Thanks to advances in technology (fracking and horizontal drilling), domestic oil production has been increased dramatically since 2010, reversing a quarter-century downward trend in U.S. oil production that started in the mid-1980s. Over the last year, we’ve seen one of the largest annual increases (17%) in domestic oil production (for the lower 48 states) in the history of monthly EIA oil production data going back to 1973.
Accompanying the boom in domestic oil and gas production has been a huge boom in “shovel-ready” jobs for that sector (see bottom chart above, data here). Over just the last two years, employment in the oil and gas industry for drilling-related jobs has increased by more than 23% to 195,500 jobs in July, which is the highest level for those jobs since early 1988, more than 24 years ago. America’s booming energy sector has been creating an average of 85 new jobs every business day for the last year, and those are just the direct jobs for oil and gas extraction, and doesn’t count all of the indirect jobs created throughout the supply chains for oil and gas.
A recent Bank of America/Merrill Lynch report estimates that the economic benefits to the U.S. economy from the booming domestic energy production, especially from the surging output of unconventional shale gas and oil, are approaching $1 billion per day. With all of the concerns about the sub-par growth of the overall economy during the last three years of recovery (2.2% average real GDP growth since June 2009), imagine what the growth rate of the economy would be if we didn’t have the booming oil and gas industry that is bringing energy prosperity and shovel-ready jobs to states like North Dakota, Texas and Pennsylvania.
Bottom Line: America’s booming energy sector, especially the increased production related to shale oil and gas reflected in the 23-year high for domestic crude production (lower 48 states) and 24-year high for oil and gas jobs, remains America’s “economic bright spot,” and it continues to get better and brighter all the time.
Looking at the top graph, I find it amazing that the steep drop in oil production from Katrina hitting the Gulf was nearly as bad as the decline in the recession. Kind of puts into perspective somewhat how bad this recession really was.
ReplyDeleteWhy did you leave out Alaska?
ReplyDeleteDoes this
EIA Data
have anything to do with it?
What is that? 60,433 Barrels of Oil/Day Decline YOY?
jon murphy,
ReplyDeleteBoth the steep drops in oil production were caused by hurricane threats - Katrina in 2005 and Ike in 2008. When a major hurricane threatens the coasts of Texas, Louisiana, and Mississippi, oil companies move their employees onshore very quickly and temporarily halt production.
As the uncle of two offshore workers, I am grateful oil companies protect their employees this way - at a considerable cost of loss of production. It wasn't always this way. My dad's cousin lost his life 50 years ago when winds from a too-near hurricane crashed the evacuation helicopter rescuing him.
Rufus,
ReplyDeleteWhat is your point? I'm sure you're overjoyed that production in Alaska is declining. But it wouldn't be declining if Obama gave a wit about oil sector jobs, or if he wanted additional IRS revenue to be generated from the oil sector.
Ah I forgot about Ike, Jet. We'll probably see a similar drop with Issac?
ReplyDeletehttp://wattsupwiththat.com/2012/08/30/north-american-energy-independence-by-2020/#more-70115
ReplyDeleteGood overview of the path to energy independence, is it possible?
SteveH
ReplyDelete"Good overview of the path to energy independence, is it possible?"
Even if it is possible, is it desirable?
What is it about oil in particular that causes so many panties-in-a-twist at the thought of importing some of it? The benefits of global trade seem obvious, and there are few commodities or goods that aren't imported to some extent.
Oil, like so many other things, is purchased at the lowest global price.
ReplyDeleteAlmost all production in the Gulf of Mexico was halted this week. But the drop will not be a sustained one. The preliminary word from the oil companies earlier this week was that damage from Isaac was minor.
Ron H, Trade is based on comparative advantage. The development of new technology can change relative advantage.
ReplyDeleteChina changed its economic policies and created new comparative advantages in manufacturing.
Our energy regulatory policies have sought to remove our comparative advantages in producing oil and gas. Now, in spite of anti-energy policies we are beginning to see our comparative advantage in energy.
There's a lot more analysis that could be touched upon: the multiplier effect of domestic energy production, the existence of cheap domestic feedstocks which attract onshoring companies, etc.
SteveH:
ReplyDelete"Ron H, Trade is based on comparative advantage. The development of new technology can change relative advantage."
Actually trade is based on there being mutual advantage for both sides of the trade.
What you are describing as comparative advantage may instead be absolute advantage, as in "Costa Rica has an absolute advantage over the US in growing bananas."
Comparative advantage would involve something like Costa Rica being 5 times as efficient in producing bananas and also 2 times as efficient in producing charcoal as the US.
In that case Costa Rica would have a comparative advantage in bananas.
My previous comment wasn't about that though, but whether there was some reason to want to be self sufficient in oil. There's certainly no econmic argument.
In any case, it's doubtful that even unrestricted oil production in the US would be enough replace all imports.
Ron,
ReplyDeleteIt looks like in the next few years that we will begin to export natural gas if policymakers allow it. If we can trade natural gas with Japan for cars it makes sense, no? Because of the large price differential between their market price and ours it makes sense to trade. Obviously our cost in thousands of ft^3 for a car is much higher than if we ship that gas to Japan. Fewer ft^3 will be required to purchase a car.
But that simplistic example is really not how trade takes place. The country importing might not have anything we want and those dollars will be used to purchase other imports from other nations.
None of this refutes that we have an emerging comparative advantage in energy production. For example companies are onshoring or relocating because of our lower energy costs. What was imported or just produced overseas will now be produced here for domestic consumption or for export. Certainly energy is the comparative advantage among many other comparative advantages.
Getting back to oil...Oil is a fungible commodity whose price is set on commodity exchanges. We certainly will be using more resources to produce oil domestically than if we simply imported it so that is our opportunity cost of foregone production of other goods and services which would mean we would have to import those goods (and maybe some services). But what about the economic multiplier of domestic production and the reduction in transportation costs. It seems that those investment and cost savings effects will drive economic growth and expand the productive capacity of the US. It seems that foregone production only holds in the extreme short run and over the longer run multiplier effects dominate.
SteveH:
ReplyDelete"It looks like in the next few years that we will begin to export natural gas if policymakers allow it. If we can trade natural gas with Japan for cars it makes sense, no? Because of the large price differential between their market price and ours it makes sense to trade."
OK, your definition is close enough. However, you might find it helpful to refrain from using the word "we" when discussing international trade, as it is individuals and groups of individuals that trade, not countries. The "US" doesn't trade with "Japan".
If US gas prices become cheaper than the current sources of Japanese imports then some amount of US produced gas will be sold to Japanese buyers. Those gas buyers may pay using USD they have acquired from US auto buyers.
"Getting back to oil...Oil is a fungible commodity whose price is set on commodity exchanges."
Yes. That is the price of the of oil from lowest cost producer.
"We certainly will be using more resources to produce oil domestically than if we simply imported it so that is our opportunity cost of foregone production of other goods and services which would mean we would have to import those goods (and maybe some services)."
You may be making this more complicated than it is.
Hopefully the amount of resources used to produce domestic oil is *less* than the amount used to buy imported oil, or it wouldn't be done.
Unless you believe protectionist trade policies are good for consumers you wouldn't spend more for domestic oil than for foreign oil. Transportation costs are included in the total cost of a good or service.
"But what about the economic multiplier of domestic production and the reduction in transportation costs."
Those same considerations are present in the opportunity cost.
"It seems that those investment and cost savings effects will drive economic growth and expand the productive capacity of the US. It seems that foregone production only holds in the extreme short run and over the longer run multiplier effects dominate."
As a Ricardo fan, I would expect you to advocate producing domestically what you are best at for both domestic and export markets, and importing that which others produce more cheaply than domestic producers. :)
Ron H, What I am not in favor of are deliberate policies which restrict production and regulate away a competitive advantage. It seems clear that we are on a path to energy independence which will eventually reduce the price of all energy. Our increased production of oil is leading to forecasts of a fall in the price of oil in the next 18 months to the mid $70s.
ReplyDeleteWhat you can't seem to stand is a market driven process that is leading to energy independence perhaps to assuage your sensibilities we should say it is leading to a banana. You don't want anyone to celebrate that accomplishment within a market driven process because it violates your perceived knowledge of how the world works.
While I don't personally seek to be independent in the production of my food supply I might want to be independent of the production of a spare part for an appliance if I can print it on my 3D printer simply by purchasing for a small fee the G-code instruction set. You could say that I am now independent of the manufacturer or I have spare part independence. Another technology, mobile banking, makes me independent of the bank teller, home computer, broadband land line, etc. or I have bank infrastructure independence. In that same way advances in oil and gas exploration and new production techniques makes the US potentially independent of other producers. It is all a technology driven process.
SteveH:
ReplyDelete"Ron H, What I am not in favor of are deliberate policies which restrict production and regulate away a competitive advantage. It seems clear that we are on a path to energy independence which will eventually reduce the price of all energy. Our increased production of oil is leading to forecasts of a fall in the price of oil in the next 18 months to the mid $70s. "
You misunderstand me. I am in favor of no policies at all. I favor a completely free global market without government interference of any kind.
My question was why you favor energy independence, which is a political ideal not an economic one. If you favor national self sufficiency then perhaps you favor state or region self sufficiency also, as they make as little sense. The wider the extent of our trade choices, the better off we are.
Energy independence is a common rant these days, but there literally hundreds of other commodities that the US isn't self sufficient in, and nobody seems troubled by it.
Aluminum is a good example of an important substance that the US has no domestic sources of at all. All aluminum used in the US is imported as ore or as finished metal.
Why aren't we alarmed about that?
Ron H, No, I don't want a deliberate policy of import substitution. But when it is a market driven process that leads to a politically popular result we should cheer. However, economists can still shake their heads and say, but...
ReplyDelete