Shale, Other Unconventional Natural Gas Supports More Than 1 Million Jobs

July 2012, Vol. 239 No. 7

Natural gas production from shale, coal bed methane and tight sands is expected to generate significant job creation, economic growth, and revenue for federal, state and local treasuries throughout the U.S. in gas producing and non-producing states alike, according to a new IHS Global Insight study.

The economic contributions are realized throughout the lower 48 states and the District of Columbia in both the 20 producing states and the 28 non-producing states. Unconventional gas activity supported more than 1 million jobs in 2010, and it will grow to support nearly 1.5 million by 2015, says the study, which is the second in a series.

The new report, The Economic and Employment Contributions of Unconventional Gas Development in State Economies, examines unconventional gas activity – a growing subset of the total natural gas industry. The report found substantial growth in jobs and economic activity in unconventional plays over the past decade.

“At a time when the U.S. economy is slowly recovering from the Great Recession and struggling to create enough jobs to sharply reduce the unemployment rate, the growth in shale and other unconventional natural gas production is a major contributor to employment prospects and the U.S. economy,” said IHS Vice President John Larson, the lead author of the study.

“As this report makes clear, these benefits spread beyond producing states to deliver positive impacts across the country.”

The dramatic impact on employment and the economy from unconventional gas activity reflects its significant capital intensity requirements, the ability to source capital equipment and services from U.S. sources, the coast-to-coast structure of the supply chain and the quality of jobs created by the industry.

Between 2010 and 2015, the Top 10 producing states (as ranked by unconventional gas-related employment) – Texas, Louisiana, Colorado, Pennsylvania, Arkansas, Wyoming, Ohio, Utah, Oklahoma and Michigan – will experience a compound annual job growth rate of nearly 8%, with Pennsylvania and Colorado leading with expected compound annual growth rates of 14% and 10%, respectively. Meanwhile, total U.S. employment is expected to grow at a significantly lower average rate of 1.6% during the same period.

Of the nearly 1.5 million unconventional gas activity jobs contributing to the economy by 2015, nearly one-fifth are projected for non-producing states. The Top 10 non-producing states (as ranked by jobs growth due to unconventional gas development) in 2015 are projected to be California, Florida, Georgia, Missouri, North Carolina, Indiana, Wisconsin, Minnesota, Tennessee and Maryland, supporting the industry through the extensive supply chain and service jobs necessary to support development.

“When it comes to unconventional natural gas, a state does not need to have a gas play to benefit economically,” Larson added.

Among the study’s other key findings:
— Unconventional gas activity accounted for 53% of total U.S. natural gas production in 2010 and is projected to rise to 79% of total U.S. natural gas production by 2035.
— Nearly $3.2 trillion in cumulative investments in the development of unconventional gas are expected to fuel the increase in production between 2010 and 2035.
— By 2015, the annual contribution of unconventional gas activity to U.S. gross domestic product is projected to reach nearly $197 billion, more than $22 billion of which will be from non-producing states. In total, the annual contribution is expected to more than double by 2035 to almost $332 billion.
— Government revenue from unconventional gas activity is projected to reach more than $49 billion annually by 2015 and will continue to rise, to just over $85 billion by 2035. Over the study’s entire 25-year horizon, unconventional gas is expected to generate nearly $1.5 trillion in total government revenue.

To download The Economic and Employment Contributions of Unconventional Gas Development in State Economies complete report and methodology, and state-by-state results visit

Those job prospects that are spreading across the U.S. could spark a revival in manufacturing, according to a group of economists. Robert McCutcheon, an economist with consulting group PwC, told The Cleveland Plain Dealer at a manufacturing summit in Cleveland that natural gas could provide manufacturing companies a cheap source of energy that ultimately could save them $11.5 billion in energy costs by 2025.

“If we save $11.5 billion, that’s investment capital that could be redirected elsewhere,” he told The Ohio newspaper.

A study by PriceWaterhouseCoopers found low-cost energy could create as many 1 million new manufacturing jobs in the U.S. The report pointed to various projects, including several in Texas, as examples of an upward trend in the manufacturer sector.

“We believe the factors are in place for these trends to continue, despite concerns and uncertainties over how, and to what extent, the United States should use its shale gas reserves,” the report concluded.

The report found inadequate infrastructure, current tax policies and uncertainty over the environmental impacts of hydraulic fracturing could hinder the rising trend in the manufacturer sector.

If a manufacturing revival does come to the U.S., Texas might be among the states that benefits the most from the change. According to a survey by Pepperdine University’s Michael Shires, Houston, San Antonio, Austin and Fort Worth are among the top 10 cities who could power the manufacturing revival. Seattle’s aerospace sector helped power it to the top spot on the list.

Houston, which ranked fourth, is the third-biggest manufacturing center in the United States behind Chicago and Los Angeles, according to a Forbes story. It – like San Antonio and Fort Worth – made the list because of the booming energy sector.

The Bayou City also is one of the few cities who can boast about having more manufacturing jobs than before the recession. According to Forbes, Houston has seen a 0.5% rise in manufacturing jobs since 2006. The number of jobs is likely to rise in the Houston area after Dow Chemical announced plans to build a new ethylene plant and Exxon’s plans for a multibillion expansion at its Baytown complex. Both announcements will likely bring more energy-related jobs to the region, officials said.

North Dakota Holds Pipeline Summit

resentatives from the oil and gas pipeline industry gathered in Bismarck Thursday to discuss ongoing industry efforts to expand capacity in North Dakota.

North Dakota neesds pipelines. Badly. That was the message that dozens of industry officials heard when they met at Bismarck State College on June 14 for the North Dakota Governor’s Pipeline Summit.

With an eye on reducing gas flaring and the number of trucks burdening state roads, Gov. Jack Dalrymple told the gathering that the dramatic rise in oil production has made new additional pipeline capacity crucial to the state’s economic vitality. He noted that in just three years ago, state Dakota oil production has risen from 195,000 bpd to more than 600,000 bpd as energy companies continue to make large capital investments in the Bakken play. He said pipeline capacity in North Dakota was 286,000 bpd in 2009 and by the end of 2012 should reach 538,000 bpd.

Alex Pourbaix, president of energy and oil pipelines for TransCanada, plans are continuing to get the 1,700-mile Keystone XL pipeline approved. The company reapplied for a presidential permit on May 4. Of the total pipeline capacity of 830,000 bpd, 100,000 bpd would be dedicated to Bakken crude.

Mick Urban, government relations manager for ONEOK, said it has investments valued from $3.2-3.7 billion planned for North Dakota and cited the liquid-rich play, of the Bakken. ONEOK is already in the process of building the Bakken NGL Pipeline, a 525-mile system to move NGL from western North Dakota to northern Colorado. The pipeline, which is expected to be completed in the first half of 2013, would have an initial capacity of 60,000 bpd.

ONEOK previously announced its first oil pipeline project, the Bakken Express Crude Pipeline, in April. The 1,300-mile oil pipeline would start in Stanley and end in Cushing, OK. Construction should start 2013 with completion expected in 2015. It would have a capacity of 200,000 bpd.

U.S. Could Surpass Russia, Saudi Arabia In Oil, Gas

The United States is seeing a dramatic surge in oil and gas production and could overtake the world’s biggest producers, Russia and Saudi Arabia, in another decade. “Some of the numbers are eye-popping,” Daniel Sullivan, commissioner in Alaska’s department of natural resources, told a panel of experts at the International Economic Forum of the Americas in Montreal last month.

In the last quarter the U.S. produced 6 million barrels of conventional and unconventional oil a day, he said, adding: “We haven’t done that in 15 years.”

Since 2008, the U.S. added 1.6 million barrels of additional oil, and in 2011, the U.S. registered the largest increase in oil production of any country outside of OPEC, he told hundreds of participants.

These figures compared to a daily output in March of about 9.923 million barrels a day by Saudi Arabia, the largest producer of the OPEC nations, and 9.920 million by Russia, according to the industry data compiler Joint Organizations Data Initiative.

Sullivan said the respected consultancy, PFC Energy, had estimated that by 2020, “the U.S. could be the largest hydrocarbon producer – that’s oil and gas – in the world, overtaking Russia and Saudi Arabia.”

In Alaska alone, the potential off the coast was viewed as the largest of any country, about 40 billion barrels in conventional oil, according to the U.S. Geological Survey.

President Obama has indicated that offshore oil resources could help mitigate global disruptions in supply, and his administration has tried to craft an energy strategy that balances business interests with environmental concerns, especially in the Arctic.

In November the Obama administration proposed a new plan for offshore oil and gas leases in the Gulf of Mexico and off the coast of Alaska, including the environmentally sensitive Arctic. But it did not open up for exploration the politically sensitive Atlantic or Pacific coastlines, or the eastern Gulf of Mexico along the Florida coast. Shell is expected to begin drilling test wells off northern Alaska soon.

Sullivan argued that the benefits of the shift in energy security could be substantial, especially in terms of growth and jobs for a country where half the U.S. trade deficit is due to imports of oil.

He said in 2010-2011, there were 600,000 jobs created in the shale oil and gas industry.

But addressing the same audience, the chairman of the World Energy Council drew a more somber global picture.

Pierre Gadonneix said the economic crisis meant energy demands had slowed down, even though they were starting to grow again, and that oil prices remained high.

“Future growth is threatened by the prospect of climate change and the drain on our natural resources,” he said, adding the main challenges would be to improve the security of energy supply, to improve competitiveness and to struggle against “energy poverty.”

“We must recall that more than 1.3 billion people still do not have access to electricity in developing and developed countries,” he said.

Pointing to “big accidents”, chiefly in the Gulf of Mexico where a BP oil spill in 2010 unleashed 5 million barrels of oil into the seas, Gadonneix urged plant operators and governments to agree on global standards for operations.

Countries struggling to become economically efficient and feed global demand for energy increases also spoke at the forum. Iraq’s Vice President Khudier Mosa Jafer Alkhuzaie said the country’s “oil industry was the engine for the entire economy.”

Iraq had huge reserves of oil – more than 103 billion barrels – along with large reserves of natural gas.

“We expect investments in this area will help us develop the oil industry in Iraq,” he said, pointing to a fiscal law adopted in 2006 that lowers obligations imposed on foreign companies and “facilitates the liberty of movement for foreigners and their capital.”

Ex-CEO Sees Oil Imports Next 20 Years

David O’Reilly, the former head of Chevron Corp, believes the United States will be importing oil for at least the next two decades despite a recent surge in domestic production from newly developed shale basins.

While O’Reilly was upbeat about the potential for supplying enough natural gas and coal for U.S. electricity, he said the country should worry about its transportation system given its reliance on oil – barring a technological breakthrough.

“I do believe that we will still be importing oil 20 to 25 years from now, and that is the one area of vulnerability we have in our supply system,” O’Reilly, now chairman of the National Petroleum Council, said at an energy policy conference at Stanford University.

O’Reilly, who was Chevron CEO for a decade and joined the boards of Saudi Aramco and engineering group Bechtel in 2010, said he saw potential for U.S. conversion of its abundant natural gas supply to liquids to power vehicle engines.

David Seaton, CEO of Bechtel rival Fluor Corp, told Reuters last month he also expected gas-to-liquid conversion to take off in the United States before exports because the economics of shipping LNG would be severely altered if gas prices rise substantially from their current level near 10-year lows

Conoco CEO Sees North America Energy Self-Reliant In 2025

North America is expected to become self-sufficient in energy by 2025 ConocoPhillips Chief Executive Ryan Lance said last month in an article published by Dow Jones Newswires.

The U.S. has been experiencing a boom in natural gas extracted from shale over the past two years, and Lance said the country already has no need to import any natural gas.

The shale revolution has pushed U.S. gas prices to the lowest in a decade, opening up the possibility of shipping gas to Asia where prices are just short of record highs but demand is still robust.

“North America will become an exporter of LNG in the near future,” Lance told an OPEC seminar in Vienna.

However, the head of one international energy company said he doubts that the U.S. public will accept exporting natural gas.

Eni CEO Paolo Scaroni said increased use of cheap natural gas for transport and the threat of rising prices for consumers may mean the United States never becomes a major LNG exporter 13. Though consuming nations are eagerly hoping for a new supplier as the boom in unconventional gas production has turned the United States from the world’s biggest gas importer to a potential LNG exporter, Scaroni said

“It remains to be seen whether American citizens, who accept the discomfort of the shale gas activity for reasons of energy security and independence, will willingly accept it to benefit the bank accounts of a few exporters, especially as a likely consequence of higher U.S. gas exports would be higher domestic prices. Will the U.S. start to export gas in significant quantities? I’m not sure,” he told an OPEC seminar in Vienna.

Natural gas in the U.S. trades at less than one-sixth the price of an equivalent amount of energy from oil, he said. “My view is that these differences will be partially or totally evened out over time. If all of the trucks in the United States were converted from gasoline to natural gas that would save more than $40 billion a year in fuel costs at current price levels in the U.S,” Scaroni said. “Over the long term the price of gas will negatively impact the price of oil. There is too wide a gap.”

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