The power of shale
Oil-patch industry is lifting the U.S. economy
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 rigzone.com 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