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Tuesday, May 17, 2011

Energy Sector's Role in the Economy

Given the recent costs of oil and gasoline at the pump, combined with attacks launched at the industry from various political corners (including salvos from President Obama), it's easy for many people to lose sight of the important role that the energy sector plays in terms of jobs, income and overall economic output.

Earlier this month, a new study by PwC, prepared for API, estimated the economic impact of the oil and gas industry in 2009 (most recent year with complete national and state data). Keep in mind that the first half of 2009 covered part of one of the deepest recessions since the Great Depression.

The study "quantifies the industry's operational impact (due to its purchases of intermediate inputs) and capital investment impact (due to its investment in new structures and equipment) at the national level." And three channels are covered, i.e., the direct, indirect and induced impacts of the industry. The direct impact measures "the jobs, labor income, and value added within the oil and natural gas industry." The indirect impact covers "the jobs, labor income, and value added occurring throughout the supply chain of the oil and natural gas industry." And the induced impact estimates "the jobs, labor income, and value added resulting from household spending of income earned either directly or indirectly from the oil and natural gas industry's spending."

Nationally, it was estimated that the oil and gas industry:

• employed 9.2 million people, which accounted for 5.3% of total U.S. employment;

• accounted for $534 billion in labor income, including proprietors' income - or 6.0% of national labor income;

• and the industry's value-added registered $1.1 trillion, accounting for 7.7 percent of U.S. GDP in 2009.

That's impressive, and an important portion of our economy. And these positives reach into every state and Washington, D.C. Obviously, though, some states benefit more than others - with direct and indirect jobs, for example, attributable to the oil and gas industry ranging from a high of 1.98 million in Texas to a low of 10,000 in the District of Columbia.

PwC reported: "The top 15 states, in terms of the total number of jobs directly or indirectly attributable to the oil and natural gas industry's operations in 2009 were Texas, California, Louisiana, Oklahoma, Pennsylvania, Illinois, New York, Ohio, Florida, Michigan, Colorado, New Jersey, North Carolina, Indiana, and Georgia."

Consider oil and gas jobs as a share of employment, the states rank as follows: "Wyoming (15.8 percent), Louisiana (15.1 percent), Texas (14.3 percent), Oklahoma (14.1 percent), Alaska (10.3 percent), North Dakota (7.5 percent), New Mexico (7.5 percent), West Virginia (7.1 percent), Delaware (6.5 percent), Kansas (6.5 percent), Montana (6.4 percent), Mississippi (6.1 percent), Colorado (5.2 percent), Arkansas (5.0 percent), and Utah (4.9 percent)."

Finally, it is important to point out that this study does not include a major benefit of the oil and gas sector. As described in the study: "These economic impacts represent all of the backward linkages of the U.S. oil and natural gas industry to its suppliers. They do not capture any forward linkages (i.e., the economic impact on production in sectors that use oil and natural gas as an input)." This is a major point to keep in mind. After all, oil and gas play the central role in providing energy that makes our homes and businesses run.

Understanding what oil and gas firms do in our economy, is this an industry worthy of attack or appreciation?


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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