"One is cautious about using the word ‘revolution’; but, given the scale of the change, it is appropriate to describe what is unfolding in the U.S. in terms of shale gas and tight oil as an ‘unconventional revolution in oil and gas,’ said IHS Vice Chairman Dr. Daniel Yergin, describing how America’s energy position has been transformed over the past half decade by what is happening with energy and, specifically natural gas, and the new opportunities this provides for economic growth and employment.
Yergin’s comments came during recent testimony on the economic benefits of U.S. natural gas production before the Joint Economic Committee of the U.S.
Natural gas production increased 27 percent between 2007 and 2013. Estimates of recoverable natural gas reserves have more than doubled since 2005. U.S. oil production has increased 3.3 million barrels per day since 2008 — a 66-percent increase.
“This increase alone is larger than the output of 11 of 12 OPEC countries,” said Yergin. “It has become apparent the impact goes far beyond energy itself.”
IHS’ studies in recent years have quantified the dramatic economic contributions:
- By 2012, the unconventional natural gas and oil activity was already supporting more than 2.1 million jobs across a vast supply chain — a considerable accomplishment given the relative newness of the technology. About 60 percent of these jobs — 1.3 million — were from shale gas activity; the rest from tight oil.
- IHS expects the total number of jobs to rise to 3.3 million by 2020 — with 1.8 million of those jobs from shale gas.
- In 2012, this revolution added $74 billion to federal and state government revenues, a number IHS projects to rise to about $125 billion by 2020.
“What is now becoming clear is the lower costs of energy brought about by this abundant growth in natural gas supply is helping to stimulate a manufacturing renaissance and improving the competitive position of the U.S. in the global economy and further stimulating job creation in the United States,” said Yergin.
How big is this natural gas revolution?
“Since 2008, the unconventional revolution has unfolded rapidly,” said Yergin.
U.S. crude oil output, after a nearly 40-year decline, has increased dramatically.
With respect to natural gas, in just six years, U.S. Lower 48 natural gas production has risen from 52 billion cubic feet (bcf) per day in 2007 to 66 bcf per day in 2013 — a 27-percent increase. The rapid rise was driven primarily by shale gas production. Today, unconventional natural gas activity accounts for nearly 67 percent of total U.S. Lower 48 natural gas productive capacity and is projected to rise to nearly 75 percent by the end of the decade.
Chevron CEO John Watson: 'New reality' of global energy has many forms
This “unconventional gas” includes shale gas, tight gas and coal bed methane. Shale gas alone accounts for 44 percent of total natural gas production — compared to 2 percent a little over a decade ago. Estimates of the recoverable natural gas resource base in the U.S. Lower 48 have grown from about 1,400 trillion cubic feet (tcf) in 2005 to a conservative estimate of about 3,000 tcf today, according to the Energy Information Administration. This includes proved reserves as well as probable and possible resources and includes conventional resources as well as unconventional resources. Total natural gas consumption in the U.S. Lower 48 in 2013 was 70 bcf per day, or 25.7 tcf for the year.
“This means U.S. Lower 48 resources are sufficient to supply current consumption rates for over 100 years,” said Yergin. “This rapid rise in unconventional production has also enhanced U.S. energy security.
“Six years ago, due to constrained production, the U.S. seemed locked into importing increasing amounts of LNG and was heading toward spending as much as $100 billion annually on future imports. Now, these newly available resources ensure the U.S. will need, at most, minimal LNG imports to balance supply with demand. Instead of debates over U.S. imports, there is the opportunity to begin exporting some of the domestic surplus, as well as the potential for using natural gas in some classes of vehicles.”
Effects of the revolution
“So far, this unconventional revolution supported more than 2.1 million jobs in 2012 — direct, indirect and induced,” said Yergin. “Looking toward the future, the industry will continue to contribute to strong job growth bringing the total to 3.3 million workers by the end of this decade.
“The federal budget continues to be a source of great concern. Thus, it is significant to observe the impact on revenues arising from this energy revolution. Between 2012 and 2035, unconventional activity is expected to generate nearly $1.6 trillion in cumulative government revenues.”
Owing to the long supply chains, the job impacts are being experienced across the U.S., including in states without significant shale gas or tight oil activity.
“When it comes to unconventional activity, a state does not need to have a major unconventional play within its geographic boundaries to benefit economically from the activity,” said Yergin. “In fact, more than a quarter of all jobs associated with the unconventional energy revolution are found in states with no appreciable unconventional activity.”
A key reason for the profound economic impact of the unconventional activity is the fact it combines a capital-intensive industry with a broad domestic supply chain, Yergin said.
“The U.S. is a leader in all aspects of the unconventional industry, which means most of its suppliers are domestically based, and that means a larger portion of the dollars spent are supporting domestic jobs in trucking, steel fabrication, information technology, aggregates, heavy equipment manufacturing, finance, hotels, housing and restaurants, among many others,” he explained.
There are also significant implications for American manufacturing. Several factors are shifting the economics in favor of on-shoring and fueling the resurgence of manufacturing in the U.S.
“First, global labor wage rates for many offshoring locations have significantly outpaced U.S. wage increases, narrowing the wage gap,” said Yergin. “Second, in an increasingly advanced manufacturing world, technology is shifting the balance away from the importance of low cost labor toward higher skilled work forces.
“Third, a rapidly evolving energy landscape is fundamentally shifting the traditional economics around supply chains as higher oil prices are altering transportation costs and incentivizing companies to site manufacturing locations closer to end markets, thus making offshoring less attractive.
“But what looms largest is the new era of affordable and abundant domestic natural gas. This is creating significant competitive advantages for both energy intensive industries and their supply chains and industries that rely upon natural gas derivatives as critical feedstock into production.”
As a result, companies are now committing or planning investments that in total are very significant.
“In his 2014 State of the Union Address, President Obama pointed to the large amount of new investment in U.S. industry as a result of lower natural gas prices,” said Yergin. “One new census finds $117 billion of new investment announced just in petrochemical facilities. Other censuses of investment range higher.
“The chemical industry is well positioned to capitalize on the benefits of this unconventional revolution. This industry is highly energy intensive, using energy inputs, mainly natural gas and natural gas liquids, as both the major fuel source and feedstock. The U.S. chemical industry’s feedstock prices are now among the lowest in the world. As a result, the U.S. is gaining a decisive competitive advantage in the cost of producing basic petrochemicals like ethylene, ammonia, methanol and their downstream derivative products.”
The chemical manufacturing industry currently stands as one of America’s largest exporting industries with $198 billion in annual exports that accounted for 13 percent of all U.S. merchandise exports in 2012 and representing a 30-percent increase in value of net exports since 2007.
The investments are coming from many U.S.-based companies, but it also most notable 62 percent of that $117 billion represents foreign direct investment by non-U.S. companies.
“Moreover, this manufacturing renaissance is carrying far beyond the petrochemical industries,” said Yergin. “Other industries — such as iron and steel fabrication — are seeing benefits as will industries that can take advantage of the economic opportunities being unlocked by all the activity associated with natural gas. These varied companies are committing many billions of dollars to additional investment in the U.S.
“Finally, and perhaps most importantly, the unconventional gas revolution increased average household disposable income in 2012 by $1,200 — a number that will grow to $2,700 by 2020.
“Altogether, the unconventional natural gas and oil revolution has already had major impact in multiple dimensions — beginning with U.S. energy supply and costs and now extending to government revenues, manufacturing, household spending and the wider economy. Its significance will continue to grow as it continues to unfold.”
For more information, visit www.ihs.com or call (303) 790-0600.
