Politically Incorrect Natural Gas Is Jobs MachineCaroline Baum
Anecdotes are no substitute for hard data. But when they start to reach a critical mass and they all tell the same story, you know something big is going on.
-- A longtime car salesman relocates to south Texas to capitalize on the soaring demand for truckers to haul sand to hydraulic fracturing sites across the Eagle Ford shale formation. Nearby, the Corpus Christi Independent School District can’t find bus drivers, who are getting paid a lot more to cart sand.
-- Workers pour into Williston, North Dakota, drawn by offers of six-figure salaries for jobs connected with the Bakken shale formation. Even though housing development is sky-rocketing, the Wal-Mart parking lot looks like an RV park, packed with campers providing temporary living quarters until housing construction catches up with demand.
-- There is no oil-and-gas drilling in Idaho, but Fleetwood Homes has been ramping up production and hiring workers to build pre-fab homes for shipment to the Bakken oil field in North Dakota, according to the Wall Street Journal.
-- Energy independence, the Holy Grail for every U.S. president since Jimmy Carter, is within reach, oil-industry executives and analysts tell NPR. Within the next 10 years, the U.S. will no longer have to import crude oil and will be able to export natural gas, energy economist Philip Verleger says. PFC Energy Chief Executive Officer Robin West compares the impact of the “shale gale” to the fall of the Berlin Wall.
-- Some long-haul trucking companies are converting to natural gas because of the cost advantage over diesel, according to Bloomberg News. Fleet owners that don’t convert a portion of their vehicles to natural gas will find themselves at an economic disadvantage.
For anyone who hasn’t read or heard about it yet, there’s an oil-and-gas boom under way in the U.S. By some estimates, the U.S. has three times the proven shale oil reserves of Saudi Arabia.
Thanks to new drilling techniques for extracting oil and gas from shale rock underground, the price of natural gas has plummeted to 10-year lows, creating a market-based incentive -- no government subsidies required! -- for truckers to convert to the cheaper, cleaner fuel. All of this has broader implications for the U.S. economy.
Jobs, Jobs, Jobs
Let’s start with Washington’s obsession: job creation. Oil-and-gas industries have added 33,300 workers since December 2009, the recent low point. The only industry coming close to a 21 percent increase is temporary-staffing agencies -- not exactly an endorsement for the economy.
Granted, the energy industry represents an infinitesimal
0.14 percent of the workforce, but it has a relatively large footprint. Oil-and-gas drilling crews need equipment, food, clothing and lodging. They want to frequent bars and restaurants in the makeshift boom towns sprouting up in areas of North Dakota, Montana, south Texas and Pennsylvania.
Manufacturers of drilling equipment need raw materials, such as steel and chemicals. So there’s a natural multiplier effect. Think of it as fiscal stimulus without the government first taking from Peter to give to Paul.
The Bureau of Labor Statistics publishes Employment Requirements data tables for firms to assess the impact of opening a new factory or store on jobs and sales. James C. Franklin, head of the Division of Industry Employment Projections at the BLS, walked me through some of the statistics for the energy industry.
Every direct job created in the oil-and-gas extraction industry, for example, yields 2.3 jobs elsewhere in the economy, Franklin says. This is expressed as a multiplier of 3.3, higher than the average of 2 for the 195 industries tracked by the BLS. Petroleum-and-coal product manufacturing (refineries) happens to have the highest multiplier at 8.2.
And yes, manufacturing industries are at once the most capital-intensive, the most productive and still have the biggest spillover effect when it comes to generating jobs.
The huge supply of inexpensive (to produce and to buy) natural gas has the potential to accelerate the return of manufacturing enterprises to the U.S. That trend is already under way as rising wages in China and higher fuel-related shipping costs reduce the appeal of outsourcing.
“Cheap natural gas is transforming the competitive economics of the marketplace,” says Daniel Yergin, the author of “The Quest: Energy, Security, and the Remaking of the Modern World.”
Natural-gas prices fell this week to a 10-year low of $2.27 per million British thermal units, half the price of eight months ago. After adjusting for the lower energy content, natural gas is now about 40 percent cheaper than petroleum fuel, according to calculations by the U.S. Energy Information Administration.
That’s why many trucking companies are choosing to convert. With the differential between oil and natural-gas prices at a record high, more and more homeowners are converting from oil heat to natural gas even though the switch may take anywhere from one to five years to pay for itself.
If the price trends continue, the focus may shift from concern about higher gas prices killing the economy (the glass is half-empty) to the realization that cheap natural gas can act as a tailwind (the glass is half-full).
Not everyone will be happy, of course, including President Barack Obama. Cheap natural gas makes renewable energy even less competitive than it was before.
(Caroline Baum, author of “Just What I Said,” is a Bloomberg View columnist. The opinions expressed are her own.)
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