PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

7 Key Points on Small Business and Energy Production

By at 19 August, 2018, 9:55 am

Small Business Insider

by Raymond J. Keating-

The data show quite clearly that 2005 was the turning point for the United States in becoming the number one energy producer on the planet. As the U.S. Energy information Administration (EIA) reported in May 2018:

“The United States remained the world’s top producer of petroleum and natural gas hydrocarbons in 2017, reaching a record high. The United States has been the world’s top producer of natural gas since 2009, when U.S. natural gas production surpassed that of Russia, and the world’s top producer of petroleum hydrocarbons since 2013, when U.S. production exceeded Saudi Arabia’s. Since 2008, U.S. petroleum and natural gas production has increased by nearly 60%.”

During the 21st Century, U.S. energy production has been transformed by private investment and innovation – such as leaps forward in hydraulic fracturing and horizontal drilling largely led by energy entrepreneurs. As a result, the U.S. has been able to access energy reserves that previously were off limits, and gained incentives for further exploration leading to additional oil and natural gas finds.

The following 7 points show key results of an old industry being transformed by technological advancements, resulting in rather dramatic production, export and business growth, despite facing the challenges of getting through the Great Recession from late December 2007 to mid-2009, a subsequent recovery/expansion period that badly under-performed until very recently, and during the Obama years, being confronted by a presidential administration overtly opposed to the production and use of carbon-based energy.

1. Crude Oil Production

According to data from the U.S. Energy Information Administration (EIA), U.S. crude oil production had risen rather steadily from 1920 to 1970. It then slowly and unevenly declined until 2008. The rise in production over the past decade has been nothing less than breathtaking.

Consider that in May 2008, the U.S. produced 159.5 million barrels of crude oil. In May of this year, that output had skyrocketed to 323.7 million – i.e., production doubled. For good measure, U.S. crude production previously had topped a monthly 300 million barrels in three months in 1970 and one in 1971 (setting a high of 310.4 million in October 1970). U.S. production did not return to the 300 million monthly level again until October 2017, and output has topped 300 million in seven of the last eight months, setting a new high of 324.3 million barrels in March 2018.

2. Natural Gas Production

After a notable decline in the early 1970s, U.S. natural gas production effectively stagnated for three decades, according to EIA data). But growth started to pick up in 2006, and it has continued since (though unevenly at times).

Consider that in October 2005, monthly dry natural gas production had fallen to 1,407 billion cubic feet. As of May 2018, monthly production registered 2,491 billion cubic feet. That not only was an increase of 77 percent since October 2005, but the May 2018 level was an all-time high, again according to EIA data. It will be interesting to see if 2018 production growth continues, and if so, will production for the entire year break the all-time high of 27,065 billion cubic feet set in 2015.

3. Crude Oil Exports

Crude oil exports – which were minimal throughout the history of U.S. crude oil production – started moving higher in late 2013, and accelerating later. Consider that crude exports increased by 2,724 percent from August 2013 to May 2018. The key policy step was taken when the crude oil export ban, with some limited exceptions, was lifted at the end of 2015.

4. Natural Gas Exports

U.S. natural gas exports started to see some growth in 2000, but exports took off in 2005. Consider that from October 2005 to May 2018, U.S. natural gas exports grew by 565 percent.

5. Finished Petroleum Products Exports

Over the past dozen-plus years, finished petroleum products exports from the U.S. have risen dramatically, as noted in the following chart. From late 2005 to May 2018, those exports grew by 369 percent.

6. U.S. Business Growth

Business firm (employers) growth in key energy sectors outpaced the overall economy. In fact, as noted in the following table, while the total number of employer firms in 2015 were below the 2005 level, there was growth in each of the five energy sectors highlighted, with growth solid in four of those five.

7. The Big Role of Small Business

When it comes to the number of employer firms in key sectors, energy is overwhelmingly a small business industry. For example, as SBE Council has noted before, and according to the latest data from the U.S. Census Bureau (2015):

● 89.6% of employer firms among oil and gas extraction businesses have fewer than 20 employees;

● 77.3% of employer firms among drilling oil and gas wells businesses have fewer than 20 workers;

● 80.7% of employer firms among support activities for oil and gas operations businesses have fewer than 20 employees,

● 58.2% of employer firms among oil and gas pipeline and related structures construction businesses have fewer than 20 workers,

● and 51.5% of employer firms among oil and gas field machinery and equipment manufacturing businesses have fewer than 20 employees.

U.S. entrepreneurship, investment and innovation have transformed the global energy landscape in a strikingly short period of time. The lessons  for public policy going forward are clear. Namely, government shouldn’t hamper the private sector with burdensome taxes and regulations. Government should refrain from trying to dictate or guide where energy markets go with costly and politically-driven subsidies and special tax breaks.

And finally, policymakers should be working to reduce governmental obstacles to free trade, as opposed to raising barriers via, for example, tariffs and quotas. Get the policy foundations right, and the U.S. will see further innovation, efficiencies and growth not only in the energy business, but across existing, new and transformed industries. And throughout, it will be visionary entrepreneurs and investors, countless small businesses and their hard-working employees leading the way.

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

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

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