Increased production in domestic oil and gas in the US has been a major benefit to the domestic economy, but the industry certainly doesn't get the credit it deserves for this. In fact, the opposite is occurring. Rather than being singled out for its contributions to the economic well-being of the country, the petroleum industry is often vilified in Congress and in the media.
One could write a doctoral dissertation about how this adversarial relationship developed between oil and gas companies on the one side and anti-oil interests on the other, so I won't bore you by attempting to write a history of how this unfortunate situation came about, certainly not in the 800 or so words I have in this column. Suffice it to say that this rancor exists, and we have to deal with it. It's not likely we can change the social and political leanings of a large section of the public in a short time. Instead, let's look at the significant upside the shale revolution has had on America.
JOBS
In 2013, US average liquids production reached its highest level since 1988. Natural gas production in the US has gone up eight consecutive years. As the growth of energy supplies increased, so did the number of industry jobs. According to the Bureau of Labor Statistics, the states of Pennsylvania, New Mexico, and Louisiana saw more than 70% of their net job growth from 2005 to 2012 come from oil and gas jobs in the upstream and midstream sectors. The figure was approximately 30% to 40% for West Virginia and Oklahoma, and from 10% to 20% for North Dakota, Texas, Colorado, Alaska, Kansas, Wyoming, and Montana. This does not include indirect and induced job creation that typically spins off new jobs in supply industries or the broader economic benefits that result from increased employment and spending.
According to a recent study by IHS, the unconventional oil and gas value chain supports more than 2.1 million jobs today. This figure is forecast to rise to more than 3.3 million jobs in 2020 and 3.9 million by 2025. The oil and gas value chain's contribution to the US GDP was more than $284 billion in 2012, and is on track to grow to $533 billion in 2025.
TRADE
Increased domestic oil and gas production has had a major impact on the balance on trade by reducing net imports of oil and natural gas. IHS says the US trade deficit will be reduced by more than $164 billion in 2020 thanks to rising unconventional production. This is roughly one-third of the current US trade deficit.
The trade potential for US energy is especially evident with respect to our North American neighbors. According to the IPAA, US energy trade with Canada and Mexico, in dollar terms, is at or near the top of the list for both countries. For US trade with Mexico, oil and natural gas was the No. 1 product category for both imports and exports in 2012. For trade with Canada, oil and natural gas ranked third for US imports and fourth for exports in 2012. These two countries currently account for nearly all current US natural gas trade, and US exports of natural gas to Canada and Mexico reached all-time highs in 2012.
OIL TRADE
When you combine vastly increased US crude oil production with a steep decline in domestic consumption of petroleum products, you create a dramatic decline in overall imports. US net imports of crude oil have fallen dramatically from its peak in 2005 of more than 12.5 million barrels per day to 7.4 million barrels per day in 2012 – a 40% decline. This is approximately equal to half of all Saudi Arabia's oil production.
Net reliance on imports for the US in 2005 had been more than 60%. That dropped to 40% by 2012. The US has not been in this enviable position since the mid-1970s, at the time of the 1973 Arab oil embargo.
The US Energy Information Administration has published a graphic that illustrates the growth in US liquids production and the corresponding decline in net imports. The rise in petroleum product exports has been notable. While US demand has been stable, petroleum demand continues to grow globally, especially in developing countries. The IPAA notes that it is not surprising that the US, as the world's largest refiner with one-fifth of the world's refining capacity, having satisfied domestic markets, has responded to new international market opportunities by exporting increased volumes of refined products.
In the first half of 2013, more than 80% of US product exports went to Canada, Mexico, Latin America, and Europe. The largest product export volume consisted of diesel fuel and other distillate fuel oil, amounting to 934,000 barrels per day of the total 3.1 million barrels per day of product exports. Diesel fuel, especially, is currently in great demand worldwide. Most US gasoline exports go to Mexico because that country's refineries cannot meet its internal demand and to other Latin American and Caribbean destinations.
CONCLUSION
Economically, the shale boom has had a monumental impact on the US economy. In fact, one could argue that the country would still be mired in an economic recession if it weren't for the vast increase in domestic production.
We'll take a look at the environmentalists' argument against increased fossil fuel production in next month's column.