States with fracing are economically stronger, House panel told

US states that embraced hydraulic fracturing and horizontal drilling staged stronger economic recoveries than those that did not since 2008 when the country plunged into recession, an economist told a House Energy and Commerce subcommittee.

“In those states that have chosen to pursue energy development, output and jobs have grown faster than in most other states, while their unemployment rates are well below the US average of 6.1%,” Bernard L. Weinstein, associate director of the Maguire Energy Institute at Southern Methodist University’s Cox School of Business in Dallas, said to the committee’s Energy and Power Subcommittee on July 24.

Texas, which aggressively developed its tight oil and gas formations, witnessed a 100% increase in its crude production since 2010 and has the lowest unemployment rate, 5.1%, of any large state, Weinstein said in written testimony for the subcommittee’s hearing on state energy policies’ economic impacts.

“By contrast, New York, whose southern tier sits atop one of the ‘sweet spots’ of the Marcellus shale, has imposed a ban on hydraulic fracturing with the result that oil and gas production has plummeted in recent years, while the state’s unemployment rate is currently at 6.7%, with some upstate counties as high as 7.5%,” Weinstein said.

Communities in Montana and North Dakota saw jobs rise dramatically in sectors beyond oil and gas as the Bakken shale was developed, another witness testified. “The streets of Sidney and Williston are crowded with petroleum engineers, drilling managers, environmental specialists, and other natural resource workers,” said Paul Potzin, director emeritus at the University of Montana’s Bureau of Business and Economic Research in Missoula. “But these high-paying specialties are not the only ones to benefit from the boom. Almost all sectors of the local economies are experiencing greater-than-expected growth in employment opportunities and wages.”

Texas vs. California

Texas led the US in job creation during 2013, adding 323,000 workers to payrolls, Weinstein said. “Through June of this year, another 225,000 jobs have been created,” he said. “More incredibly, Texas has accounted for almost 35% of the nation’s job growth since 2000.”

Tremendous oil and gas production growth resulting from the “shale revolution” accounts for much of the state’s superior economic performance, he said. Texas now accounts for more than 25% of the nation’s oil and gas and would rank as the world’s 14th largest producer if it was a separate country, Weinstein said.

“Texas’s economic fortunes can also be attributed to a positive business climate, and sensible, cost-effective regulation of energy and other sectors of the state’s economy,” he said. “Contrary to assertions by some environmental activists, Texas is not a toxic wasteland. We care greatly about the quality of our air, water, and land. But we make sure our regulatory environment is predictable and effective so that the costs of compliance aren’t burdensome to the point of discouraging new investment.”

California’s economy also has recovered somewhat, but its payroll growth since 2008 has been 322,100 jobs—about the same as Texas’s 2013 gains, Weinstein said. “Had the state been more supportive of energy development, especially in the huge Monterey shale, California would likely have posted much faster job gains and its unemployment rate wouldn’t be 7.4%, the highest among the 10 largest states with the exception of Michigan,” he said.

Weinstein said some estimates place reserves in the Monterey shale, which extends from Los Angeles to San Francisco, at 15 billion bbl, or about two thirds of the country’s total tight oil resource. “Unfortunately, hydraulic fracturing has been roundly opposed by the state’s influential environmental community as well as many state and local government officials,” he said.

“If California were to adopt more accommodating energy policies and regulations, the state could realize huge economic benefits,” Weinstein said. A recent study by the University of Southern California and the Communications Institute, a Los Angeles think tank, found Monterey shale development would generate 500,000 direct and indirect jobs within 3 years and 2.8 million direct and indirect jobs within a decade, he said.

North Dakota vs. New York

North Dakota, meanwhile, passed Alaska to become the nation’s No. 2 oil producing state as its production climbed in a few years from 10,000 b/d to more than 1 million b/d, Weinstein said. “Unlike New York, which prohibits fracing, North Dakota offers an accommodating and supportive business and regulatory climate that encourages new investment in oil and gas production,” he said.

Since 2008, jobs there have grown more quickly than in any other state and its current unemployment rate, 2.9%, is the nation’s lowest, he told the subcommittee. New York, meanwhile, has forfeited thousands of new jobs and millions of dollars in new tax revenue because of its fracing ban, Weinstein asserted.

“For example, the New York State Department of Environmental Conservation estimates that at least 25,000 new jobs would be created quickly if the state lifted the ban—and that figure doesn’t include the indirect and induced employment that would follow,” he said. “Another study, prepared by Michael Orlando of the University of Colorado, estimates that drilling and producing activities could support 39,000 new jobs in New York State within 3 years and 69,000 jobs within 10 years.”

Employment and wages grew more quickly in Montana and North Dakota counties where Bakken shale production is centered than in the 2 states overall, Potzin said in his written testimony. During 2003-13, employment increased 3.62% and wages per worker 42.1% in Montana, compared with 109% and 105.9%, respectively, in Richland County, he said. North Dakota’s total employment rose 105% and its average worker’s wage 85%, compared with respective rates of 900.2% and 178.1% in Williams County during the same period, he added.

Construction; accommodations; and professional, scientific, and technical service payrolls showed similarly more dramatic gains over the 10 years in the two counties, Potzin said. “Simply put, the economic impacts of the energy boom are being felt in all sectors of the economy,” he said. “Employment and wage increases have been significant in the energy sectors, of course, but also in industries with workers that have a wide variety of education, skills, and training.”

Rural wages rarely exceed state averages which may be dominated by higher urban wages, he observed. “However, such trends in energy producing areas can have a powerful effect in strengthening rural economies,” Potzin said.

Tom Tanton, the Energy and Environment Legal Institute’s Science and Technology Assessment director; Fred Siegel, a Senior Fellow at the Manhattan Institute; Steve Clemmer, the Union of Concerned Scientists’ Energy Research and Analysis director; and Steve Nadel, the American Council for an Energy-Efficient Economy’s executive director, also testified.

Contact Nick Snow at nicks@pennwell.com.

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