Energy's unexpected jobs boom

September 5, 2013: 10:17 AM ET

How America's oil and gas revolution is helping consumers and workers.

By Daniel Yergin

<> on January 18, 2012 in Dimock, Pennsylvania.

FORTUNE -- The rapid rise in shale gas and tight oil in the United States constitutes nothing less than a revolution in oil and natural gas. No longer can there be any doubt about the dramatic change in America's energy position. U.S. oil production is up 50% since 2008, when we were supposedly slated to run out of oil. Natural gas production has increased by 33% since 2005, and shale gas alone now constitutes about 45% of total natural gas production.

This revolution is not just about energy production; it's an economic story along several dimensions, whether measured in consumers' pocketbooks, jobs, U.S. manufacturing output, or America's increased competitiveness in the world economy. This has occurred amid a half-decade of deep recession and high unemployment. Indeed, without the boost from the unconventional oil and gas development, the U.S. economic picture would have looked even worse over the last few years.

According to a new study from my organization, IHS, entitled "America's New Energy Future: the Unconventional Oil and Gas Revolution and the Economy -- A Manufacturing Renaissance," the unconventional energy boom increased average household disposable income in 2012 by $1,200 -- a figure that is expected to grow to $2,700 by 2020. That boost is mainly the result of two factors. First, households are spending less of their total income on utilities, whether directly for less-expensive natural gas or by lowering the cost of electricity generated with natural gas. Secondly, lower energy costs have led to a reduction in the cost of goods and services within the broader economy.

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Government revenues are also seeing a boost on account of the rise of new energy production. The value chain associated with shale gas and tight oil contributed over $74 billion in additional federal and state government revenues in 2012 -- that figure is expected to reach over $125 billion by 2020.

The unconventional energy employment picture is equally impressive. Unconventional oil and gas (this does not include conventional oil and gas) supported 2.1 million jobs in 2012 along the entire value chain. That number is expected to rise to 3.3 million by 2020. These jobs include people working in the shale gas and tight oil industry, in related industries such as oil services and information technology, and people whose jobs are supported by the increase in spending that has flowed through the economy.

These additional jobs are spread throughout the United States. New York State may count itself a holdout with its ban on hydraulic fracturing, or "fracking." Notwithstanding the ban, almost 50,000 jobs in New York result from shale gas and tight oil activity in other states.

Abundant, low-cost natural gas -- brought on by the emergence of shale gas -- is also transforming America's position as a manufacturer. It is boosting companies that make products that this new oil and gas industry needs, such as steel and pipes. It is important on an even larger scale for businesses that rely heavily on natural gas or electricity generated with natural gas -- ranging from petrochemicals and fertilizer, to food producers and glass manufacturers. For these companies, low-cost natural gas is a game changer and will stimulate an estimated $350 billion of new investment in the United States over the next dozen years. Such growth would have seemed inconceivable half a decade ago, when the expectation was that American manufacturers -- and the entire U.S. economy -- would have to depend increasingly on high-cost imports of liquefied natural gas as well as high-cost domestic gas.

The price of energy is, of course, only one component in a company's investment decisions, along with such other factors as market forces, competition, and regulatory and litigation risks. But energy costs are critical just the same, and have made the United States much more competitive in the world economy. In Europe, natural gas costs three times as much as in the United States; in Japan, it's more than four times as costly.

Business leaders in Europe are aware of America's current energy advantage, and they are sounding the alarm. The chief executive of Austrian steel company Voestalpine, Wolfgang Eder, declared that "the exodus" from Europe has already "started in the chemical, automotive, and steel industries." Indeed, Voestalpine announced plans to build a half-billion-dollar plant in Texas to produce iron that it would ship back to Austria for fabrication into steel. European suppliers will follow their customers across the Atlantic, building new factories in the United States to be near their customers' new factories.

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This summer, I asked IMF managing director Christine Lagarde what the development of shale gas means for Europe's troubled economy. "Shale gas and the reduction in energy prices," she said, is "certainly to the advantage of the U.S. relative to Europe."

This advantage will be measured in growing exports of manufactured products from the United States -- and more jobs. For Europe, this development only adds to its angst. For the United States, this demonstrates the widening opportunity resulting from the rise of unconventional oil and gas.

Daniel Yergin, vice chairman of IHS, is author of The Quest: Energy, Security, and the Remaking of the Modern World

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