Study: Ohio, PA Gain New Jobs from Shale Industry
WASHINGTON -- The state of Ohio is projected to gain 143,600 new jobs by 2020 from the emerging oil and gas industry, finds a new study commissioned by the U.S. Chamber of Commerce, and conducted by the IHS energy research firm (READ RELATED STORY).
Currently the industry supports 38,000 jobs in Ohio, according to the report, released Wednesday by the chamber's Institute for 21st Century Energy.
In Pennsylvania, economic activity associated with unconventional gas directly and indirectly supported nearly 103,000 jobs in 2012, and by 2020, that number is expected to more than double to nearly 221,000.
The study is titled "America's New Energy Future: The Unconventional Oil and Gas Revolution and the U.S. Economy." Its second phase (CLICK HERE) was released yesterday. Part one of the study, which focused on the national benefits, was released last month.
What follows is the unedited text from the study's summaries of oil and gas industry activity in Ohio and Pennsylvania:
Ohio Overview
The recovery in Ohio’s labor market continued in 2012, thanks to consistent expansions in finance, professional-business, and education-health services. The manufacturing sector is also now in an expansion mode and the construction sector has been on an upward trajectory.
The labor market built momentum in 2012, but prospects for 2013 are not quite as rosy, as job growth will decelerate as gains in the manufacturing sector wane.
Over the next five years, Ohio’s recovery will be moderate, though still a welcome turnaround from the 2001–2010 decade, when employment lost an average 1.1% annually.
The manufacturing sector, a key factor in the decade of losses, will be a primary force behind economic growth over the medium-term, thanks to resurgent automobile and metal manufacturing sectors, and expected growth in unconventional oil and gas jobs related to the Utica shale. This increased manufacturing activity will provide a stimulus for the transportation and warehousing sector, as more goods flow through the state. That, combined with robust export activity, will keep job growth strong in the transportation and warehousing sector over the next five years.
The service sectors, however, remain the key to long-term economic expansion. Professional-business and education-health services will be two of the fastest-growing sectors during 2012–2017. The state has been aggressively expanding its health-care industry, which is a source of stable and high-paying jobs, and given the aging demographics this will be one of the most consistent performing sectors. On the whole, job growth will average 1.3% annually over the next five years, much better than in recent history, though below the national average.
Contribution of Unconventional Oil and Gas
Sitting on the promising Utica shale formation, Ohio’s unconventional oil and gas industry has much potential. While Utica’s development is in the early stages, leasing and exploration activity have ramped up in recent years. Recent well test results have been highly encouraging. Furthermore, the extent of the play is vast, covering as much as one-half of the state’s land area.
In 2011 Chesapeake Energy, a major shale gas player in the state, announced that it spent more than $1 billion on exploration and production in Ohio and paid more than $650 million to land and mineral rights owners. The company also announced plans to increase rig counts in the coming years. Consequently, IHS forecasts substantial increases in production of oil and gas and related activity.
More transport and processing infrastructure will be needed to fully develop the play, but delays in infrastructure could slow development. This oil and gas activity not only directly creates jobs and income but it also creates work for auxiliary industries, including manufacturing. Recent developments include Vallourec & Mannesmann Holdings building a new steel plant in Youngstown to supply steel tubes used in drilling for oil and gas formations; U.S. Steel Corp expanding and upgrading its plant in Lorain; and Timken Co. upgrading its Canton plant to accommodate additional business related to drilling. Ohio, with its large industrial base and proximity to promising reserves, is poised to gain further by producing the heavy metal and machinery required to perform unconventional drilling.
In additional to manufacturing, gas drilling supports jobs in the transportation, construction, and professional, scientific and technical sectors. Currently, unconventional drilling employment supports 38,000 jobs. That is expected to balloon to 143,000 by 2020 and to 266,000 by 2035. These jobs would employ 4.3% of the state labor force by 2035, helping to reduce unemployment and creating a steady source of payroll growth for the next two decades.
Unconventional gas activity contributed value-added economic activity of $4.1 billion in Ohio in 2012. We forecast that this contribution will grow to $35.2 billion by 2035. As for labor income, the average annual wage in Ohio in 2012 is almost $55,000, while the average wage of direct jobs in unconventional gas activity is $81,000, providing a sizable economic boost.
Direct jobs are those created by firms that comprise the oil and gas industry, or by the capital expenditures of related industries; indirect jobs are those created by suppliers of goods and services to industry. Induced jobs are those that meet the new demand for consumer goods created by the increased income generated by the direct and indirect jobs.
There is also the contribution of unconventional gas employment to government revenues. In Ohio in 2012, it generated nearly $1.5 billion in taxes for state and federal coffers. This includes over $910 million in state and local taxes, or the equivalent of about 3.6% of the state’s $25 billion in 2011 revenues.
Pennsylvania Overview
In 2012, employment in the natural resources and mining sector has leveled off and remained steady after two years of double-digit growth. The adoption of hydraulic fracturing in Pennsylvania was the main driver of double digit job growth in Pennsylvania in 2010 and 2011, providing a bulwark against deep recession at a time when many other sectors of the state economy were struggling. Payrolls in the sector remained stable in 2012.
The state is moving to take advantage of the long-term potential of its vast natural resources in a variety of ways, from a proposed ethylene cracker in western Pennsylvania to exports of natural gas liquids from ports along the Delaware River. Pipelines continue to be built to move the gas to where it has the most value, such as the Northeast’s US home heating market. Demand for metallurgical coal and its derivatives remain robust, both domestically and overseas. ArcelorMittal will invest $50 million to retool its Monesson coke plant and restart it in 2014. The renovation will result in construction and other jobs in the interim.
Pennsylvania's economy is expected to add jobs at a 1.2% average annual rate between 2012 and 2017. This growth rate would rank Pennsylvania in the bottom tier of the states, due to a couple of factors. First, although the state certainly lost plenty of jobs to the recession, the magnitude was less than in many other states.
As a result, Pennsylvania’s employment growth is not expected to snap back as much as it will in states like Florida and Arizona. Second, Pennsylvania's population growth is expected to remain below the national average, limiting its potential job growth, especially in the service sectors. Pennsylvania will return to its pre-recession peak employment level near the end of 2013. Development of natural gas in the Marcellus Shale formation under much of Pennsylvania continues to dominate the economic outlook there, especially in the longer term.
Contribution of Unconventional Oil and Gas
Pennsylvania’s petroleum industry got its start in the mid-19th century, with the first oil well near Titusville. In the 20th century, the state played a much smaller role in the national oil and gas industry, but the recent development of its massive, world-class Marcellus Shale play, using horizontal drilling and hydraulic fracturing, has re-elevated the state into prominence in the energy industry. More transport and processing infrastructure will be needed to fully develop the play, and delays in infrastructure could slow development, but the vast Marcellus play covering about 60% of the state has enormous resource potential.
The Utica shale gas play is located primarily in the neighboring state of Ohio, but it extends into western Pennsylvania and will contribute to Pennsylvania’s economy in the future. In addition, supplier networks, trade flows and income effects from earnings related to unconventional gas also create significant employment here, helping to knock the rust off of part of the “Rust Belt” industries that have historically been prominent in the state’s economy. The economic activity associated with unconventional gas will directly and indirectly supported nearly 103,000 jobs in the state in 2012, especially in the drilling and completion and steel and metal fabrication manufacturing sectors. These two sectors accounted for 22% of the state’s total manufacturing jobs in 2012.
The state’s unconventional gas-related employment is expected to more than double to nearly 221,000 by 2020 and grow to 387,000 by 2035. These jobs would employ 5.6% of the state labor force by 2035, helping to reduce unemployment and creating a steady source of payroll growth for the next two decades.
Unconventional gas activity contributed value-added economic activity of over $14 billion in Pennsylvania in 2012. We forecast that this contribution will grow to just over $49.0 billion by 2035. As for labor income, the average annual wage in Pennsylvania in 2012 is $58,400, while the average wage of direct jobs in unconventional gas activity is much higher, at $97,000.
There is also the contribution of unconventional gas employment to government revenues. In Pennsylvania in 2012, it generated nearly $3 billion in taxes for state and federal coffers. This includes almost $1.3 billion in state and local taxes, or the equivalent of 3.9% of the state’s 2011 tax revenues.
READ RELATED STORY:
U.S. Chamber Projects New Shale Jobs by State
SOURCE:
U.S. Chamber of Commerce Institute for 21st Century Energy
Published by The Business Journal, Youngstown, Ohio.
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