UNCONVENTIONAL oil and natural gas activity is reshaping America’s energy future and bringing significant benefits to the US economy in terms of jobs, government revenues, and GDP, according to Mohsen Bonakdarpour, director of the Strategy and Planning Group for IHS Economics.
IHS assessed the contribution to the US economy of unconventional oil and natural gas activity, which is petroleum produced or extracted using techniques other than the conventional method in which wells can be drilled so that oil and natural gas flows naturally or can be pumped to the surface.
The three levels of research:
• October 2012: national economic contributions. The direct, indirect and induced contribution of upstream unconventional oil and natural gas activity on the US economy as measured in jobs, GDP contribution, labor income, and government revenue.
• December 2012: state economic contributions. The national level contribution assessment is further broken down to the state level. The use of extensive domestic supply chains means benefits will accrue even to states that are not unconventional energy producers.
• September 2013: a manufacturing renaissance. An assessment of how unconventional oil and natural gas (as both an energy source and industrial feedstock) will make significant contributions to the US economy while enhancing the global competitiveness of US manufacturing.
Bonakdarpour said a new era of affordable and abundant energy is creating significant competitive advantages for the US in both energy-intensive industries and industries that rely on natural gas derivatives as critical production feedstock.
The composite economic contributions include:
• Jobs: 2.1 million jobs in 2012, 3.3 million by the end of the decade, and almost 3.9 million by 2025.
“Manufacturing will benefit from supply-chain impacts and price effects attributable to unconventional development, which will help create and sustain jobs,” he said. “Over the entire forecast period, IHS estimates that one out of every eight US jobs supported by unconventional oil and natural gas development will be in manufacturing.
“By 2015, 3.2% of all US manufacturing jobs will be linked to unconventional development. By 2025, this share will jump to 4.2%. This means that unconventional development will support close to 400,000 manufacturing jobs in 2015 and just over 500,000 in 2025.”
He said segments of the value chain have different employment contribution trends. The employment contribution trends of midstream and downstream energy versus energy-related chemicals reflect these industries’ differing capacity expansion and production outlooks. During the forecast period, the employment contribution is expected to moderate in the midstream and downstream energy value chain while the energy-related chemicals value chain is expected to gain strength.
• GDP: Annual contributions will nearly double from $284 billion in 2012 to $533 billion in 2025.
“By comparing the US economy with unconventional activity to a counterfactual analysis that removes unconventional activity, IHS estimates that, on average, unconventional energy will contribute 0.1% to annual GDP growth rates over the next decade,” he said. “GDP contribution under the unconventional revolution conditions will be higher, peaking at 3.2% in 2016 before moderating for the rest of the forecast period.
“The unconventional revolution will continue to benefit US manufacturing industries over longer term as the cost of energy plays a major role for many of the manufacturing sectors.”
He said government revenues will average $115 billion annually, totaling over $1.6 trillion from 2012 to 2025.
• Real household disposable income: an increase of more than $1,200 in 2012, just over $2,000 in 2015, and more than $3,500 in 2025. With 120 million households in the country, this equates to an aggregate annual boost of over $163 billion.
“There is a cumulative impact of increasing household wages and decreasing costs for energy and energy-intensive products,” he said. “Wages increase as the manufacturing renaissance increases industrial activity. Direct consumption costs are reduced as natural gas used to heat homes and water becomes less expensive. Input costs for manufacturers of various consumer goods, including electricity prices, decline, reducing indirect costs for consumers.
“These economic contributions are more significant when viewed against the backdrop of a struggling US economy, with slow growth and an unemployment rate that hovers above 7.5%, with 12 million individuals out of work and seeking employment.”
He said a confluence of many factors helped US manufacturing rebound from its 2009 recessionary trough and enter the manufacturing renaissance currently under way in the United States:
• Productivity gains for US workers.
• Significant technological advances.
• Slower growth in hourly compensation relative to our global competitors.
“These factors, in combination with the profound impacts of increasing unconventional oil and natural gas production, are revitalizing critical segments of the US manufacturing base,” he said. “US manufacturers are benefitting from the availability of a secure supply of low-cost natural gas, especially manufacturers in energy-intensive industries. Energy-related chemicals, petroleum refining, aluminum, steel, glass, cement, and the food industry—these are key energy-intensive sectors that are expected to invest and increase their US operations in response to declining prices for their energy inputs.”
He said unconventional oil sources have increased oil production by 25% from 2008. Twelve years ago, shale gas production was only 2% of total US natural gas production, and today it represents 37%.
The increase in US natural gas production from shale gas and tight gas plays is making it possible that the United States will become a net exporter of gas by the end of this decade, he said. ♦