US Chamber of Commerce Blog
Hydraulic Fracturing Has Saved Every American Household Enough Money to Buy a New Dryer | Jun 17 2015
The shale energy boom is being called "perhaps the largest single opportunity to change America's competitiveness" in a report by Michael Porter of the Harvard Business School along with David Gee and Gregory J. Pope of the Boston Consulting Group.
Two big reasons are savings for consumers and the millions of new jobs created. To further take advantage of the boom, policymakers must make it easier to export American energy.Consumers Have Saved Money
By using the high-tech combination of big data analytics, horizontal drilling, and hydraulic fracturing, the energy industry has boosted domestic oil and natural gas production.
This abundance has lowered energy costs. The report finds that in 2014, "residential, commercial, and industrial users saved about $90 billion in natural gas and natural gas liquids (ethane, propane, and butane) fuel costs."
All told, the report finds that in 2014, the shale boom saved consumers $780 dollars in energy costs. That's about as much as Angie's List recommends a family should spend on a new clothes dryer.
Consumers savings from the shale boom--mostly from lower-priced goods--is expected to increase to $1,070 by 2030.annual_household_savings.jpg Annual household savings from shale energy.Source: Harvard Business School and the Boston Consulting Group. New Jobs and Economic Growth
Another way the shale boom has fattened Americans' wallets is by generating jobs and economic growth. The report finds shale energy development created 2.7 million jobs and added $43 billion to the U.S. economy in 2014.
The jobs created pay well: "[T]he average unconventionals production job pays nearly twice the national average salary and offers a significant opportunity for middle-skilled workers."2014_average_shale_job_salary.jpg 2014 salaries of jobs supported by shale energy.Source: Harvard Business School and the Boston Consulting Group. How Far Will the Boom Take Us?
Even with weaker oil prices, don't expect the shale boom's benefits to let up. The report estimates that by 2030 3.8 million jobs will be supported it, and $590 billion added to the economy.2014_shale_econ_impacts.jpg 2014 economic impacts from shale energy development.Source: Harvard Business School and the Boston Consulting Group. Allowing Exports Will Extend the Boom
To build on the shale boom's success, the report advises that the oil export ban be lifted along with easing the federal permitting process for liquefied natural gas export facilities:
Natural-gas and crude-oil exports leverage America's strengths, increase economic growth, and benefit partner nations, without compromising our competitiveness, environmental standards, or domestic prices. Current U.S. restrictions on natural gas and oil exports are antiquated and based on historical circumstances that no longer apply.
Today, ample new domestic resources mean that removing these antiquated restrictions will both reduce the U.S. trade deficit and bolster the value of unconventionals to the U.S. economy, while having little if any impact on consumer prices.
Every study that has been done has found that lifting the oil export ban will not raise gasoline prices.
We're witnessing "a once-in-a-generation opportunity to change the nation's economic and energy trajectory." The shale boom has turned global energy markets upside down and opened up new opportunities for the U.S. Let's take full advantage of this moment.
It has become abundantly clear that removing the country's decades-old ban on oil exports would generate millions of jobs for American workers. Question is, what type of companies would be the ones to benefit?
In large part, it would be America's small businesses.
"The untold story about this export ban is the negative impact that it has on the American people and small businesses," House Small Business Committee Chairman Steve Chabot said during a congressional hearing on Wednesday. "That is why allowing the export of this resource is so important."
Chabot (Ohio) noted that the United States is now the world's largest oil producer, with domestic output having expanded by a staggering 1.6 million barrels per day over the past year. Catalyzed by new technology and extraction techniques, the United States is on pace to ramp up production to exceed 10.6 million barrels per day by 2020.
However, U.S. oil refineries, Chabot argued, cannot keep up with that pace of extraction, resulting in "a bottleneck that forces producers to slow or halt production," because American oil producers cannot sell to buyers overseas. When that happens, Chabot added, "it doesn't hurt the big guys, it hurts the small producers and their tertiary partners most of all."
One of those small producers was on hand for the conversation Wednesday. Rory McMinn -- the president of Read and Stevens, Inc., a small oil and gas production firm based in Roswell, New Mexico -- noted that the value of the crude oil coming from his company's 15 wells has dived as the U.S.'s oil reserves have mounted. In fact, the value of his wells has dropped by a third in recent years, which has a direct effect on his line of credit from the bank.
Consequently, McMinn was forced to pull back on a planned drilling expansion program, which means "we lost revenue," he said. And his firm isn't alone. "Our industry continues to lay off people, and more New Mexicans are losing their jobs," McMinn added. The way to stem the tide, he said, is to lift the ban and give oil producers access to foreign buyers.
Oil producers aren't the only ones taking a hit from the export ban.
"In our business in particular, it has led to the non-hiring of six people," said Dale Leppo, chairman of Leppo Group, a small business in Tallmadge, Ohio that rents large equipment to both construction and energy companies. Stunted demand for his equipment from oil and gas producers, he said, forced him to recently pull back on plans to expand his energy sector team. Instead, he moved some of those workers back to his construction division.
"Basically, it kills jobs," he said of the export ban.
It doesn't have to continue, though.
IHS recently released a study finding that lifting the ban could support as many as 859,000 new jobs in the U.S. over the next decade and a half. During the hearing, Chabot cited research forecasting even more robust growth, which predicted that giving oil producers access to the international market would spawn as many as a million jobs for Americans by 2020. It "would also increase GDP, narrow the trade deficit, attract new capital to the United States, and diversify and stabilize the global energy supply," he said.
"Those of us who lived through the seventies know there aren't many useful things from that decade still around today," Chabot added. "So why are some clinging white-knuckled to a 1970's energy policy? Just like bellbottoms, some things are better left in the past."
U.S. Chamber of Commerce experts agree. "Of all the energy reforms currently being considered in Congress, "the one that will have the single biggest positive impact is lifting the outdated ban on crude oil exports," Karen Harbert, president and CEO of the Chamber's Institute for 21st Century Energy, said during a recent hearing before members of the Senate.
It's not merely oil producers and their small suppliers that would benefit from a more modern, forward-thinking oil export policy. U.S. consumers can expect to see prices at the pump drop with the elimination of the ban, to the tune of $0.02 per gallon to $0.12 per gallon, according to a recent report issued by American Council for Capital Formation.
Once again, this would be a significant windfall for small businesses -- on two fronts.
Many small businesses say energy costs are among their highest costs of doing business, said Nydia Velazquez (New York), the ranking Democrat on the small business committee. Consequently, a drop in fuel prices would translate into lower energy bills every month. In addition, she pointed out that "when fuel prices drop, we usually see a concurrent rise in consumer spending." In other words, she explained, money consumers save at the pump "can be used to buy items from small retailers and goods from small manufacturers."
That's why it's imperative, Chabot said, that Congress lifts the export ban.
"Increased American energy production means more jobs and a stronger American economy," he said. "It's that simple."
The Bureau of Economic Analysis took a calm, understated tone when it said energy "did play a key role in several states."
I'll be more direct: Energy development--especially shale--is a big deal for the fastest-growing state economies. Here are a few charts from the Bureaus' data backing this up.
First, here are the top five fastest-growing state economies in 2014. North Dakota led all states with 6.3% growth followed by Texas with 5.2%. To compare, the U.S. economy grew 2.2% last year.highest-state-gdp-growth-2014-2014-gdp-growth_chartbuilder.png Facebook TweetHighest state GDP growth, 2014
Now, here's a chart showing state GDP growth along with the growth that came from mining/energy [the BEA lumps energy development in with mining]. For North Dakota almost 40% of state economic growth came from energy--primarily oil drilling on the Bakken. For Texas, almost one-quarter of its growth came from energy--namely shale development in the Eagle Ford Shale and Permian Basin.
Here's another way of looking at how important energy is to these states. I've included Oklahoma, #10 in state GDP growth.
Energy contributed more than half of the economic growth of three of the top ten fastest-growing state economies--West Virginia, Wyoming, and Oklahoma. In West Virginia's case, nearly all its growth was from energy. Much of it is due to shale development of the Marcellus and Utica shales.
In 2013, we saw a similar pattern where these same energy-rich states saw significant economic growth.
As you can see, domestic energy development is an important component to economic growth and job creation. We need to make sure that policies are in place to capitalize on these growth opportunities.state_gdp_0615.png Facebook TweetMap: Percent change in real GDP by state, 2014