Oil and gas shale economic benefits being felt by virtually every American

Oct. 1, 2013
Shale economy

TANK truck carriers, railroads, and storage terminal operators have directly benefitted economically from the incredible oil and gas shale boom that has spread across the United States. However, the full economic impact of the shale revolution goes far beyond those industry sectors.

A recent IHS study paints a broad picture of the true economic impact from the massive US oil and gas resources that are being pulled out of the shale plays. IHS Inc is a leading provider of diverse global market and economic information.

The US oil and gas shale revolution is projected to boost disposable income by more than $2,700 per household and raise the US trade position by more than $164 billion in 2020. More than 3.3 million jobs will be supported in 2020 as the unconventional oil and gas revolution boosts industry competitiveness and manufacturing growth.

Unconventional oil and gas activity increased disposable income by an average of $1,200 per US household in 2012 as savings from lower energy costs were passed along to consumers in the form of lower energy bills as well as lower costs for all other goods and services. That figure is expected to grow to just over $2,000 in 2015 and reach more than $3,500 in 2025, the study says.

The US trade position will continue to improve, owing to the significant reduction in energy imports and the increased global competitiveness of US-based energy-intensive industries, the study says. Driven by a rise in domestic production and manufacturing that will displace imports, as well as a favorable export position for these industries, the US trade deficit will be reduced by more than $164 billion in 2020—equivalent to one-third of the current trade deficit.

The new study, entitled America’s New Energy Future: The Unconventional Oil and Gas Revolution and the Economy--Volume 3: A Manufacturing Renaissance,found that sector of the energy value chain currently supports more than 1.7 million jobs and will grow to nearly three million by the end of the decade.

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The new study widens the breadth of the research to include the full energy value chain (upstream, midstream and downstream energy and energy-related chemicals) and the overall macroeconomic contributions on the manufacturing sector and broader US economy. Midstream and downstream unconventional energy and energy-related chemicals activity currently support nearly 377,000 jobs throughout the economy, the study finds. Combined with upstream activity, the entire unconventional oil and gas value chain currently supports more than 2.1 million jobs. Total jobs supported by this value chain will rise to more than 3.3 million in 2020.

Energy-related chemicals and other energy-intensive industries such as petroleum refining, aluminum, glass, cement, and the food industry are some of the primary beneficiaries from secure supplies of low-cost energy from unconventional production, the study says. More than 70% of the cash cost of producing energy-related chemicals— which include major commodity petrochemicals such as olefins, methanol and ammonia—is the cost of raw materials and energy feedstocks.

In addition to measuring jobs supported by the full unconventional value chain, the study also quantifies the additional manufacturing jobs attributed to the broader macroeconomic contributions that begin with unconventional oil and natural gas. More than 460,000 combined manufacturing jobs (3.7% of all manufacturing jobs) will be supported in 2020, rising to nearly 515,000 (4.2% of total manufacturing jobs) in 2025. Manufacturing jobs will represent one out of every eight jobs supported by unconventional oil and gas development during that time, the study says.

Other key findings:

•The entire unconventional oil and gas value chain and energy-related chemicals will contribute $284 billion in value-added contributions to GDP in 2012, a figure that will increase to nearly $533 billion annually in 2025.

•The full value chain of industrial activity and employment associated with unconventional oil and natural gas contributed more than $74 billion in federal and state government revenues in 2012.

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•Workers’ earnings from all unconventional energy and chemicals activity were nearly $150 billion in 2012. This total will rise to $207 billion in 2015 and will be nearly $269 billion in 2025.

•Industrial production increases directly resulting from lower feedstock prices and energy costs associated with the full value chain of unconventional activity will be $258 billion (3.5% increase) by 2020 and rise to $328 billion (3.9% increase) in 2025.

•Between 2012 and 2025, IHS projects a cumulative investment of nearly $346 billion across the midstream and downstream energy and energy-related chemicals value chains. Close to $216 million of this will come in the midstream and downstream segments of the unconventional value chain, including 47,000 miles of new or modified pipeline infrastructure.

•More than $31 billion in new capital investments will drive the addition of more than 16 million tons of chemical capacity by 2016.

•Employment contributions from the midstream and downstream sector are at their greatest in the near term (currently supporting nearly 324,000 jobs), as expansions and other capital expenditures are made to increase capacity connecting the resource base with broader end-users.  ♦