Drilling for More Jobs in America's Heartland

With America's economy stuck in a lethargic "recovery mode" and the all-Washington all-media focus on the Affordable Care Act, President Obama took to the road last month to give a speech in Ohio about jobs and manufacturing. Buried in that speech we find a brief nod to the benefits of increased American oil and gas production. Buried and brief.

Meanwhile, for Ohio and dozens of states it is almost entirely the oil and gas sector that is producing high-paying full-time jobs and GDP-boosting wealth. In fact, if it were not for the domestic hydrocarbon boom the nation would still be gripped by recession.

The latest report from the Bureau of Economic Analysis (BEA) tells the story. The BEA explained that the 2.8 percent third quarter rise in the GDP came mainly from “a deceleration in imports and accelerations in private inventory investment.” Take out the one-time “inventory investment” that accounted for 0.8 percentage points of the 2.8 percent, and we’re left with the “deceleration in imports” to explain the GDP’s rise. And that story is all about oil.

America’s petroleum imports have collapsed 50 percent. Why? America is now the world’s fastest growing and biggest producer of oil and gas and no longer the world’s largest oil importer; that distinction goes to China. In just two years U.S. oil production has grown more than it declined over the last twenty years.

And, in just a half-dozen years there has been a tripling of American exports of refined hydrocarbons – the “manufactured” products called gasoline and diesel. America is a net exporter of such products for the first time since 1949. The BEA’s anemic word “deceleration” doesn’t begin to capture the full-bore wheel-spinning U-turn that has taken place.

All of this new production didn’t arise from government programs or new discoveries but from hydrocarbon-dense shale fields that the U.S. Geological survey mapped out a century ago. Those resources have been unlocked by new technologies invented in America. The combination of steerable horizontal drilling (to follow the richest seams), with hydraulic fracturing (“fracking”to release tightly bound oil and gas), and information technology (to image, sense and control) has yielded the modern era of smart drilling.

The smart-drilling shale ecosystem now contributes some $400 billion a year to the U.S. economy according to economists at Purdue University. Over the past five years alone this sector has also attracted over $200 billion in foreign direct investment into America according to the Energy Information Administration (EIA). For context, two percent GDP growth adds $330 billion a year to the U.S. economy. Now do the math. Shale technology has kept America out of a recession. It has also indirectly and directly “created or preserved” -- to borrow a political phrase -- millions of jobs.

American workers are building infrastructure for the hydrocarbon extraction, transportation and processing industries. They are erecting new steel mills for underground pipes, manufacturing thousands of new rail cars and constructing 80 major pipeline projects right now (not counting the Keystone XL from Canada.) Refineries are being expanded everywhere. Even shipyards are booming with over two dozen supertankers being built right here in the U.S. All of this is genuinely “shovel ready” and subsidy-free.

And there’s more. A renaissance in America’s energy-intensive manufacturing from plastics to fertilizers is underway. In a remarkably little-noted report this past summer the American Chemical Council catalogued 100 chemical industry investments valued at over $70 billion coming on-line by 2017 that will create over one million jobs and add over $300 billion annually to the GDP.

Such manufacturing jobs pay nearly 30 percent more than the industrial average and generate $1.48 of economic activity for every $1 spent, making manufacturing the highest economic multiplier of all industrial sectors. And manufacturers are responsible for two-thirds of all private sector R&D spending. All this activity catalyzes other non-energy-centric manufacturing and related businesses from housing to health care and information technology.

We won’t get more of the aforementioned economic benefits if we misunderstand what brought them about. The President in his speech and the White House Economic Council maintain that efficiency and alternative fuels rival shale production in creating the new energy trajectory. But the numbers tell a different story.

Start with the alternatives and specifically corn alcohol. (We ignore here solar and wind energy, though the President did not, because they have nothing to do with displacing oil and gas.) Ethanol production, which now consumes 40 percent of all corn, still doesn’t supply five percent of transportation energy. In the past four years alcohol production rose 10 percent. Thus farmers have had under a one percent impact on the U.S. oil market since the recession officially ended.

As for efficiency, the claim that new automotive fuel standards are a big factor in declining oil dependence is a canard. EIA data show that efficiency just hasn’t moved the meter in this short time period. Oil and natural gas consumption per dollar of GDP are down only five percent in four years.

Oil production, however, is up 60 percent in that same period. It is the old “drill baby drill” that has driven the collapse in imports and caused the trade deficit to plummet. And as the Congressional Research Service documented, all this growth came on private and state not federal lands. Which suggests that more, much more is possible.

The President could do more than talk, in passing, about the benefits of reduced oil imports. The Administration could accelerate more growth by unleashing access to federal lands, easing the regulatory drag on oil and gas permits, and allowing industry to unleash billions of dollars it wants to spend to build natural export terminals. Oh, and the President could end the gratuitous five-year lock-down of the Keystone XL pipeline which will feed the export boom from Gulf Coast refineries.

In Ohio, epicenter of the productive Utica Shale, the President said: “We bet on American ingenuity and American workers.” Recent history shows that’s a good bet. Let’s free them up to do more.

Mark P. Mills is a Manhattan Institute senior fellow.

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