Energy is an Economic Dynamo

Mark Green
Posted December 23, 2013

Every now and then we see items questioning the economic impact of domestic oil and natural gas development from a jobs standpoint. As we’ve pointed out, industry’s benefit to the country isn’t measured just in direct oil and natural gas employment. Its positive impact must be seen in jobs and economic activity that otherwise wouldn’t exist, as well as benefits to consumers. More supporting evidence:

Investment – A new API survey on drilling costs found that about $153.7 billion was invested in drilling in 2012, a 23.1 percent increase over 2011. API Statistics Director Hazem Arafa:

“The U.S. oil and natural gas revolution is gathering momentum, as companies invest more into domestic production and expand our ability to supply America’s energy needs. Companies are opening more oil and gas wells, with a rising share of new investment devoted to exploration and production of oil, both onshore and offshore.” 

In other words, drilling = demand for equipment and materials. Others make the tractors and trucks and storage tanks and other items needed for well development and production. Others fabricate the steel for drilling pipe. Others build the computers and electronics for modern exploration and drilling control centers. The point is made: Increased drilling activity means economic stimulus.

Let’s make it local with a couple of examples. First, the San Antonio Express-News reports on its website that Marathon Oil plans to spend $2.3 billion next year in Texas’ Eagle Ford shale play. The company plans to drill about 250 wells net to Marathon (after industry partners and royalty owners are paid). It also plans to accelerate rig activity in North Dakota’s Bakken region by 20 percent and by 100 percent in Oklahoma’s Woodford region. Again, Marathon’s activity starts a broad economic ripple starting in these places and growing out into other parts of the country.

Elsewhere, BP recently announced the startup of a new coker at its Whiting Refinery in Indiana following a $4.2 billion upgrade to increase processing capacity of heavy sweet crude, according to the Post-Tribune. Refinery Manager Nick Spencer:

“Our investment in Whiting’s future shows BP’s commitment to safely providing energy and jobs in America. Our focus now is to continue this high standard of safety performance as we operate the plant to produce gasoline, diesel and jet fuel and provide jobs for thousands of people in greater Chicagoland and much of the Midwest for decades to come.”

Consumers – A new study by the Boston Consulting Group found that surging U.S. natural gas production has driven down prices 50 percent in the past eight years, saving the average American household between $425 and $725 a year in energy costs. By 2020, the per-household savings could be about $1,200 a year. The Wall Street Journal reported:

“We don’t know that consumers are going to necessarily spend all that money – but it does give them money that they can spend,” says Harold Sirkin, senior partner with BCG. That, in turn, “could provide a significant boost to the U.S. economy.”

IHS, taking a broader look at the impacts of unconventional natural gas in a study released earlier this year, says lower costs saved each U.S. household $1,200 in 2012. That could grow to $2,000 in 2015 and to more than $3,500 in 2025, IHS said. Both studies point to positive economic impact for American consumers.

Again the larger point: America’s oil and natural gas industry is helping lead the U.S. economy by creating jobs, by making significant new investments in energy facilities, exploration and development – all of which generate additional business activity.