Report Details How Oil and Natural Gas are Critical to the U.S. Economy

Yesterday, the American Petroleum Institute (API) released its annual report, the State of American Energy. The report focuses on the regional contributions to the U.S. energy industry, priority issues for those regions in terms of energy development, and how choices at the federal level impact the lives of families across the country. While the report addressed seven U.S. regions (East, Southeast, Gulf Coast, Mountain West, Pacific, Central and Arctic) in depth, a few consistent themes are explored throughout: jobs, economic growth, energy security and global leadership.

Jobs

In the report’s opening message, API President and CEO Jack Gerard touches on a fact we all know well: the oil and natural gas industry is vital for supporting high-paying jobs across the United States. Gerard cites a study from PricewaterhouseCoopers (PwC) showing that the oil and gas industry produced an additional 600,000 jobs from 2009-2011.

What was true then still holds true today. Even with the current market challenges facing the industry, the shale gas boom has led to a “job-creating revolution,” according to the API report. To support this claim, API cites an IHS study which states:

“The unconventional oil and natural gas value chain and energy-related chemicals activity together supported more than 2.1 million jobs in 2012…By 2025, the unconventional oil and natural gas value chain and energy related chemicals activity will support almost 3.9 million jobs,” (p.1)

Job creation is also one of the many benefits associated with the recent lifting of the U.S. crude oil export ban. According to a 2014 ICF International and Ensys Energy study cited by API:

“Lifting the crude export restrictions results in a net employment gain of up to 118,000-220,000 annual jobs over the forecast period. The U.S. economy could gain as many as 300,000 jobs in 2020.” (p. 16)

These are hundreds of thousands of good jobs that help Americans provide for their families. In fact, according to the report, the average non-gas station salary in the industry is just over $100,000. That’s a whopping 95 percent higher than the average U.S. private-sector salary of just over $51,000.

Economic Growth

The oil and natural gas industry is also a key source of economic growth in United States. According to API, the industry supports around 9.8 million jobs and makes up eight percent of the country’s Gross Domestic Product (GDP). Comprising such a large portion of U.S. GDP means impacts felt in the industry ripple across the entire American economy.

Take, for example, the shale gas boom and its effect on natural gas prices. According to an IHS study included in the API report, unconventional energy development has put money back in consumer’s pockets through lower heating bills. As the study finds:

“Savings from lower natural gas prices will add just over $2,700 to disposable household income in 2020. This would increase to more than $3,500 per household in 2025” (p.1)

The same could be said about the shale revolution and manufacturing. As the API report points out, state-of-the-art refining facilities, most of which are based in the Gulf Coast region, have increased capacity to keep pace with demand and, in 2015, reached the highest capacity in nearly 35 years. And this is not just gasoline, jet fuel and diesel fuel these refineries are producing; a plethora of products are derived from refined petroleum products. As the report states:

“…investments to increase capacity and utilization within existing refineries have ensured the refining sector continues to provide gasoline, jet fuel, diesel fuel, home heating oil and petrochemicals that Americans rely on. Medications, clothing, fertilizer, construction and automotive materials, medical equipment and plastics – countless items essential to the American economy and everyday life – are derived from refining petroleum products.” (p. 17; emphasis added)

The contribution of oil and natural gas to economic growth can also be measured by infrastructure investments. Again, the report:

“Between 2008 and 2012, America’s oil and natural gas industry spent $174 billion each year investing in America’s infrastructure. The oil and natural gas industry accounts for almost 15 percent of all industries’ U.S. capital expenditure during that period, more than the utilities and transportation industries combined.” (p. 39)

Energy Security

According to the U.S. Energy Information Administration (EIA), the United States was the top producer of petroleum and natural gas in 2014, besting countries like Russia and Saudi Arabia. Just a decade ago, oil and natural gas were viewed as scarce resources. But now, with new techniques and technological advancements in hydraulic fracturing (fracking), the US is poised to maintain its role as the world’s top petroleum producer – that is, if policy issues don’t hamper the industry.

Take, for example, the restrictions on the export of liquefied natural gas (LNG). Currently, the application to export LNG to non-free trade agreement nations must be approved by various government bodies in a process that could take years. If restrictions on this process were eased, the United States and its allies – many of whom are dependent on Russian natural gas – could benefit greatly. To support this, the API report cites a 2013 ICF International study which found:

“The net effects on U.S. employment are anticipated to be positive with net job growth of between 73,100 to 452,000 jobs on average between 2016 and 2035, including all economic multiplier effects.”

The API report points to another issue that is restricting America’s ability to maintain its role as the world’s top petroleum producer: restrictions on offshore exploration and drilling. According to studies by Quest Offshore Resources, allowing oil and natural gas exploration in areas in the Atlantic, Pacific and Eastern Gulf of Mexico could create almost 840,000 jobs and result in an increase of domestic oil production by 3.5 million barrels of oil equivalent per day.

Global Leadership

The U.S. oil and natural gas industry is uniquely positioned in the global energy market as not only a leader in production and economic growth, but also in its efforts to cut emissions through innovation and technology. This pairing of leading global production and environmental conscientiousness is unique to the United States, and is something Gerard referred to as the “U.S. Model” of energy production in his State of American Energy speech.

According to the U.S. Environmental Protection Agency (EPA), from 2005 to 2013 methane emissions from natural gas production fell 38 percent, even while natural gas production across the country dramatically increased. As EID recently reported, methane emissions from both the oil and natural gas sectors have declined by 13 percent from 2011 to 2014. Moreover, the same EPA data cited by EID reported methane emissions from hydraulic fracturing fell by 81 percent from 2012 to 2014.

Over the past decade, refiners have also produced fuels that are significantly lower in sulfur and are cleaner burning. The API report cites a recent Auto Alliance report to support this, stating:

“When used in modern vehicles, the cleaner fuels produced by the refining industry have contributed to emission reductions from the nation’s vehicles by over 99 percent since the 1970s” (p. 17)

Conclusion

As the State of American Energy 2016 shows, oil and natural uniquely impact many aspects of American life. Whether it’s providing millions of well-paying jobs, saving consumers thousands on their energy bills, producing the building blocks for products we use every day or developing innovations that cut emissions, the oil and natural gas industry is a vital part of the U.S. economy. But the report also helpfully reminds us that we must be cognizant of policy challenges facing the industry to ensure these benefits will continue for future generations.

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