Jobs Creation: Does The Gas Industry Really Matter?

March 2012, Vol. 239 No. 3

Richard Nemec, West Coast Correspondent

“At a time when national economic and employment indictors are uncertain at best, shale gas producers and their vast and dynamic supply chain are providing families and communities jobs and economic development. The Marcellus Shale is a case study in the transformative impact of the natural gas industry.”
–Kathryn Klaber, President, Marcellus Shale Coalition

Before 2010 no one would use the word “transformative” to characterize the natural gas industry. And in the wake of the 2008 global financial meltdown, no one would have viewed natural gas as the fuel for national economic recovery. Nevertheless, in this presidential election year, both jobs and the gas industry should be on everyone’s radar.

As part of the political rhetoric and debate on the continuing concerns about the environment and skeptical challenges related to the mostly industry-generated job-creation estimates, expectations are that there will be more studies produced, more statistics challenged
and a continuing lack of national consensus concerning the current domestic oil/gas boom and whether it is real and sustainable.

Aside from the political machinations, in the oil/gas patches the production has continued to soar, job-creation is robust, and the states with the bonanza are attempting to manage all aspects of the windfall – the good, the bad and the ugly – with balanced approaches to the economic, political and environmental issues being raised.

Last year ended with a series of studies and statistics all pointing to a continuing boost to the economy from the national surge in domestic oil/gas production. In December PricewaterhouseCooper and IHS Global Insight separately released studies touting up to a million added jobs from the domestic energy gold rush.

Early in 2012 at least two more studies were expected – one from the Interstate Natural Gas Association of America and a second one from the Association of Oil Pipelines. Groups like America’s Natural Gas Alliance have further reinforced the jobs report by IHS Global, highlighting what the shale producer-backed organization characterized as an “established, scientific fact” that the United States “now has as much natural gas as Saudi Arabia has oil.”

A state far from the U.S. energy epicenter, North Dakota set all-time records for oil and gas production, and is on track to become the second-biggest oil-producing state after Texas.

The Texas average rig count as of mid-December last year was 916, representing about 47% of all active land rigs in the United States. In the last 12 months all of Texas reported production was 381 million barrels of oil and 7.1 Tcf of natural gas. Last October, the state’s estimated final production was 33.7 million barrels of crude oil and 509 Bcf of well gas.

Within this bullish outlook, the pipeline sector is facing some mixed reviews, mainly because the abundant domestic supplies from various new widely dispersed shale plays have redefined infrastructure needs and market logistics. This means some long-haul transmission pipelines may be facing decreased shipments while a growing market emerges for new short-haul pipelines from shale formations close to major markets.

Passage of the new federal pipeline safety law further stimulates the economic potential underlying a deeper, broader approach to pipeline integrity management programs. More frequent and sophisticated testing surely will result in larger capital expenditures throughout the nation.

In California alone, in response to the fatal September 2010 San Bruno transmission pipeline rupture and explosion, the two major intrastate pipeline operators – Pacific Gas & Electric Co. and Sempra Energy’s two utilities, Southern California Gas Co. and San Diego Gas and Electric Co. – have proposed spending collectively more than $4 billion in pipeline testing, repair and replacement programs during the next three years.

At year-end 2011, Fitch Ratings released three separate reports describing a profitable outlook for natural gas, crude oil and refined products pipelines in North America. They cited a continued flow of cheap, plentiful shale gas and record storage levels. Fitch sees these energy pipeline sectors as operating above the nation’s continuing recessionary economy where jobless rates in some areas remain stubbornly high.

Gas pipelines in particular should continue to benefit from a “predominance of capacity reservation contracts” that should buffer the impact of commodity price and volume throughput volatility, Fitch said in a Dec. 8 assessment.

Other statistics in 2011 were equally bullish in the midst of an otherwise sour economy. North Dakota set all-time records for oil and gas production, according to Lynn Helms, director of the state Industrial Commission’s Department of Mineral Resources (DMR). He noted that the oil and gas industry planned to invest more than $3 billion in the state through 2013.

DMR estimated at the end of 2011 that between 1,100 and 2,700 oil/gas wells would be drilled annually in North Dakota during the next 14 years. And that would result in 30,000 to 35,000 direct long-term jobs. It is no surprise that end-of-year statistics from the U.S. Labor Department ranked the state as having the lowest unemployment rate in the nation (3.4%).

Jobs prospects have been at the center of the national debate regarding TransCanada Corp.’s $7 billion, 1,700-mile Keystone XL oil pipeline project on which the Obama administration has delayed a decision. Contentions by congressional and environmental representatives question the jobs claimed for the Alberta, Canada to Gulf of Mexico pipeline project, part of which was already built during the past two years.

At one point last fall Rep. Ed Markey (D-MA), the ranking minority member on the House Natural Resources Committee, and the American Petroleum Institute (API) President Jack Gerard got into a public verbal sparring match over the jobs issue.

Markey suggested that the Wood Mackenzie study done for API inflated the numbers by applying a multiplier of 2.5 to every direct new job associated with the proposed oil pipeline project. The congressman questioned the reality of the various indirect jobs ascribed to the pipeline.

API’s Gerard said Markey had what he called “typical misunderstandings” about industry facts that can lead to public policies allegedly “hindering, rather than helping, job creation and economic growth.” He said the API study demonstrated with “with the right policies from Congress and the Obama administration, we could create 1.4 million new jobs in America by 2030, with one million of those jobs created in the next seven years.”

Gerard called the employment numbers from the Wood Mackenzie study “conservative.”

The Canadian Energy Research Institute (CERI) has predicted a $521 billion increase in the U.S. gross domestic product (GDP) and creation of 465,000 U.S. jobs from the Keystone project. Every state in the United States will benefit from the pipeline project, according to TransCanada.

The Canadian energy infrastructure company claims that at least 1,000 U.S. companies supply goods and services to Canadian oil sands and pipeline companies. Examples are Berg Steel Pipe in Houston; Siemens Energy’s California operations; and a Michelin plant in Greenville, SC.

As the largest domestic energy infrastructure project active currently, Keystone XL breaks down its jobs in direct and indirect categories:
* 13,000 construction jobs spread over the 1,600-1,700 miles in 17 pipeline spreads;
* 500 workers are estimated-per-spread, equaling 8,500 jobs;
* 39 pump stations, each worth tens of millions of dollars;
* 100 jobs-per-pump station, equaling another 3,000 jobs;
* 600 more jobs staffing six proposed construction camps;
* Added tank construction at Cushing, OK; and
* Another 1,000 jobs for construction, management and inspection oversight.

“The project requires hundreds of millions of dollars’ worth of materials and related services for items such as steel pipe, tens of thousands of fittings, hundreds of large valves, fabrication of piping assemblies and structural steel for supports, and thousands of other pieces of equipment used to build such things as transformers for pumping stations, meters to measure the amount of oil delivered, large electric motors for operating pumps and cabling and electrical equipment to connect our vast pipeline monitoring system,” said Calgary, Alberta-based TransCanada spokesperson Terry Cunha.

“This work is expected to create an additional 7,000 manufacturing jobs,” said Cunha, adding that some pipe is slated to come from Welspun Pipes, Inc. in Arkansas and valves from Cameron Valves & Measurement in Louisiana. Siemens is investing $200 million in plants in three separate states making pumps, motors and related control equipment, he said.

Early phases of Keystone were completed in July 2010 and February 2011, and that work already demonstrated how it could create 9,000 construction jobs, Cunha said.

Other projects and regions are prompting similar claims and counter-claims on the job-creating value of the added energy resource development. In New York state, where what to do with its portion of the vast Marcellus shale oil/gas play is stirring a lot of political debate, a Public Policy Institute of New York report concluded last year that more than 62,000 new jobs could be created in five Pennsylvania counties through the drilling of 500 new shale gas wells annually.

The New York institute extrapolated these figures to estimate additional jobs for New York if it allowed the same level of production that is already ongoing in neighboring Pennsylvania.

But a consumer/conservation organization, Food and Water Watch, immediately challenged the new job predictions, alleging they were highly inflated by a magnitude of 10. “A more accurate job forecast might be a tenth of what the policy institute projected, or 6,656 jobs by 2018 in New York,” the consumer group told local news media last November.

For environmentalists and others that are opposed to more hydraulic fracturing in oil/gas shale plays, the energy industry will continue to be accused of inflating the jobs numbers to overcome rising environmental concerns related to alleged groundwater contamination and other potential problems.

Just as vehemently, oil/gas industry and various third-party research/consulting sources are continuing to drive home the reality of the economic multipliers being produced by the newfound domestic oil/gas boom. They point to the growth that continues unabated and with little or no major environmental mishaps.

One point everyone can agreed on is that there are extremely high stakes riding on the continuing debate.

API Wood Mackenzie Jobs Study; Cornell Rebut

When the Obama administration delivered a major jobs policy speech and initiative to the nation around Labor Day last year, the energy industry raised its voice with the release a study showing that more than 1.4 million new jobs, $800 billion in additional U.S. governmentrevenue, and 10 million barrels of additional daily oil and natural gas production by 2030 could be developed with the help of more flexible federal rules impacting the energy industry.

The study was prepared for the American Petroleum Institute (API) by Wood Mackenzie, and in ensuing months was a lightning rod for advocates on all sides of the issue.

“Our industry has kept more than 9 million Americans employed through some of the toughest economic times in America’s history,” said Jack Gerard, API CEO. “This study shows we could provide another 1.4 million jobs, with as many as 1 million [to be] created in just the next seven years.”

In lobbying for its proposed $7 billion, 1,700-mile oil pipeline, TransCanada Corp. paid for several third-party studies making similar claims about the job-creating powers of major energy infrastructure projects, such as its Keystone XL oil pipeline project.

Within weeks, a study by the Global Labor Institute at Cornell University countered claims that TransCanada’s CEO Russ Girling made regarding the sometimes controversial Keystone pipeline from the Alberta-U.S. international border to refineries in the Gulf of Mexico (GOM) region. Girling insists the project could create as many as 20,000 new jobs.

The Cornell institute report concluded that the job estimates put forward by TransCanada were “unsubstantiated and the project will not only create fewer jobs than the industry claims, but that the project could actually kill more jobs than it creates.” The university institute report claims that the 13,000 pipeline construction job estimate was more realistically 6,500 jobs.

Among the Cornell study’s criticisms were:
* Jobs created by the project will be temporary and 85-90% of the people hired will be nonlocal or from out of state; and
* Job losses would be caused by additional fuel costs in the Midwest, pipeline spills, pollution and the rising costs of climate change.

A rebuttal from M. Ray Perryman who provided an analysis of the Keystone XL project makes the point that his analysis fully accounted for all of the factors raised by Cornell’s critique, including the temporary nature of construction jobs and nonlocal nature of some parts of the labor, equipment and materials involved.

“To suggest otherwise is incorrect and misleading, as we explicitly stated that we excluded foreign-produced pipe in our report,” said Perryman, who strongly countered the Cornell study’s allegation that his study was “deeply flawed.” He said in contrast to the Cornell assertions, “we were not trying to mislead anyone and explicitly stated what we were modeling.”

Richard Nemec can be reached at: rnemec@ca.rr.com.

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