Supplying Energy Supplies Jobs

Mark Green
Posted September 26, 2014

There’s more evidence that the U.S. oil and natural gas industry is driving economic growth – not just in the industry itself, but also in the vast supply chain that sustains energy development – adding to overall GDP, wages and revenues to government.

A new IHS study, commissioned by the Energy Equipment & Infrastructure Alliance (EEIA) estimates that employment growth in the supply chain that supports unconventional oil and natural gas development – that is, energy from shale and other tight-rock formations with advanced hydraulic fracturing and horizontal drilling – will outpace, by a more than a 2-to-1 margin, the U.S. average from 2012 to 2025:

Other major findings include:

• Total employment across the supply chain is expected to grow from about 524,000 jobs in 2012 to 757,000 jobs in 2025, an increase of about 45 percent. The study projects growth in total U.S. employment over the same period will be 2.5 percent.
• Total supply chain gross output will increase to nearly $206 billion in 2025, up from about $146 billion in 2012.
• Labor income generated by employment across the supply chain will approach $60 billion in 2025, up from $41 billion in 2012.
• Total government revenues generated by the unconventional energy supply chain will increase to about $23 billion in 2025, up from more than $13 billion in 2012.

The unconventional energy supply chain includes providers of materials, capital goods, construction and well services, professional and other services and logistics – detailed in this diagram from the IHS study:

IHS says in addition to the capital and operating spending stimulus that generates supply chain activity, unconventional energy also is driving new construction in regions where drilling is occurring. The study:

… the ripple effect of the large capital investment is added housing, commercial buildings, and infrastructure vital to upstream operations and employees. Upstream, midstream, and downstream investment has indirectly generated construction activity at a time when the construction sector and its own supply chain is recovering from the worst construction recession since the Great Depression.

And growth isn’t limited to energy-producing states:

Remarkably, another important effect of the revival in domestic oil and gas production is that unconventional resources are now being developed in areas where little or no conventional energy was previously produced, and companies with no previous energy-driven business are thriving by supplying this new activity. New businesses have been formed to take advantage of the unique needs of unconventional resource development, such as water management, proppant supply, and engineering services. Investment in unconventional oil and gas development has not only stimulated the Great Revival in domestic production, it has also shaped economic renewal following the Great Recession.

Again, this is great news for the U.S. economy. The study underscores the linkage between energy development and growth in a broad range of economic sectors – also seen in a recent vendor survey showing that industry and its supply chain reach all 50 states and the District of Columbia. Both strongly argue for policy decisions that will sustain and grow the American energy revolution. Kyle Isakower, API vice president for regulatory and economic policy:

“America’s rise as an energy superpower is creating an economic ripple effect of fast-paced growth, higher wages, and new jobs. … The new analysis by IHS shows how quickly these opportunities are growing and how important domestic energy production is for other sectors of the U.S. economy, from manufacturing to construction. … We’re seeing a supply chain that extends into every region, creating opportunities for well-paying jobs and demonstrating the importance of federal policies that open access to federal lands and avoid duplicative regulations.”