil and Gas Revolution and the Economy – Volume 3: A Manufacturing Renaissance, details the full chain of economic and monetary activity that has resulted from the well-reported increase in unconventional development in the U.S., from drilling and refining to petrochemicals supplies and manufacturing.
The analysis – conducted on behalf of several trade associations, including the American Petroleum Institute (API) – expands on IHS’s earlier research into unconventional oil and natural gas, resources generally unlocked from shale deposits and other tight formations using hydraulic fracturing and horizontal drilling.
According to the report, the full unconventional value chain supported 2.1 million jobs in 2012. It’s expected to support 3.9 million jobs by 2025, including 515,000 in manufacturing.
This, above all else, underlines how unconventional energy has been a remarkable economic stimulus for the U.S. with implications far beyond oil and natural gas producing states, API Vice President for Policy and Economic Analysis Kyle Isakower tells Industry Today.
“Clearly, at a time when we’re hearing an awful lot of negative economic news and stories, we’re seeing just how important this unconventional oil and gas development has been for our nation’s economy,” Isakower says. “New supplies are changing the game for businesses that use or make energy-intensive products, including chemicals, aluminum, steel, cement, and foodstuff.”
He adds that unconventional energy is one of the drivers behind America’s well-reported manufacturing renaissance.
“There’s been so much discussion over really quite a few years – 15 years, maybe 20 years – about how the manufacturing sector in this country is being lost,” he says. “This report draws attention to how unconventional oil and gas development provides us with an opportunity that we’re already taking advantage of to bring back some of America’s manufacturing sector.”
BENEFITS BEYOND MANUFACTURING
The aforementioned report also gives explanation on how unconventional oil and gas has benefited the nation’s economic landscape as a whole, not just manufacturing.
For instance, it attracted U.S. capital investments totaling $121 billion last year, according to the study, and it could attract $240 billion by 2025.
It also contributed $284 billion toward the U.S. GDP in 2012. That is expected to rise to $533 billion by 2025.
Unconventional energy will also improve U.S. competitiveness, contributing $180 billion to the U.S. trade balance by 2022.
And it increased disposable household income by an average of $1,200 in 2012, rising to $3,500 by 2025.
“That’s real money in people’s pockets that makes a very real difference in people’s lives at a time when every penny counts to many, many households across the country,” Isakower says.
Furthermore, unconventional energy is projected to generate $74 billion in government revenues in 2012. That figure is likely to hit the $138 billion mark in 2025, according to the report.
“What you can see from this study is that the oil and gas industry has actually been a pretty bright light in what has otherwise been a relatively bleak economic picture over the last five years,” Isakower says.
Isakower says that in order for the U.S. to truly unlock its full manufacturing potential, legislators and regulators in Washington must turn aside efforts that would impose duplicative regulations on shale development, raise production costs, and limit access to domestic resources.
“There are an awful lot of policies that are proposed here in Washington that could derail or, at the very least, slow down the growth in unconventional energy and the associated economic and jobs benefits,” he explains.
Look at tax proposals, where the administration and many on the Hill have been proposing billions of dollars annually in new taxes, specific on the oil and gas industry, despite the fact that the industry, in Isakower’s words, is “already paying more in taxes than any other sector, and paying at a higher effective rate” than most, if not all, sectors.
“If you add taxes to the industry and to unconventional development projects, some projects that are of marginal potential rates of return will become sub-economic, and those are projects where the investment will simply go elsewhere, potentially overseas, rather than here in the United States.”
And adding more regulations, he says, could also disrupt momentum, making investors reconsider whether investing in the U.S. is ideal.
“There’s been an awful lot of talk within this administration of additional regulations on hydraulic fracturing, and those types of regulations are unnecessary because activity is already being regulated by each state,” Isakower says. “Those types of regulations could very easily add significant costs.”
He adds, “When costs are added, you have a reduced investment, and when you reduce investment, you reduce jobs, government revenue, economic activity, and energy security. There are an awful lot of reasons why policy makers should think long and hard about whether it really makes sense to add duplicative regulations to hydraulic fracturing operations. This study outlines some of those reasons.”
About The Report
America’s New Energy Future: The Unconventional Oil and Gas Revolution and the U.S. Economy is a three-volume series based on IHS analyses of each play, which calculates the investment of capital, labor and other inputs required to produce these hydrocarbons. The economic contributions of these investments are then calculated using the proprietary IHS economic contribution assessment and macroeconomic models to generate the contributions to employment, GDP growth, labor income and tax revenues that will result from the higher level of unconventional oil and natural gas development. This research was supported by the American Chemistry Council, America’s Natural Gas Alliance, the American Petroleum Institute, the Fertilizer Institute, the U.S. Chamber of Commerce – Institute for 21st Century Energy, the National Association of Manufacturers, the Natural Gas Supply Association, Rio Tinto and the Society of the Plastics Industry. IHS is exclusively responsible for all of the analysis and content.
About the American Petroleum Institute (API)
API is a national trade association that represents all segments of America’s technology-driven oil and natural gas industry. Its more than 550 members – including large integrated companies, exploration and production, refining, marketing, pipeline, and marine businesses, and service and supply firms – provide most of the nation’s energy. The industry also supports 9.8 million U.S. jobs and 8 percent of the U.S. economy, delivers $85 million a day in revenue to our government, and, since 2000, has invested over $2 trillion in U.S. capital projects to advance all forms of energy, including alternatives.