Study After Study Underscores Prolific Economic Impact of Responsible American Shale Development

New Study: US manufacturing companies could employ one million more workers by 2025 due to American shale gas

Canonsburg, Pa. – Leaders in Washington and small- and medium-sized businesses across the nation understand the critical role that America’s manufacturers play in creating jobs and strengthening our economy. In fact, in an announcement this week, President Obama said “At this make or break time for the middle class and our economy, we need a strong manufacturing sector that will put Americans back to work making products stamped with three proud words: Made in America.”

We couldn’t agree more wholeheartedly with the President on this. And with more than 15 million Americans unemployed or underemployed, according to the U.S. Bureau of Labor Statistics, our economy – and our nation – is absolutely at a “make or break” watershed moment.

For its part, America’s natural gas producers are Building a Stronger, More Secure America and helping to bring about a “renaissance in US manufacturing,” according to a new PricewaterhouseCooper study released today, which was supported by the National Association of Manufacturers.

Shale gas has the potential to spark a US manufacturing renaissance over the next few years, boosting revenue and driving job creation, as a result of several substantial advantages,” determined PwC researchers. Indeed, and as indicated in the study, “Shale gas-rich areas within the United States, including states around the Marcellus basin and the Gulf Coast, would likely benefit the most,” in terms of job creation.

Marcellus Shale Coalition president Kathryn Klaber is featured in the study, remarking:

“The safe production of shale gas has been a game-changer in a variety of regions and among a variety of sectors throughout our economy—notably manufacturers. At a time when national economic and employment indicators are uncertain at best, shale gas producers and their vast and dynamic supply chain are providing families and communities jobs and economic development at a time when they’re needed most. The Marcellus Shale is a case study in the transformative impact of the natural gas industry. In Pennsylvania and surrounding states, tens of thousands of jobs are now supported by our industry and dozens of sectors—from steel to construction firms—have been revitalized through the promise of clean-burning and abundant American energy.”

The new PwC study found “that full-scale and robust shale gas development through 2025 would likely have a number of knock-on effects for other industries, particularly the manufacturing and chemical sectors.” Further, as laid out in the new study, “Given a scenario calling for high recovery of shale gas and low prices of natural gas, the US manufacturing sector and the broader US economy could stand to benefit in the following ways:”

Energy Affordability

  • Lower feedstock and energy costs [from shale gas] could help US manufacturers reduce natural gas expenses by as much as $11.6 billion annually through 2025.

More Jobs

  • US manufacturing companies could employ approximately one million more workers by 2025 due to benefits from affordable energy and demand for products used to extract the gas.

Several other [MSC member] companies are making investments in the United States based on the opportunity to sell equipment for shale gas plays. These include:

  • US Steel invested $95 million in an Ohio plant to help meet demand from shale gas extraction activities.
  • Vallourec is spending $650 million on a new plant in Ohio to supply steel pipe for companies extracting shale gas.
  • TMK IPSCO is constructing and R&D facility in Houston to develop products for North American resource markets, with demand expected from hydraulic fracturing and Marcellus shale. The company will also add a second pipe threading line to an Ohio facility to meet demand from Marcellus shale.

American Chemistry Council’s (ACC) 2011 Year-End Situation and Outlook

  • Cal Dooley, ACC president and CEO: “The shale gas production boom is moderating natural gas prices and creating more stable supplies, which has allowed U.S. chemical manufacturers to become more competitive with producers abroad.”
  • The Shale Gas Revolution: Ethane, a natural gas liquid derived from shale gas, is used as a feedstock by American chemical companies. Affordable natural gas and ethane give U.S. manufacturers an advantage over global competitors that use a more expensive, oil-based feedstock. Historically, an oil to natural gas price ratio of 6:1 or higher increases the global competitiveness of Gulf Coast-based petrochemicals and derivatives such as plastic resins. For the last several years this ratio has been above 7:1, but more recently the high ratio of oil to natural gas prices has been over 25:1, helping to spur capital investment in North America. An earlier ACC study projected domestic petrochemical investments of approximately $16 billion related to reasonable increases in ethane supplies. Looking at the broader chemical industry, capital investment is expected to exceed $25 billion, further fueling economic and job growth. “To sustain the recovery’s momentum, we need sound economic, energy and environmental policies that will encourage the growth of America’s manufacturing sector,” Dooley said.

IHS Global Insight: The Economic and Employment Contributions of Shale Gas in the United States

A significant portion of the future growth in US natural gas productive capacity is expected to come from shale gas. Increased shale gas activity will contribute to increased capital investment and job opportunities:

  • By 2010, shale gas had grown to 27% of total US natural gas production, and by September 2011, it had reached 34%.
  • By 2015, that share will grow to 43% and will more than double, reaching 60%, by 2035.
  • In 2010, the shale gas industry supported 600,000 jobs; this will grow to nearly 870,000 in 2015 and to over 1.6 million by 2035.

Growth in the shale gas industry will make significant contributions to the broader economy in terms of Gross Domestic Product (GDP) and tax revenues:

  • The shale gas contribution to GDP was more than $76 billion in 2010. This will increase to $118 billion by 2015 and will triple to $231 billion in 2035.
  • In 2010 shale gas production contributed $18.6 billion in federal, state and local government tax and federal royalty revenues. By 2035, these receipts will more than triple to just over $57 billion. On a cumulative basis, the shale industry will generate more than $933 billion in federal, state, and local tax and royalty revenues over the next 25 years.
  • The extent of job and GDP contributions reflect the capital intensity of the shale gas industry, the ability to source inputs from within the United States, the nature of the supply chain, and the quality of the jobs created.

The growth of shale gas is leading to lower natural gas and electric power prices and increased productivity:

  • The full-cycle cost of shale gas produced from wells drilled in 2011 is 40-50% less than the cost of gas from conventional wells drilled in 2011.
  • Without shale gas production, reliance on high levels of liquefied natural gas (LNG) imports would influence US natural gas prices, causing them to increase by at least 100%.
  • The lower natural gas prices achieved with shale gas production will result in an average reduction of 10% in electricity costs nationwide over the forecast period.
  • By 2017, lower prices will result in an initial impact of 2.9% higher industrial production. By 2035, industrial production will be 4.7% higher.
  • Chemicals production in particular stands to benefit from an extended period of low natural gas prices, as it uses natural gas as a fuel source and feedstock. Chemicals producers have already signaled their intentions to increase US capacity.
  • Savings from lower gas prices will add an annual average of $926 per year in disposable household income between 2012 and 2015. In 2035, this would increase to just over $2,000 per household.