Study: Unconventional Plays to Support Nearly 3.5M Jobs by 2035

Study: Unconventional Plays to Support Nearly 3.5M Jobs by 2035

The entire upstream unconventional oil and gas sector will support more than 1.7 million jobs in 2012 at average wage levels - dramatically higher than the general economy, according to a new IHS Global Insight report released Tuesday.

The number of jobs supported by upstream unconventional activity is expected to grow to 2.5 million over the next three years, 3 million in 2020, and reach nearly 3.5 million in 2035, according to the report "America's New Energy Future: The Unconventional Oil and Gas Revolution and the Economy".

"Against a backdrop of a historically slow economic recovery and persistently high unemployment following the Great Recession, the surge in spending associated with unconventional oil and natural gas activity is proving to be an important engine for jobs creation," IHS Global Insight reported.

In its report, IHS Global Insight examined the number of direct jobs, such as geologists or oilfield workers, indirect jobs, which include supply chain jobs that support exploration and production such as jobs that support the fabrication of steel pipes, and induced jobs, such as waitresses or real estate agents, or jobs in the broader economy that are supported by unconventional oil and gas activity.

In 2012, unconventional energy activity supported over 360,000 direct jobs, more than 537,000 indirect jobs in supplying industries, and over 850,000 induced jobs – a total of over 1.7 million jobs in the Lower 48 states.

According to the report, the greatest future job growth will occur between 2012 and 2020, during which IHS forecasts the addition of nearly 1.3 million jobs, including over 600,000 direct, more than 900,000 indirect and nearly 1.5 million induced jobs.

John Larson, IHS vice president of public sector consulting, called the economic growth associated with U.S. unconventional shale plays as one of the most significant energy events in the past 100 years.

Plays such as the Bakken in North Dakota are contributing to the economy not only in terms of direct jobs, but also in the hospitality and restaurant industries in Williston, where the number of hotels has quadrupled in the past four years and the local McDonald's has 40 employees working in three shifts, said Larson during a conference call with reporters.

On average, direct employment will represent about 20 percent of all jobs resulting from unconventional oil and gas activity with the balance contributed by indirect and induced employment. The jobs created by unconventional shale plays will be taken by individuals who can't find employment elsewhere.

"These jobs also tend to be higher paying and will contribute to a greater proportion of the GDP [gross domestic product]," Larson commented.

Unconventional Oil Growth

From 1970 to 2008, U.S. crude oil production fell from 9.6 million barrels per day to 5 million barrels per day. But thanks to technological innovation, production of tight oil or unconventional oil from sources such as shale and low permeability rocks has grown from 100,000 barrels per day in 2003 and is expected to average over 2 million barrels per day in 2012.

Growth in unconventional oil production has more than offset declining production elsewhere in the country, resulting in a gain of 1.2 million barrels per day between 2008 and 2012, IHS Global Insight reported. Strong growth in oil production is expected to continue, with tight oil production of nearly 4.5 million barrels per day expected, representing almost two-thirds of domestic crude oil and condensate production.

Increasing unconventional oil production will also reduce future U.S. oil imports. At the current pace, 2012 net oil imports are expected to reach $319 billion, or approximately 45 percent of the U.S. estimated 2012 trade deficit of $695 billion.

"Oil imports would have cost the United States $70 billion more – and therefore the trade deficit would have risen by about 10 percent – had the 1.7 [million barrels per day] increase in production capacity brought about by tight oil since 2008 not been realized," according to the IHS report.

The growth in unconventional oil production, coupled with lower U.S. oil demand, changing demographics and fuel economy standards means the U.S. will be less dependent on the rest of the world for its oil as the aging U.S. population drives fewer cars and fewer miles and younger Americans live in areas where they can rely less on cars, said Larson.

U.S. Gas Supply to Keep Growing on Unconventional Production

U.S. natural gas production has grown 25 percent over the past five years from 52 billion cubic feet per day to 65 billion cubic feet per day, primarily the result of shale gas production. Unconventional gas production in the United States – which includes shale gas, as well as natural gas from tight sands formations and coalbed methane – accounts for nearly 65 percent of U.S. gas production.

By the end of the decade, gas production will likely reach approximately 80 billion cubic feet per day, almost 75 percent of which will originate from unconventional activity, IHS Global Insight reported.

U.S. unconventional activity is also spurring the growth of natural gas liquids production, adding more than 500,000 barrels of oil equivalent per day since 2008. This has raised the total increase in oil production capacity to some 1.7 million barrels per day since 2008, IHS Global Insight said.

The rise in unconventional gas production has also transformed the United States into a destination for liquefied natural gas (LNG) shipments into an LNG exporter, with new "greenfield" export terminal projects proposed in the Gulf and Pacific coast regions.

"As the production of unconventional oil and natural gas expands over the next 25 years, the economic contribution of the industry will also expand," according to the IHS Global Insight report.

Capital Expenditures, Taxes Part of Economic Contribution

This economic contribution also includes over $5.1 trillion in capital expenditures, which is expected to take place between 2012 and 2035.

IHS Global Insight forecasts that over $2.1 trillion in capital expenditures between 2012 and 2035 in unconventional oil activity and nearly $3 trillion in capital expenditures will occur between 2012 and 2035 in unconventional gas activity.

This capital spending that is expected to take place in the upstream unconventional oil and gas sector will include drilling, completion, facilities and gathering systems.

"Spending will feed into the broader supply chain through capital-intensive purchases of heavy equipment, iron and steel, and rig parts, as well as technical skills and services and information technology among others," according to the report.

Unconventional oil and gas activity will contribute nearly $62 billion in federal, state and local tax receipts this year. This contribution will rise to just over $111 billion by 2020. Cumulatively, unconventional oil and gas activity will generate more than $2.5 trillion in tax revenues between 2012 and 2035. This revenue presents an interesting opportunity for the U.S. government and the fiscal challenges its faces in the coming months, said Larson.

IHS Global Insight's report is the first of three reports that examine the impact of unconventional oil and gas activity on the U.S. economy. Next month, IHS will release its second report on the impact of unconventional oil and gas activity at the U.S. state level, and in February, will release the final report detailing the impact of unconventional plays on the U.S. midstream and downstream sectors, including LNG export terminals.

The study was conducted using a baseline scenario in the report using status quo data in terms of amount of federal lands open for drilling or new regulations, and is neither pessimistic nor optimistic, Larson said. IHS Global Insight's previous study last year in the number of jobs created by shale gas production showed a "strong correlation" between the data forecast in the study and the level of job creation that actually occurred.

IHS Global Insight partnered with several groups in putting the series together: the American Petroleum Institute, the Institute for 21st Century Energy and the Natural Gas Supply Association.


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