New economic data underscore one of many perils embedded in the political campaign to constrict development of oil and gas resources in the US. As coincident drops in oil prices and equity values showed earlier this year, wealth generated by hydrocarbon production is crucial to economic growth (OGJ, Jan. 25, 2016, p. 13).
On Apr. 28, the Bureau of Economic Analysis released an advance estimate indicating growth in the US gross domestic product slowed in this year’s first quarter to a rate of just 0.5%/year. The fourth-quarter 2015 growth rate was 1.6%/year. "The increase in real GDP in the first quarter reflected positive contributions from personal consumption expenditures, residential fixed investment, and state and local government spending that were partly offset by negative contributions from nonresidential fixed investment, private inventory investment, exports, and federal government spending," a BEA statement said. "Imports, which are a subtraction in the calculation of GDP, increased."
Oil and gas
In its advance report, which is subject to revision as more data become available, BEA didn’t identify contributions of specific industries to growth outside broad categories. But there can be no doubt that a slide evident for the "oil and gas extraction" subcategory in quarterly data reported through last year continued in the first quarter this year.
For value added to GDP by oil and gas extraction during the past 3 years, the peak came in the second quarter of 2014—just before crude oil prices slumped—at $317.1 billion. The contribution has fallen every quarter since then, reaching $142.7 billion in the fourth quarter of 2015. During 2013-15, oil and gas extraction’s share of GDP peaked in the third quarter of 2013 at 1.9% and fell to a low of 0.8% in the fourth quarter last year.
Those shares are small. Yet without oil and gas extraction, even in its depressed state, the economy now might be contracting. The producing industry’s fourth-quarter contribution to GDP, low as it was, exceeded absolute GDP gains in that quarter of $104.6 billion and in first-quarter 2016 of $56.3 billion.
Antihydrocarbon activists won’t be dissuaded by the economic damage these numbers imply they’ll inflict to the extent they block oil and gas production. They’re emboldened by success. Their "leave it in the ground" extremism increasingly influences decisions, including a growing list of rejections of important oil and gas pipelines. That their agenda receives any attention at all testifies not only to their well-organized persistence but also to the failure by too many officials to acknowledge the economic importance of resource development. The economy’s foundering highlights the danger.
Wealth generation isn’t the only economic benefit of active resource development, of course. Growth in the supply of affordable, secure energy helps the economy, too. The abundance of natural gas and hydrocarbon liquids newly available from unconventional resources has reinvigorated manufacturing in the US. Surging supplies of ethane and propane have stimulated petrochemical activity. And rising deliverability of advantageously priced fuel for power generation and industrial processes helps US manufacturers compete abroad.
Rejecting the benefit
The federal government, however, seems not to want the benefit. Because methane is a potent, though relatively low-volume, greenhouse gas, regulators are implementing emission controls certain to raise costs and limit production of natural gas. The government is moving, in other words, to suppress production of an energy source that boosts manufacturing and, by displacing coal, lowers US emissions of far more-abundant carbon dioxide. Methane controls join a wave of initiatives clearly intended to serve President Barack Obama’s stateof- the-union promise to "accelerate the transition away from dirty energy"—by which he meant energy based on hydrocarbons. He’s aligning federal policy-making with the extremist agenda.
When costs of that program, to whatever degree it is implemented, become palpable, political support for high-minded, ill-conceived energy transitions will dissolve. What the new GDP data already make clear are the importance of resource development to economic growth—and the intolerable penalties that come with forsworn opportunity.
