Shale Revolution: Opportunity to Jump-Start Economic Growth
Will the U.S. shale boom turn out to be a bust? The recent decline in oil prices has left some questioning whether it can be sustained. But the shale revolution is not just a temporary blip. It’s a true game changer for the U.S. economy, and its impact is only in the early stages. A year ago, we projected that shale energy could boost annual GDP by 2 to 4 percent ($380 billion to $690 billion) by 2020. Since then, development has continued in high gear, putting the United States on track to hit the upper end of that forecast. Further declines in oil prices could dampen this growth, of course, but the most productive basins for shale oil and gas will remain profitable even if oil prices remain at today’s levels.
Consider the numbers:
- Shale gas production has grown 51 percent per year since 2007, and proved reserves have increased five-fold since then, according to the U.S. Energy Information Administration (EIA). The United States is now the world’s largest natural gas producer, thanks to shale.
- Oil production from shale deposits (or “tight oil”) is growing even faster. The United States has gone from averaging 5 million barrels per day of total crude oil production in 2008 to 8.7 million barrels per day in September 2014—and the EIA now projects it will top 9.5 million barrels per day in 2015. This level hasn’t been achieved since 1970, and shale production accounts for the lion’s share of the increase.
- Technological innovation is paying off as wells become more efficient. Rig counts have been flat or falling in the Bakken and Eagle Ford formations in the past couple of years, but yields continue to climb. The combined oil production of these plays has grown from 225,000 barrels per day in 2007 to more than 2.5 million barrels per day.
Shale Boom Felt Beyond the Energy Sector
It’s hard to overstate the impact on the U.S. economy. The oil and gas industry added more than 135,000 high-paying jobs from 2007 to 2012, and the boom is being felt well beyond the energy sector. A massive $1.4 trillion construction of pipelines, rail networks, and drilling and infrastructure, financed mainly by private capital, could generate 1.6 million jobs.
While it is an overstatement to claim that the shale boom alone will spark a broad-based renaissance in U.S. manufacturing, it is undeniably fueling expansion in energy-intensive industries such as petrochemicals, fertilizer, synthetic resins, iron and steel. More than $100 billion worth of investment in chemical plants alone has already been announced, much of it from foreign companies seeking to take part in the U.S. shale boom. New ethane “cracker” plants and even mills are going up in places like Ohio, Louisiana and Arkansas.
The relatively high-wage jobs associated with shale development have broader ripple effects in local economies. All in all, we estimate the shale revolution could create as many as 1.7 million permanent U.S. jobs by 2020—including sorely needed opportunities for workers without college degrees.
U.S. On The Verge of Surpassing Saudi Arabia
The implications for the trade deficit and U.S. energy security are beyond what anyone could have imagined even five years ago. Today the United States is on the verge of surpassing Saudi Arabia as the world’s largest liquid petroleum producer, and the Federal Energy Regulatory Commission has approved the construction of four terminals for exporting liquefied natural gas. The United States could reduce its net energy imports effectively to zero in the next decade.
There is also some positive news on the environmental front. Thanks in part to power plants switching from coal to cleaner natural gas, U.S. greenhouse gas emissions declined by 10 percent from 2005 to 2012. While this is only a start toward addressing the world’s deepening climate change concerns, shale energy has contributed to flattening the trajectory of U.S. emissions.
Opportunity to Jump-Start Economic Growth
Shale energy represents a rare opportunity to jump-start U.S. economic growth, but a single environmental mishap could derail its potential. The industry would be well-served by staying in front of the environmental and safety issues associated with hydraulic fracturing and to intensify its focus on finding technology solutions. The number of small operators involved in shale extraction makes it harder—but even more urgent—to establish best practices in extraction and transport and to build public confidence.
The United States has a unique global competitive advantage in shale energy. It has favorable geology, private ownership of mineral rights, and a multitude of small independent energy producers who are willing to assume the risk and the cost. The shale energy revolution is a compelling example of the agility of U.S. industry—and the resilience of the U.S. economy.
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