Report: New energy sources boost disposable income

A report from Englewood, Colo.-based IHS suggests that the unconventional oil and natural gas production in the U.S. boosted disposable income by $1,200 per household in 2012, with the income figure possibly reaching $3,500 by 2025.

The new study, “America’s New Energy Future: The Unconventional Oil and Gas Revolution and the Economy – Volume 3: A Manufacturing Renaissance,” follows the previous studies of the “energy value chain” that provides more than 1.7 million U.S. jobs. IHS, a leading global analytics company, predicts the job number could grow to 3.3 million by 2020.

Several pro-energy businesses and organizations helped sponsor the IHS report. they included America’s Natural Gas Alliance, the American Petroleum Institute, the Fertilizer Institute, the U.S. Chamber of Commerce – Institute for 21st Century Energy, the National Association of Manufacturers, the Natural Gas Supply Association, and Rio Tinto.

“The unconventional oil and gas revolution is not only an energy story, it is also a very big economic story that flows throughout the U.S. economy in a way that is only now becoming apparent,” said Daniel Yergin, IHS Vice Chairman and author of The Quest: Energy, Security and the Remaking of the Modern World. “In addition to significant job and economic impacts from energy production and its extensive supply chains, the growth of long-term, low-cost energy supplies is benefiting households and helping to revitalize U.S. manufacturing, creating a competitive advantage for U.S. industry and for the United States itself.”

Kathy Deck, director of the Center for Business and Economic Research with the Walton College at the University of Arkansas, said the IHS report findings are reasonable and said the household income benefits of lower energy costs “would absolutely” apply Arkansas.

Deck has followed the impact of Arkansas’ energy sector, especially as it relates to the Fayetteville Shale Play. She worked on the original economic impact of the Play, and directed a May 2012 update that said production in the Play between 2008 and 2011 created total economic activity of more than $18.5 billion. The study also noted that total annual state employment impacts increased from more than 14,500 people to more than 22,000 people during the 2008-2011 period. (The nine Arkansas counties included in the Fayetteville Shale area by the report are Cleburne, Conway, Faulkner, Franklin, Independence, Jackson, Pope, Van Buren and White.)

Activity in the play has diminished as natural gas prices fell from almost $15 per million BTU to around $3 per million BTU by the end of 2012. Natural gas prices remain at or below $3 per million BTU. The prices have struggled to stay above $4 per million during the first half of 2013.

Deck said while the low prices have depressed drilling activity in Arkansas, it does provide an economic development incentive in low energy costs.

“We’re already a relatively low-cost state with labor and other factors, so with an abundant supply and low cost, (Arkansas) should be attractive for, say, manufacturing,” Deck explained.

Deck’s assessment was supported by the IHS report, which said “energy-intensive industries such as petroleum refining, aluminum, glass, cement, and the food industry” greatly benefit from access to low-cost energy.

“More than 70 percent of the cash cost of producing energy-related chemicals — which include major commodity petrochemicals such as olefins, methanol and ammonia — is the cost of raw materials and energy feedstocks,” noted IHS.

Kelly Robbins, executive vice president of Arkansas Independent Producers and Royalty Owners (AIPRO), said part of the Arkansas boost in disposable income comes from lower utility costs.

“Residential consumers saw an almost $400 ($383) savings in natural gas and electric utility savings in 2010 & 2011. Although not an enormous savings to some, this is not insignificant and only represents the actual per household average savings for utility/energy usage,” Robbins noted in an e-mail interview.

Following are other findings from the IHS report.
• The entire unconventional oil and gas value chain and energy-related chemicals will contribute $284 billion in value-added contributions to GDP in 2012, a figure that will increase to nearly $533 billion annually in 2025.

• The full value chain of industrial activity and employment associated with unconventional oil and natural gas contributed more than $74 billion in federal and state government revenues in 2012. Tax receipts will rise to more than $125 billion annually by 2020 and reach $138 billion by 2025.

• Workers’ earnings from all unconventional energy and chemicals activity were nearly $150 billion in 2012. This total will rise to $207 billion in 2015 and will be nearly $269 billion in 2025.

• Between 2012 and 2025, IHS projects a cumulative investment of nearly $346 billion across the midstream and downstream energy and energy-related chemicals value chains. Close to $216 million of this will come in the midstream and downstream segments of the unconventional value chain, including 47,000 miles of new or modified pipeline infrastructure.

• More than $31 billion in new capital investments will drive the addition of more than 16 million tons of chemical capacity by 2016. Cumulative investment will grow to more than $129 billion to support nearly 89 million tons of capacity by 2025.

• Employment contributions from the midstream and downstream sector are at their greatest in the near term (currently supporting nearly 324,000 jobs), as expansions and other capital expenditures are made to increase capacity connecting the resource base with broader end-users.

• Energy-related chemicals (currently supporting more than 53,000 jobs) will support a growing number of jobs in the long term. By the end of the decade, energy-related chemicals will support more than 277,000 jobs—a fivefold increase—and rise to nearly 319,000 by 2025.