Reports, projections show bright future for oil and gas

Alex Mills

As 2013 drew to a close, several reports were released indicating the year was an excellent one for oil and natural gas production in Texas and the U.S. – and that was good news for the economy.

For example, the U.S. Commerce Department released data on Jan. 8 showing that the trade deficit in November was the narrowest since October 2009 – a development that Bloomberg News attributed to increased production from unconventional sources.

“The shale revolution and increased energy efficiency have pushed the U.S. a long way toward energy independence in recent years,” Morgan Stanley economist Ted Wieseman wrote in a bulletin to clients. He noted that as recently as 2006, the inflation-adjusted deficit in oil trade was $266 billion. In 2013, through November, it was on track to shrink to $107 billion.

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Meanwhile, in a column published by the Houston Chronicle, Consumers Energy Alliance President David Holt pointed out the top five ways energy production benefited consumers in 2013.

First on Holt’s list: the Department of Energy’s Information Administration estimate that the United States overtook Russia as the world’s largest oil and gas producer in November of last year.

“The change creates a net positive for consumers as the country produces an ever increasing amount of oil and gas from domestic sources,” Holt wrote. “This reduces our dependence on foreign sources of oil and natural gas, and lowers transportation costs, translating to lower prices for end users. It also provides new economic growth as jobs are created, incomes rise, and tax bases expand due to the expanding energy industry.”

Holt’s column reports that the oil and gas boom contributes $1,200 to household income. He cited figures from IHS Global Insight showing that the $1,200 is the result of a mixture of lower consumer prices, lower utility rates and rising incomes – changes made possible by the availability of lower-cost domestic oil and gas resources.

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Holt noted that because of the increase in supply, utility rates have declined and U.S. consumers pay as little as one third of what European consumers pay for home heating and electricity. For example, in Pennsylvania, ratepayers have enjoyed a 33 percent drop in natural gas rates over the past five years.

Holt also notes that the increase in natural gas production is more of a factor in reducing utility bills than the federal assistance plan, and the decrease in natural gas prices continues to bolster domestic manufacturing, particularly steel, chemical and plastics production.

Another study, released on Jan. 8 by the University of Texas at San Antonio (UTSA), revealed that the economic impact of oil and gas activity in West Texas will rise to $20.5 billion by 2022, supporting 30,500 full-time jobs that will generate $1.8 billion in wages and salaries.

Oil and gas activity in plays such as the Cline shale and Wolfberry plays will generate $701 million in state revenues in 2022, including $334 million in severance taxes, and will create nearly $9.4 billion in gross regional product while contributing approximately $664 million in local government revenues, according to the study.

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The study also states that oil and gas activity in 2012 had an economic impact of nearly $14.5 billion in a 10-county area of West Texas, supported nearly 21,450 full-time jobs and produced $1 billion in wages and salaries. The oil and gas industry also generated almost $472 million in state revenues in 2012 – including $187 million in severance taxes – and added approximately $6.2 billion in gross regional product while contributing nearly $447 million in local government revenues.

The study says the number of full-time jobs the oil and gas industry is expected to support in 2022 represents a 42.2 percent increase over 2012, a rate of growth that almost doubles the estimated 21.7 percent growth in total employment in the area for the same period.

The $20.5 billion estimate is one of three scenarios projected for the economic impact of oil and gas activity in West Texas. The impact could range from as low as $7.6 billion to as much as $34.3 billion, depending on variations in oil and gas prices, future oil and gas activity, and changes in the number of wells per rig and productivity per well. Under the moderate scenario, nearly 3,800 horizontal wells are forecast to be drilled; the number of wells drilled could range from 1,930 to 5,900.

Alex Mills is president of the Texas Alliance of Energy Producers.