Wednesday, February 08, 2012

America's Amazing Shovel-Ready Energy Stimulus; And It's Happening Despite U.S. Energy Policy

From the WSJ article “Oil and Gas Boom Lifts U.S. Economy”:

"An energy boom is revving up the U.S. economy. The use of new drilling techniques to tap oil and gas in shale rocks far underground helped add about 158,500 new oil and gas jobs over the past five years, and economists think it has created even more jobs in companies supplying the energy industry and in the broader service industry. U.S. oil production is rising for the first time in decades. Natural gas has become so plentiful that prices recently plunged to a 10-year low.

The economic benefits of rising energy production are spreading far beyond the traditional oil patch, to Ohio and Pennsylvania, Nebraska and New York, North Carolina and Idaho."

Here are 11 examples from the article of how the energy boom is creating jobs and spreading prosperity throughout the U.S. economy:

1. Truck drivers from pretty much anywhere can find work related to the surging energy business.

2. Private-equity firms completed $24.8 billion of energy deals of all types last year, up from $8.5 billion in 2010.

3. The energy industry has discovered so much new natural gas, causing gas prices to drop 39% over the past year, that it is breathing new life into energy-intensive manufacturing such as steel and plastics. Manufacturing plants are returning to the U.S. to take advantage of cheap natural gas, spurring major investments in petrochemical and steel production in the Gulf Coast and Midwest.  Examples of companies expanding production in the U.S. include Dow Chemical, Royal Dutch Shell (plastics), Nucor Steel and Maine Pulp and Paper.

4. Landowners in huge swaths of the country where shale is found are raking in money for leasing their mineral rights.

5. Consumers throughout the U.S. are paying lower bills for heating and electricity because of cheap natural gas.

6. For every new job working in the oil and gas sector, another four are supported by the energy supply chain and by workers spending more money on goods and services.

7. Beyond simply adding jobs, communities from Pennsylvania and Ohio to Colorado and Texas that are home to this energy boom are experiencing a new emotion: optimism.

8. The industry paid out $6 billion in royalties and lease payments from 2008 to 2010 just in Pennsylvania, home to much of the Marcellus Shale, a formation of gas-bearing rock.

9. Community Bank Systems Inc., which operates 170 bank branches in rural New York and Pennsylvania, says it has seen a 20% growth in deposits in regions where there is shale drilling, versus about 5% elsewhere.

10. Thousands of new jobs have been created in Midwest states from the “shale sand boom” that has been created by the increased demand from oil and gas companies for the sand that is one of the main inputs used in the fracking process to help extract oil and gas from shale rock.   

11. Electric utility companies like Siemens AG in North Carolina have started investing in giant, gas-powered turbines to take advantage of historically low natural gas prices.   

MP: What makes this energy stimulus even more remarkable is that it came about in spite of, not because of, any intended government energy policies. As AEI environmental scholar Steve Hayward wrote back in April, "One remarkable aspect of the shale gas revolution is that it was not the product of an energy policy edict from Washington, or the result of a bruising political battle to open up public lands and offshore waters for new exploration. Although the Halliburtons of the world are now big in the field, its pioneers were mostly smaller risk-taking entrepreneurs and technological innovators."

And Steve points out here that U.S. energy policies have actually restricted access to America's vast energy resources, which means that the energy stimulus outlined above could be creating even more jobs and prosperity without those government restrictions.

HT: Dan Greller, who comments that "Somewhere Julian Simon must be smiling."  

21 Comments:

At 2/08/2012 10:28 AM, Blogger Larry G said...

there are still winners and losers though.

for instance, if Nat Gas replaces an existing energy demand currently satisfied with coal.. we're trading nat gas jobs for coal jobs.

right?

so every new nat gas job - is not necessary as much a net new job as a replacement job.

the new nat gas driller may well be replacing an existing coal miner...

the aggregate energy demand is what drives energy consumption ...not new sources of energy.

stepping back...waiting for the whacks!

:-)

 
At 2/08/2012 10:40 AM, Blogger morganovich said...

larry-

you are leaving something important out:

anything that makes energy cheaper at any given level of demand also creates jobs/prosperity.

acme die cast, that uses energy for foundries saves money. they can drop prices, helping consumers, and expand creating jobs.

the buyer who pays less for die cast can now spend that money elsewhere on, say, dinner out, helping to create restaurant jobs.

the flow from such a thing is considerable.

economies are rarely zero sum.

 
At 2/08/2012 10:45 AM, Blogger Larry G said...

@morg - I agree with you but I have issues with the stated premise of new energy sources = MORE net energy jobs.

the jobs, as you say, come from the SAVINGS that can then be spent on other things that create jobs but the total created jobs is much, much smaller than the number of jobs associated with the new energy sources.

so what would be a more proper way to calculate net new jobs?

 
At 2/08/2012 11:16 AM, Blogger Junkyard_hawg1985 said...

Larry, In your own strange way, you make a good point about jobs. I think the cheap natural gas is not a good jobs change, but a good standard of living change. If you want everyone to have a job, ban modern farming equipment. We will all have jobs (including retirees who will have to come out of retirement to be able to eat) but a lousy standard of living. Better recovery of natural gas makes all of our lives better by powerng the things that raise our standard of living.

 
At 2/08/2012 11:38 AM, Blogger morganovich said...

larry-

again, you are missing some of the point.

you really need to get out of this zero sum thinking.

if the price of energy drops, the demand for energy rises. thus, you need more as a whole.

to get at the "number of jobs created" is essentially impossible.

you need to know how many jobs are involved in the production of each energy source and the equipment to do it per BTU and then what the price elasticity of demand for energy is coupled with the savings and increase competitiveness everywhere else and the jobs created thereby.

NO ONE can do that math accurately.

it's possible that creating 10mm BTU of nat gas needs fewer people than mining 10mm of coal and it's a net job loser in energy. i really don't have that data.

i doubt this is the case as i have not heard about big coal mine layoffs etc, but some of this has to do with gas being stranded and unable to reach market.

the whole thing is a red herring and a terrible goal for government. business creates jobs. government should just create an environment conducive to business (enforce contracts and mostly stay out of the way).

when they jump in to "create jobs" it's a disaster, especially around energy.

in spain, every "green job" created in energy cost 2.2 jobs elsewhere.

http://www.americanthinker.com/2011/09/obama_green_jobs_con_job_and_the_ill_wind_that_blows_from_spain.html

this is a likely outcome from diverting resources to impractical uses.

the best thing the government can do to "create jobs" is stop trying to create jobs and misallocating capital while upping uncertainty and freezing private investment.

in 1958, we had a recession as deep as this one. it took 9 months from trough for ALL the job losses to be made up. (we now sit at 36 months and have not even gotten halfway) it happened without federal meddling. it is precisely the huge amounts of federal meddling that prolonged the depression and it prolonging this recession.

the lesson is obvious, but politicians have no desire to learn it. they need to be seen "doing something" and in their attempts to by votes, wind up plowing salt into the field and calling it fertilizer.

 
At 2/08/2012 12:09 PM, Blogger Paul said...

Morganovich,

"..and in their attempts to by votes, wind up plowing salt into the field and calling it fertilizer."

That's a great way to describe it! The question I always have is whether they intentionally plow the salt, or if they believe their repeated nonsense about green jobs, food stamp stimulus, unemployment checks create jobs, etc..

 
At 2/08/2012 2:48 PM, Blogger Walt G. said...

Larry G

It's the same thing as a productivity increase. The resources saved are used somewhere else money, labor . . . .

People/companies people who figure out how to do this prosper and win. It's just like going on vacation from the money you saved from finding a way to make your property and income taxes legally lower.

 
At 2/08/2012 3:45 PM, Blogger juandos said...

Well maybe its really time to warm up those shovels...

I've been watching this site: Eagle Ford Shale Jobs ever since the Eagle Ford news about its shale crude and gas finds came in and it seems that numbers of job openings just keeps on increasing...

Now I have no idea just how valid these numbers are or the people who run the site are trustworthy...

I was just looking at the listed openings...

 
At 2/08/2012 3:49 PM, Blogger Marko said...

We should thank the Republican congress for not letting this president do anything. If not for them, the President would be all over this trying to regulate it and tax it to death - it hurts his dreams of "renewable" energy and green jobs. Remember Greens are like watermelons, green outside, red inside.

 
At 2/08/2012 4:32 PM, Blogger kmg said...

We should thank the Republican congress for not letting this president do anything.

Amen. The health of the economy strongly correlates to which party controls Congress (particularly the House).

This matters much more than the Presidency.

The relative health from 1994-2006 was due to a GOP congress. The trouble from 2007 onwards was due to Democrats.

 
At 2/08/2012 4:41 PM, Blogger kmg said...

North Dakota has such a small population that even an addition of 50,000 people distorts the whole place.

But the Ohio shale is exciting. That, being a more populated area, can easily take in 200,000 new households without a problem (in fact, Ohio has so many surplus houses that this could offset that too).

I am in California. I hope the Monterey Shale gets tapped...

 
At 2/08/2012 5:12 PM, Blogger Larry G said...

the "new" jobs from new nat gas and oil are a "good" thing.. I agree.

and I agree that if people pay less for energy that they can buy something else with the savings and that will create jobs.

but I'm also that most folks are not going to crank up their thermostats to 80deg because nat gas is 20% cheaper.

I think more likely.. someone replaces their oil furnace or heat pump with a gas furnace.

more jobs.. yes.. but the goal of most is to use even less energy and lower their costs so they have money available for other things.

right?

 
At 2/08/2012 10:20 PM, Blogger kmg said...

but I'm also that most folks are not going to crank up their thermostats to 80deg because nat gas is 20% cheaper.

Where have you found a race of white people who want their interiors to be 80 degrees? That is usually the temperature at which people start the AC.

In 2002 when gasoline plunged to 83 cents/gallon, people's driving did not double.

At some point demand is not always elastic.

 
At 2/08/2012 10:22 PM, Blogger kmg said...

but I'm also that most folks are not going to crank up their thermostats to 80deg because nat gas is 20% cheaper.

So wealthy Americans (those earning over $300K/year) could easily afford the extra $100/month it would take to be 80 degrees all the time, even before the natgas boom.

Yet, miraculously, they do not do it. Gee, what a mystery. I am baffled.

Why are you on an economics blog?

 
At 2/08/2012 10:31 PM, Blogger Larry G said...

the premise seemed to be that the lower the price of energy - the more than would be used.

you posited that elasticity is not uniform

and I am similarly skeptical that the theory and the practice do not match.

I think most people try to reduce their use of energy especially as the price increases but I'm skeptical that people will use [much] more of it - at the equivalent elasticity if it decreases in price.

I do wonder how cheap nat gas has to be before it's cheaper to use a nat gas generator to power your house instead of buying grid power.

If nat gas becomes cheaper than coal and power companies start building gas turbines to take advantage of cheaper nat gas... why would it not also be cheaper at the point of use?

Propane at 3.75 a gallon would easily quadruple your monthly electricity costs...

why am I on an economics blog.

to learn and to understand other views and to perhaps change my own if I learn more.

why are you?

 
At 2/09/2012 1:45 AM, Blogger kmg said...

Anyone who claims that lower-cost energy would induce people to heat their homes to 80 degrees, even though the wealthy who could afford that do not do that today, is so detached from the real world that they are a parody of sorts.

 
At 2/09/2012 7:03 AM, Blogger Larry G said...

I think the idea was when contemplating lower energy costs that in turn, in theory, it would induce higher use (or more) uses...that most folks would certainly not be using MORE just to increase the temperature in their homes if they were already comfortable.

but in theory lower prices WILL increase use so I was trying to better understand how that might work with folks who already have nat gas ..ruling out people just wasting it ....

so basically I was wondering just how people who already have nat gas would be using more of it and I did touch on the idea of using it to provide electricity to one's own house.

another way would be for people to switch to nat gas appliances - like dryers or have nat gas fireplaces or nat gas patio heaters.

I haven't followed nat gas prices but it used to be if a home had nat gas already available via pipe, people would use it because if was already price-competitive to electricity or tank fuel oil.

Where I live if you don't live where NG is available by pipe ...you get propane in a tank instead which is almost twice as energy dense as NG but also fairly pricey.... I don't see many NG tanks.

As I have said several times in this blog.. I have no trouble admitting ignorance on a number of issues.. the older I get, the more I realize that what I don't know is much larger than what I "think" I know.

I also point out that most of us are also this way. We tend to know particular areas but not other areas.

I see it as a normal human condition that we all suffer from and I also think all of us should be or should want to be lifetime learners.

I respect polite folks who share their knowledge and perspective.

I don't have much use for those who feel the need to insult or exhibit other mean-spirited behaviors.

They'd not do that in a classroom and I consider CD a free-form online classroom.

do you not consider yourself ignorant on a lot of things also? :-) it's pretty normal you know.

 
At 2/09/2012 7:03 AM, Blogger Larry G said...

This comment has been removed by the author.

 
At 2/09/2012 11:24 AM, Blogger morganovich said...

"I think most people try to reduce their use of energy especially as the price increases but I'm skeptical that people will use [much] more of it - at the equivalent elasticity if it decreases in price."

you have to be kidding larry.

ever noticed how people drive less when fuel prices are high and more when they drop?

seen what happens to airline prices and therefore demand?

imagine businesses. they use electricity to manufacture. price drops, they can make more profit and expand, sell more units at lower prices, etc.

all this uses more electricity and more energy.

people DO turn their thermostats down if power is expensive. why would they not turn it back up if it got cheaper? your 80 degrees example is just a silly distraction.

your consistent tendency to oversimplify this stuff and take narrow focus on possibly irrelevant details is really leading you to some bad conclusions.

energy is an input into about a zillion goods and services. if it gets cheaper, they get cheaper and more are bought and made, upping energy use.

this is really rudimentary stuff lar.

if people are being curt/rude with you, it likely has to do with the fact that your asking the same questions over and over that ignore simple and basic facts is frustrating. your first question was a good one, but these later ones are pretty ridiculous and get tiresome.

 
At 2/09/2012 11:46 AM, Blogger Larry G said...

@morg... you make some good points that help me better to understand.

thank you.

 
At 2/12/2012 10:32 PM, Blogger VangelV said...

2. Private-equity firms completed $24.8 billion of energy deals of all types last year, up from $8.5 billion in 2010.

:) Reminiscent of the tech boom in 1999. How did that work out? The deal makers got paid but the buyers got killed.

3. The energy industry has discovered so much new natural gas, causing gas prices to drop 39% over the past year, that it is breathing new life into energy-intensive manufacturing such as steel and plastics...

Really? It did not 'discover' new gas. We always knew that the gas was there but not economic to produce. The energy industry chose to produce it anyway and is now chewing through capital as it is bleeding read ink on more than 95% of the shale gas projects. Selling product at a loss is not a foundation for breathing new life into other sectors.

4. Landowners in huge swaths of the country where shale is found are raking in money for leasing their mineral rights.

Yes they are. But the shale productions are still not economic for the producers. And in the end, that is what matters.

5. Consumers throughout the U.S. are paying lower bills for heating and electricity because of cheap natural gas.

Really? I thought that you just gave an example of bills only falling 20%. Most of that decline was due to a milder winter and lower usage. It seems to me that the 'savings' are not passed on by the utilities as you are suggesting.

 

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