I saw a poll recently which said that 66% of the nation feels that the US economy is either “good” or “excellent” right now, despite the media’s best efforts to tell them otherwise. We haven’t seen that level of confidence since the attacks of 2001. (Though far fewer than that are willing to credit the current president for it.) The one question which comes to mind is… what’s wrong with the other 44% of respondents? If you want a look at one sector that’s performing well above expectations going into 2018, it’s the oil and gas industry.
This new report out from Reuters has some good news and some great news… at least for everyone except a few of the major oil producers. Thanks to big advancements in shale oil exploration, United States oil production is about to surge past 10 billion barrels per day. That’s a record level that hasn’t been seen since the 1970s. If current projections hold, our output will go up an additional 10% to 11 billion barrels a day by 2019, putting us within range of challenging Russia, the world’s current, largest oil producer.
The economic and political impacts of soaring U.S. output are breathtaking, cutting the nation’s oil imports by a fifth over a decade, providing high-paying jobs in rural communities and lowering consumer prices for domestic gasoline by 37 percent from a 2008 peak.
Fears of dire energy shortages that gripped the country in the 1970s have been replaced by a presidential policy of global “energy dominance.”
“It has had incredibly positive impacts for the U.S. economy, for the workforce and even our reduced carbon footprint” as shale natural gas has displaced coal at power plants, said John England, head of consultancy Deloitte’s U.S. energy and resources practice.
As I mentioned above, if there’s one worrisome note on the horizon it’s for the major producers. It turns out that they are facing rising costs in two areas… labor and land leases.
The costs of labor and contracted services have recently risen sharply in the most active oilfields; drillable land prices have soared; and some shale financiers are calling on producers to focus on improving short-term returns rather than expanding drilling.
But U.S. producers have already far outpaced expectations and overcome serious challenges, including the recent effort by the Organization of the Petroleum Exporting Countries (OPEC) to sink shale firms by flooding global markets with oil.
Think about that for a minute. The industry has expanded to the point where they can’t hire enough people. And there are enough players in the market that they are facing bidding wars to lease land to drill on in shale-rich states. (Well, except for New York, of course, where the state government forbids the practice and people sitting on rich shale deposits are left behind as they watch their neighbors in Pennsylvania strike it rich.) Those two factors mean that workers are being paid more, with additional jobs being open for people looking to get into the field. And people looking to lease their land for drilling are being paid more, feeding into the economy further.
It’s not about to stop, either, assuming they can find enough workers and not be shut down by lawsuits launched by environmental groups. In Pennsylvania, the Mariner East II Pipeline is being built to carry natural gas from the Marcellus shale to refineries outside Philadelphia. A recent study shows that the project will create 57 thousand direct and indirect jobs over the next six years and have a $9.1 billion positive impact on the region. But, of course, environmentalists have managed to pause construction yet again with more lawsuits. When those issues are cleared, however, we should be on track for yet another surge in productivity.
I knew the industry was doing well this past year in general terms, but I didn’t realize they were maxing out the labor force that quickly. And as unemployment rates continue to drop and competition increases, this should produce more upward pressure on wages. If you were waiting for the “But…” at the end of this when I deliver the bad news, here’s another pleasant surprise for you. I don’t have any today.