A diverse group of industries supporting unconventional oil and gas producers has reaped a large portion of the economic rewards from development of these previously untapped resources, highlights an IHS study released Sept. 23.
The study, “Supplying the Unconventional Revolution: Sizing the Unconventional Oil and Gas Supply Chain,” examines the supply chain supporting upstream, midstream, and downstream activity across the US Lower 48 and 56 discrete supplier sectors.
Examples of supply chain industries include manufacturers of steel pipe, construction equipment, railcars, sand and gravel producers, and professional and technical labor.
Employment related to unconventional oil and gas production in these supply chain industries totaled 524,000 jobs in 2012 and is expected to increase to 757,000 jobs in 2025, equal to 41% of total direct and indirect employment supported by unconventional oil and gas value chain activity.
The study also finds that supply chain industries will contribute more than $16 billion in government revenues in 2015—up from $13 billion in 2012—and rise to about $23 billion in 2025.
Total gross output from this group of industries is expected to increase to $205.9 billion in 2025 from $145.7 billion in 2012, contributing the equivalent of 0.5% total US gross output each year.
Total labor income generated by employment in these industries is expected to reach $60 billion in 2025, up from $41 billion in 2012. The average income/employee is estimated to be $79,000 over the course of the study, exceeding the average annual US wage of $68,000.
“The growth in unconventional production has become an important source of economic activity for these industries at a time when many of their other primary markets were experiencing decline as a result of the Great Recession,” said Brendan O’Neil, managing director, consulting, IHS economics and country risk.
While unconventional oil- and gas-producing states experience a larger portion of supply chain economic activity, a sizable portion also occurs in nonproducing states in industries such as steel-making, machine tool manufacturing, and sand and gravel production. The study notes that many of the supply chain sectors analyzed maintain lengthy supply chains of their own, adding to the economic impact.
Jobs supported by supply chain activity in producing states are expected to increase to 630,000 jobs in 2025 from 460,000 in 2012, with construction and support activities for oil and gas operations being the highest source of employment contributions. Total employment contributions for nonproducing states are expected to rise to 127,000 jobs in 2025 from 64,000 in 2012, most of which will be jobs in the capital goods sector.
The study also examines the impact of unconventional production on supplemental construction—infrastructure, housing, commercial and industrial building activity—that occurs in addition to direct spending by oil and gas operators.
Supplemental construction spending amounts to $4 billion this year, supporting more than 15,000 workers. The cumulative impact of supplemental construction spending is expected to total more than $49 billion through 2025, supporting an annual average of 12,300 jobs during that period. Supplemental construction for housing will have the largest impact, representing $3 billion in 2014 spending and is expected to peak at more than $5 billion in 2021.
“The supplemental construction spending driven by unconventional oil and gas activity has had a major impact on the construction industry—particularly residential construction—which was so hard hit by the Great Recession,” O’Neil said. “In many ways the unconventional oil and gas boom could not have come at a better time for the construction industry.”