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How Are You Going to Spend Your Extra $926?

Maybe it’s a mortgage payment. Or monthly tuition for your kids. For some (no, not me), maybe it’s a new pair of shoes. But whatever you decide to spend it on, thanks to a new study released this week, at least you’ll know now where it came from: natural gas from shale.

That’s right, Christmas shoppers. According to a new paper issued today by IHS CERA — and commissioned by our colleagues at America’s Natural Gas Alliance (ANGA) — that $926 represents the average amount of extra disposable income delivered to every American household each year through 2015 as a result of low natural gas prices, which themselves are made possible by shale. What happens after 2015? The story gets even better, with the average American family finding an extra $2,000 in their pocket each and every year through 2035.

A little extra money around the holidays is certainly a welcome development, but what does this study have to say about the most important issue facing our country today — jobs? Quite a lot, it turns out. According to IHS CERA, the development of energy from shale is singularly responsible for the creation of more than 600,000 jobs across the United States – jobs that happen to pay an eye-popping $23.16 per hour, on average (I wish blog-writing was similarly lucrative).  By 2015, this figure is expected to grow to nearly 870,000, surpassing 1.6 million new jobs by 2035. And that’s just associated with the development of resources from shale – no limestone, no sandstone, no marble rye (also known by us geologists as the tastiest of the formations).

As mentioned, a copy of the full report can be found here. With so many facts and figures that themselves are headline-worthy, it’s hard to whittle them all down. But for folks on the go, here’s a quick round-up of the highlights:

  •  “In 2010, the shale gas industry supported over 600,000 jobs, which included 148,000 direct jobs in the US, nearly 194,000 indirect jobs in supplying industries, and more than 259,000 induced jobs. By 2035, the shale gas industry will support a total of over 1.6 million jobs across the US economy, comprised of more than 360,000 direct jobs, over 547,000 indirect jobs, and over 752,000 induced jobs.” p.1

 

  • “Workers in the oil and natural gas sector are currently paid an average of $28.30 per hour—more than the wages paid in manufacturing, wholesale trade, education and many other industries.” p.21

 

  • Given the relatively high wages paid directly to employees in the shale gas sector and in the various supplier industries that support shale gas, employees have higher-than-average spending, resulting in relatively larger induced income contributions.” p.21

 

  • The relatively higher average “value added” nature of the jobs attributable to the shale gas sector indicates this sector is a potential growth engine of the US economy over the forecast period.” pp.22

 

  • “In 2010, the average direct employee in the shale gas industry contributed $197 thousand in “value added” contributions to the US economy. By 2015, these contributions will increase 20% to $238 thousand per employee – significantly outpacing economy wide growth.”p.22

With jobs and investment comes greater GDP, and increased tax revenues at the local, state, and federal level:

 

  • “{IHS CERA’s} assessment shows that shale gas production makes a significant contribution to the US economy, and will continue to do so for the duration of the 25-year forecast horizon.” p.18

 

  • In 2010, shale gas industry activity contributed $76.9 billion to US GDP. This will increase by 53% to $118.2 billion by 2015 and to $231.1 billion by 2035. These economic contributions are even more significant when viewed against the current backdrop of the current state of the US economy.” p.4
  • “ 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 yearsannual government revenues will increase from nearly $19 billion in 2010 to $37 billion in 2020 and to more than $57 billion by 2035.” p.22

 

  • Royalty payments to the federal government are estimated at $161 million in 2010, growing to $293 million in 2020 and escalating to $583 million by 2035. Total 2010 tax and royalty revenues of $18.6 billion are roughly the size of federal Pell Grants or the total budget outlays for NASA in 2010. The sum is also about 42% of the size of US Department of Homeland Security’s budget outlays in 2010 and exceeds the annual budget outlays for the EPA and National Science Foundation combined.”p.23

 

Development is spurring lower gas prices, providing savings for household and industrial consumers across the nation:

 

  • “ 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.

 

  • If shale gas had not radically changed the picture beginning in 2007, the US would have to rely on large quantities of LNG imports, and US consumers would be paying over two times more for natural gas. Savings from lower gas prices amount to $926 per year in disposable household income between 2012 and 2015. In 2035, these savings would increase to nearly $2,000 per household.”p.37

 

  • “These lower prices are currently providing a short-term boost to disposable income, profits (except for gas producers), GDP and employment—a positive force during this period of economic stagnation and uncertainty.”p.24

 

  • The opportunity to take advantage of these potential benefits would never have existed without the exploitation of shale gas plays. The chemical industry is looking forward to increased investment and employment in the United States, the aluminum industry has a new source of support for domestic production, and the general competiveness and profitability of domestic cement and steel production is higher.”p.35
  • Over the short term, the impact of lower gas prices results in peaks for various economic benchmarks: a 1.1% increase in GDP in 2013; 1 million more employed Americans in 2014; and 3.0% higher industrial production in 2017. In 2015, 809,000 more Americans will be employed because of low gas prices.”p.26

 

  • “The short-term impact (over two to five years) is lower inflation, higher disposable incomes (for all consumers), higher GDP, higher employment and lower unemployment than in the constrained shale gas scenario. The economic recovery will be stronger and come sooner than if gas prices were at the higher levels associated with the constrained shale gas scenario.”p.26

 

  • Over the short term, the impact of lower gas prices results in peaks for various economic benchmarks: a 1.1% increase in GDP in 2013; 1 million more employed Americans in 2014; and 3.0% higher industrial production in 2017. In 2015, 809,000 more Americans will be employed because of low gas prices.”p.26

 

  • “The short-term impact (over two to five years) is lower inflation, higher disposable incomes (for all consumers), higher GDP, higher employment and lower unemployment than in the constrained shale gas scenario. The economic recovery will be stronger and come sooner than if gas prices were at the higher levelsassociated with the constrained shale gas scenario.”p.26

 

  • UPDATE (12/7/11): Lots of great pieces in the press today highlighting key findings of this week’s IHS/ANGA report on shale – including a great write-up by Andy Maykuth in the Philadelphia Inquirer. Click here to give it a look.

 

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