NCPA - National Center for Policy Analysis

Oil and Gas Boom Lifts U.S. Economy

February 14, 2012

An energy boom is revving up the U.S. economy, says the Wall Street Journal.

  • The use of new drilling techniques to tap oil and gas in shale rocks far underground helped add about 158,500 new oil and gas jobs over the past five years, and economists think it has created even more jobs in companies supplying the energy industry and in the broader service industry.
  • U.S. oil production is rising for the first time in decades, and natural gas has become so plentiful that prices recently plunged to a 10-year low.
  • Private-equity firms completed $24.8 billion of energy deals of all types last year, up from $8.5 billion in 2010, according to data tracker Preqin.
  • The economic benefits of rising energy production are spreading far beyond the traditional oil patch, to Ohio and Pennsylvania, Nebraska and New York, North Carolina and Idaho.

Though the energy boom looks like a road to prosperity, it may be a bumpy one.  Drilling is disrupting communities in ways that are still unfolding, creating concerns about the costs to local governments for things like road damage.  It is also raising fears about potential water contamination, air pollution and even earthquakes from the effects of drilling thousands of new deep wells.

  • Skeptics warn that individual shale communities could experience an employment boom, followed by a painful bust.
  • Rosy economic models "tell us nothing about what will happen when drilling ends," warns a May 2011 paper published by Cornell University's City and Regional Planning Department and funded in part by a foundation opposed to shale drilling.

Indeed, lower prices already have slowed new drilling for natural gas, causing jobs and investment to shrink in some communities.  But energy companies have shifted their spending to shale wells that will provide oil, leading to rapid growth elsewhere.  Even if gas prices stay low, overall employment is expected to continue rising, says John Larson, an economist with IHS Consulting.

Source: Russell Gold, "Oil and Gas Boom Lifts U.S. Economy," Wall Street Journal, February 8, 2012.

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