The power of shale

Oil-patch in­dus­try is lift­ing the U.S. econ­omy

The Washington Times Weekly - - Commentary - By Wil­liam C. Triplett II

At the end of April, three things hap­pened more or less si­mul­ta­ne­ously: First, the Obama ad­min­is­tra­tion an­nounced that in the first quar­ter of 2014, growth of the over­all U.S. gross do­mes­tic prod­uct had fallen to barely 0.1 per­cent, and more than 800,000 Amer­i­cans left the work­force in the month of April alone. Sec­ond, the As­so­ci­ated Press re­ported that also dur­ing the first quar­ter of 2014, the Bakken Shale oil field in North Dakota and Mon­tana had reached 1 bil­lion bar­rels of oil pro­duc­tion. Third, led by Brett Baier and the Fox News Chan­nel, com­men­ta­tors are be­gin­ning to ask this im­por­tant ques­tion: If you sub­tract the con­tri­bu­tion that the shale revo­lu­tion is mak­ing to the over­all U.S. econ­omy, what hap­pens? The an­swer is pretty sim­ple: dis­as­ter. Gene Lockard of rig­ has done some use­ful work on the im­pact of the shale revo­lu­tion on the over­all econ­omy. First, he re­ports that the non­farm econ­omy lost 3.25 mil­lion jobs from Jan­uary 2008 to Fe­bru­ary 2014 while the oil and gas sec­tor ex­panded em­ploy­ment by 26 per­cent. Sec­ond, he notes that ac­cord­ing to the U.S. Bureau of Eco­nomic Anal­y­sis, the oil and gas mul­ti­plier ef­fect is 6.9. That means that ev­ery job in oil and gas sup­ports 6.9 jobs through­out the rest of the econ­omy. Like­wise, a dol­lar spent in the oil patch turns over 6.9 times, sort of like a rock thrown into a pond as the rip­ples widen.

Ob­serv­ing a mod­ern shale-oil or gas-drilling oper­a­tion, all this falls in place. For ex­am­ple, to your right there might be sev­eral miles of steel drill pipe ly­ing on racks ready to go down the hole. Some­one ob­vi­ously made the steel, some­one else trans­ported it to the drill site, some­one else made cer­tain the right kind of steel and the right amount were ready to go so that pro­duc­tion wouldn’t lag, and on and on.

When the frack­ers ar­rive, the whole ground shakes as the huge frack­ing ma­chines pump wa­ter, sand and chem­i­cals down the hole. A lot of the frack­ing sand comes from Wis­con­sin. Again, some­where in Amer­ica they are mak­ing frack­ing ma­chines, prob­a­bly out­side the oil patch. Cater­pil­lar is a brand you see all over the oil patch, and last year Cater­pil­lar sold $4.5 bil­lion worth of equip­ment to the en­ergy and trans­porta­tion sec­tor. Gen­eral Elec­tric is a ma­jor player in the shale revo­lu­tion and get­ting big­ger. Cater­pil­lar and GE in­dus­trial prod­ucts are sourced from plants all over the coun­try.

These days, Ford, GM and Chrysler are truck mak­ers who also make cars. It’s not an ac­ci­dent that the Ford 150 pickup is the best-sell­ing ve­hi­cle in Amer­ica. For the Big Three, pick­ups are both sales and profit lead­ers, given their higher markup. In the shale, you can’t avoid see­ing an ocean of new white pick­ups. They may have been as­sem­bled in Kansas City (Ford) or Michi­gan (GM and Dodge) but the parts — tires, glass, brakes, steel, alu­minum, plas­tics — come from all over North Amer­ica. Ev­ery­one ben­e­fits — de­sign, parts, as­sem­bly, trans­porta­tion and sales.

What about the fu­ture? Two num­bers: First, ac­cord­ing to a re­cent study by ICF In­ter­na­tional, the oil patch will have to spend $641 bil­lion di­rectly over the next 20 years on in­fra­struc­ture to sup­port the shale-drilling oper­a­tion. That’s just the in­fra­struc­ture to deal with the oil and gas once it is pro­duced, not the tens of bil­lions di­rectly go­ing into the drilling oper­a­tion it­self. Sec­ond, $125 bil­lion: That’s IHS Chem­i­cals’ es­ti­mate of the shale-re­lated chemical plants go­ing in, and “more to come,” as it told The Wall Street Jour­nal. A lot of this money will be spent along the I-10 cor­ri­dor be­tween Hous­ton and Ba­ton Rouge, La., but a new multi­bil­lion-dol­lar chemical plant is go­ing in just be­low Park­ers­burg, W.Va., and Shell has an op­tion on a site north of Pitts­burgh that would be of com­pa­ra­ble size.

All of this is the best news pos­si­ble for Amer­i­can young people now in high school and col­lege, wor­ried about their fu­ture. Nearly all the tra­di­tional col­leges with oil and gas de­part­ments are ex­pand­ing their pro­grams — the Univer­sity of Texas at Austin, Texas A&M, Rice Univer­sity, the Univer­sity of Hous­ton, LSU, Ok­la­homa, Tulsa and Penn State, just to name a few.

Not a sci­ence, tech­nol­ogy, en­gi­neer­ing and math stu­dent? Not a prob­lem. The West Vir­ginia Univer­sity Col­lege of Law re­cently com­pleted its highly suc­cess­ful third an­nual Moot Court Com­pe­ti­tion on En­ergy and Sus­tain­abil­ity. Teams from as far away as North Dakota came to com­pete.

In 2008, U.S. oil pro­duc­tion was run­ning at 5 mil­lion bar­rels per day, and each year was de­clin­ing by about 100,000 bar­rels per day. At that rate, pro­duc­tion in 2013 would have been about 4.5 mil­lion. In­stead, thanks to the shale revo­lu­tion, in 2013 it was al­most 7.5 mil­lion, a 50 per­cent in­crease over 2008, and in 2014, the rate of in­crease seems to be in­creas­ing. Bot­tom line: The Amer­i­can shale revo­lu­tion is keep­ing the en­tire U.S. econ­omy from spin­ning into re­ces­sion and de­spair. Wil­liam C. Triplett II is for­mer chief Repub­li­can coun­sel to the Se­nate For­eign Re­la­tions



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