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Economic Boom by Oil Shale and Shale Gas Production

Economic Boom by Oil Shale and Shale Gas Production

by Marvin Pirila


Since 2000, shale beds went from providing 1% of America’s natural gas supply to nearly 25% today.


Most of that production increase is due to hydraulic fracturing [fracking].  Fracking is a process used to release oil or gas from underground formations that are otherwise too difficult to mine.  Fracking technology advances made it economically feasible to tap the tremendous reserves of natural gas in the United States.  Higher crude prices and technological advances, such as several horizontal drillings from a single well, created a shale industry boom.


Mining oil shale involves a number of environmental impacts, more pronounced in surface mining than in underground mining.  They include acid drainage induced by the sudden rapid exposure and subsequent oxidation of formerly buried materials, the introduction of metals including mercury into surface-water and groundwater, increased erosion, sulfur-gas emissions, and air pollution caused by the production of particulates during processing, transport, and support activities.  As more and more shale mining has gone underground, new processes have been in place, and technology has evolved, the environmental risks are minimal.


In April 2012, the EPA said the hydraulic fracturing process did not contaminate the groundwater in Dimock, PA after their second round of testing on 20 wells.  The EPA's own administrator, Lisa Jackson, does not have an objection to the process. In 2011, she testified to the U.S. House Oversight Committee that she was not aware of any proven case where hydraulic fracturing has affected groundwater resources. She reiterated that same sentiment recently, saying, “Fracking as a technology is perfectly capable of being clean.”


In addition to its use as a fuel, oil shale may also serve in the production of specialty carbon fibers, adsorbent carbons, carbon black, phenols, resins, glues, tanning agents, mastic, road bitumen, cement, bricks, construction and decorative blocks, soil-additives, fertilizers, rock-wool insulation, glass, and pharmaceutical products.


It is estimated that conventional sources alone would meet U.S. oil and natural gas demand for 60 and 100 years, respectively.


The U.S. Department of Energy has known for a century that the vast extent of U.S. oil shale resources amounts to more than 2 trillion barrels.  Americans currently consume 7.9 billion barrels (bbl) of crude oil and 7.08 bbl of natural gas each year (, 2012).  The U.S. has enough shale natural gas to last 110 years (Energy Information Agency – EIA) and enough crude to last 253 years.


The production of each three million barrels of crude oil day leads to $20 billion in direct economic benefits and 300,000 jobs.  Through lease bonus payments, royalties on production, and corporate income taxes, roughly half of these profits will likely go to federal, state, and local governments and, thereby, broadly benefit the public.  Additionally, there would be lower unemployment, especially in many of the worst economically depressed areas, boosts in associated production (piping, steelwork, etc.), and boosts to local economies.  Conservative assumptions regarding supply and demand elasticity’s yield an additional annual benefit to American consumers of between $15 billion and $45 billion per year because of reductions in the world oil price.


The six fastest-growing jobs for 2010-11 related to oil and gas extraction, such as service unit operators, derrick operators, and rotary drill operators.  Each was expected to grow anywhere from 9% to 11% through 2012, in an otherwise mostly stagnant economy.  In total, nine of the top 11 fast-growing jobs in the nation relate to oil and gas extraction.


Of the 506,401 new jobs in the sector since 2006, more than 431,000 have been in the crude petroleum and natural gas extraction industry.  This sub-sector has grown by 113% nationally in the last six years while mining (except oil and gas) remains at its 2006 employment level.


Every state except for Maine has added jobs in crude petroleum and natural gas extraction since 2006.


The recent ability of combining fracturing technology with directional drilling allows one well pad to drill six to eight horizontal wells.  This allowed the amount of U.S. natural gas resources that were recoverable to jump from 1.5 quadrillion cubic feet to 2.5, accounting to an increase of 66% in just one year, from 2007 to 2008.  This breakthrough also resulted in the plummeting of the wellhead price of natural gas.  This helps keep electricity prices low for American consumers as 24% of all electricity is created via natural gas.


About 63% of the U.S. trade deficit ($784.08 billion) comes from buying crude from overseas ($496.4 billion).  Source: (3/30/12).  Imports make up 65% of the United States’ crude oil supply and the expectation that the percentage will rise [CRS Report for Congress, April 13, 2006].


Oil shale plays are located throughout the U.S. and could boost related employment nationwide.  There would be no expenses of transporting crude from foreign countries and then having to refine it here.  Every increase in production would help lower crude prices throughout the world and aid in boosting a worldwide economic recovery.  New pipelines would improve the distribution network and lower transportation costs, by removing trucks from the process.  In addition to crude, our natural gas reserves would increase, lowering electricity and heating costs for millions.  Natural gas can be used to power cars, and is, to the tune of about 10 million cars worldwide.


Assuming 200,000 barrels of capacity continue are added each year, roughly 20,000 construction workers will be employed in plant construction and mine development.  [This estimate assumes a construction and mine development work force of 1,000 workers, averaged over an estimated five-year construction period, for each 50,000 barrels per day of capacity under construction.  Annually adding 200,000 barrels per day of new production capacity requires that at any time 1 million barrels of additional capacity is under development.  This is a very rough estimate, based solely on OTA’s (Office of Technology Assessment) estimate of 1,200 construction workers for a plant producing 50,000 barrels per day dating back to 1980 (OTA, Volume I).  As before, this estimate applies only to approaches using mining and surface retorting.  [Considerable construction and preproduction development work is involved in thermally conductive in-situ conversion processes.  This includes extensive drilling; placement of heating elements; construction of oil storage facilities upgrading or refining facilities, oil pipelines, power plants, and cryogenic [production and storage at low temperature] plants; and creating the entire infrastructure required for power and water delivery.]  Considering plant operations and construction, an estimated 70,000 workers would be employed in either plant operations or new plant construction.

To obtain a rough estimate of indirect employment, we assign the collective oil shale workforce (construction and operations) an employment multiplier of between two and three, which means that each direct job creates an additional two to three indirect jobs, stemming primarily from supplier, and re-spending effects.  [The estimated employment multiplier (EM) of 2.0 is based on consideration of the following sectors: mining (including petroleum and natural gas extraction), EM = 2.03; construction, EM = 1.90; fabricated metals (relevant to construction), EM = 2.23; manufacturing (overall), EM = 2.91; chemicals, EM = 4.94; and petroleum refining, EM = 11.89 (Bivens, 2003).]  Considering both direct and indirect employment, roughly 200,000 to 300,000 jobs will be associated with an oil shale industry producing 3 million barrels per day.


The United States will consume 7.9 and 7.08 billion BTU's of crude oil and natural gas, respectively, in 2012 according to  Can the United States afford to sit on its natural resources while its national debt hits nearly $20 trillion dollars by the end of 2012?  Americans need every job that it can produce, lower transportation costs (lower fuel prices), lower inflation, and for its country to return to firm financial footing. 


Alternative energies are simply futuristic thoughts that will become relevant when the market economics weigh in their favor (its price of production is comparable to that of fossil fuels, and its output is comparable - without subsidies).  Americans are innovators, especially when the government does not overburden them with ridiculous, numerous, overreaching regulations.  They will continue to seek alternative energy sources, and their supporters will continue to purchase their products, even if they come at a cost premium.  Many suppliers are charging a premium for their products because of a simple brand name, perceived value, or novelty.


The idea that fracking and drilling offers negligible returns is unfounded.  Look at what its done in North Dakota, where fracking has produced billions of dollars in revenues, thousands of jobs ($70,000 to 120,000 a year), and the lowest unemployment rate (3.2%) in the country [The Bureau of Labor and Statistics (BLS) report, Jan. 2012.]


This country is sitting on its own path to energy independence, low unemployment, and high GDP growth.