Shale: The Energy and Economic Engine

Mark Green
Posted October 9, 2012

A new PwC report provides greater detail on the potential impact of the shale gas revolution on associated industries – in this case, chemicals:

"Based on industry reports, we estimate that the US chemicals industry has invested $15 billion in ethylene production, increasing capacity by 33%. As these investments take hold, yielding more supply, the United States could become a major, global, low-cost provider of energy and feedstocks to the chemicals industry."

More from the PwC report:

"For manufacturing companies, the initial opportunity has been in supplying products and services to support shale gas expansion. Subsequently, they may be able to take advantage of low-cost chemicals to create plastic-based substitutes for other materials, such as metal, glass, wood, leather, and textiles. For manufactured products with a high chemical content, such as automotive bumpers, plastic sheets and panels, electronic components, and packaging films, lower natural gas prices could provide a strong economic incentive for US manufacturers to reverse offshoring of manufacturing activity and build production facilities in the United States. Longer term, lower energy costs could help revive manufacturing in the United States and positively affect the competitive position of American manufacturing."

This is a significant forecast. PwC says low-cost chemicals derived from affordable, abundant natural gas from shale could return jobs to the U.S. manufacturing sector and over the longer term, help revive the entire sector. The finding is consistent with last year’s PwC report that estimated 1 million manufacturing jobs could be created by 2025 because of shale gas and that manufacturers could lower their raw materials and energy costs by as much as $11.6 billion annually.

The good news is that this is just part of the impact of the energy revolution that’s ongoing in this country, in large part because of abundant shale resources, hydraulic fracturing and horizontal drilling. In a recent conference call with reporters API Chief Economist John Felmy talked about natural gas and oil developed from fracking as a broad growth engine:

“It was these technological achievements that led to what is known as the North Dakota Miracle, which has transformed that state into our nation’s No. 2 oil producer, reduced unemployment there to 3 percent and driven incomes up sharply. And it has seen the state’s treasury accumulate a billion-dollar surplus.”

More Felmy:

“It is these same technological advancements that have created tens of thousands of new jobs and generated billions in new state revenues in Pennsylvania, Texas, Arkansas, Louisiana, Ohio and other states. And it is these technological feats that account for the oil and natural gas industry’s having added more than 100,000 jobs to our economy since the recession began – and four times that many indirect jobs – while total non-farm jobs across the nation are down by about 5 million.”

With this growth comes responsibility, and industry is committed to safe and responsible development. Felmy:

“API and the industry it represents take pride in the role we play in ensuring safe operations in every segment of the industry, from transportation to refining to retail distribution, and especially in drilling and well completions, through the development of industry standards and best practices.”

Since 2009 API has published five specific standards specific to fracking operations, including well construction and integrity, water management, mitigating surface impacts, environmental protection for onshore production operations and leases and isolating potential flow zones during well construction. Felmy:

“Given the heightened interest in these standards, we have included the standards on well construction and integrity, water management and mitigating surface impacts as part of our 2012 standards plan. We remain committed to safe and responsible development of our shale energy resources and to working closely with the states to ensure effective, appropriate regulation.”

Energy growth translates into economic growth, as the PwC studies project, and as we’ve seen in energy-producing states. The American people get the relationship between energy development and jobs – 9 in 10 believe increased access to U.S. resources will create more jobs – and the chief question is whether our elected officials will follow through with the right policies to encourage this development.