Kemp: Oil Producers’ Under-Appreciated Role in US Economy


The eight states at the heart of the American shale oil revolution all grew faster than the U.S. national average over the last decade, according to the U.S. Bureau of Economic Analysis (BEA), underscoring the importance of oil production to the U.S. economy.

Gross domestic product (GDP) attributable to private industry grew at a compound annual rate (CAGR) of 1.8 percent between 2002 and 2013 for the nation as a whole, after allowing for inflation.

But for the eight states at the centre of the shale oil revolution, all of which have increased their production by at least 20,000 barrels per day since 2008, private sector GDP growth has been much faster.

North Dakota’s private industry achieved a spectacular CAGR of 7.4 percent while Wyoming (3.9 percent), Utah (3.8 percent) and Texas (3.4 percent) all grew roughly twice as fast as the rest of the country.

Private industry in the remaining shale oil states of Oklahoma (2.9 percent), Colorado (2.1 percent), New Mexico (1.8) and Kansas (1.8 percent) all grew at least slightly faster than the nation as a whole (

Oil and gas production is deeply unfashionable among many policymakers, economists and journalists. It is still caricatured as an old-fashioned, low-technology, dirty and polluting industry which belongs to the past.

President Barack Obama all but ignored the oil industry in his State of the Union address to Congress on Tuesday.

It merited just three passing references, only one of which was actually to production, totalling 54 words out of almost 7,000 (and that’s on a very generous count). In contrast, the president spent 320 words to discussing climate change.

Policymakers from the president down prefer to focus on the importance of more fashionable and cleaner technologies like wind, solar and smart grids, or industries which make things like cars and computers.

But they seriously underestimate the role which increasing domestic oil and gas production, especially horizontal drilling and hydraulic fracturing, have played in the economic recovery.

U.S. oil output has surged by more than 4 million barrels per day, 80 percent, in the last six years.

Between 2002 and 2013, oil and gas extraction tripled its share of economy-wide value-added from 0.6 percent to 1.7 percent. No other industry grew anywhere near as fast or increased its share of economy-wide value-added as much.

By 2013, the value-added of the oil and gas extraction sector was among the highest in the nation, according to BEA data. Oil and gas producers accounted for a higher share of value-added than the makers of computers and electronic equipment, or manufacturers of automobiles, locomotives and planes.

Between 2002 and 2013, the number of full-time equivalent (FTE) jobs in oil and gas extraction increased by approximately 75,000, or 60 percent. But another 220,000 full-time equivalent jobs were created in the support sector, an increase of 27 percent.

For private industry as a whole, an extra 4.2 million FTE jobs were created over the period, an increase of just 4 percent. Oil and gas extraction therefore accounted for 7 percent of all jobs created in the economy between 2002 and 2013.

And oil and gas-related jobs are also among the best-paying in the entire economy, according to the BEA. Average wages and salaries per FTE for oil and gas extraction ($157,275) were almost three times the private sector average ($55,424) in 2013. Average wages and salaries in the support sector ($85,432) were also well above the national average.

The president might have been too embarrassed to mention the role of oil and gas producers in his speech but it has played a significant role in the return to growth, employment and prosperity.

Now much of that is at risk, not only from his administration’s heavy-handed approach to regulation, but from the boom-bust cycle of the industry.

The sector which did so much to help revive the economy over the last five years is now set to become more of a drag on performance as it adjusts to over-production and lower prices.

Eventually, cheaper energy prices should stimulate the expansion of other industries, but in the meantime the hit to oil and gas investment and jobs is immediate, and the transition will be painful.




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