Who Benefits from America’s Energy Revolution?

By SBE Council at 14 November, 2014, 5:52 pm

by Raymond J. Keating-

Given the enormous emphasis on big businesses in the media and among policymakers, it’s easy to forget who are the true drivers of our economy. The U.S. economy is overwhelmingly about small and mid-size businesses working, innovating, investing and competing to better serve consumers.

And guess what? That’s the case when it comes to energy as well. Two new studies provide powerful reminders of how the recent revolution in U.S. energy – led by advancements in hydraulic fracturing (or fracking) and horizontal drilling – have benefited consumers and small businesses, with smaller firms being an essential part of key energy sectors.

Who benefits from America’s energy revolution? Two new studies, including one from SBE Council, find that consumers and small businesses are two of the biggest beneficiaries.

As for consumer benefits, a new study by ICF International for the American Petroleum Institute, titled “U.S. Oil Impacts: The Impacts of Horizontal Multi-stage Hydraulic Fracturing Technologies on Historical Oil Production, International Oil Costs, and Consumer Petroleum Product Costs,” estimates the consumer benefits that have been achieved on the oil front, and in turn, at the gas pump.

As summarized: “The study … compared historical price and production data from 2008 to 2013 against a scenario without advanced horizontal drilling and hydraulic fracturing. Without the technologies, ICF estimated that international crude oil prices per barrel would have averaged $122 to $150 in 2013 – an increase of $12 to $40. The corresponding discount on gasoline and other refined products was $0.29 to $0.94 per gallon. In total, U.S. consumers saved an estimated $63 to $248 billion in 2013. From 2008 to 2013, the cumulative savings for U.S. consumers ranged from $165 to $624 billion.”

It also was noted that 48 percent of U.S. oil production in 2013 was thanks to horizontal drilling and hydraulic fracturing, versus 11 percent in 2008. For good measure, while this study focused on oil production, it was noted that “an earlier study by IHS estimated that the average U.S. household saved about $1,200 in 2012 from unconventional production of both oil and natural gas, a cumulative savings of about $163 billion.”

As for small businesses, a new SBE Council study titled “Benefits of Natural Gas Production and Exports for U.S. Small Business: Nationally and in the States” (which I authored) examines the roll of small and midsize firms when it comes to the U.S. energy revolution over the past decade, focusing on the increase in natural gas production.

In addition to highlighting and quantifying the increase in jobs created in five key energy sectors both nationally and in the top-producing natural gas states, the report highlights the growth in the number of businesses in each sector (including small businesses) and the fact that each sector is overwhelmingly populated by smaller businesses.

On the job growth front, consider that while total U.S. employment declined by 0.3 percent from 2005 to 2012, jobs grew by 46.1 percent in the oil and gas extraction sector; 61.0 percent in the drilling oil and gas wells sector; 100.2 percent in the support sector for oil and gas operations; 66.1 percent in the oil and gas pipeline and related structures construction sector; and by 67.1 percent in the oil and gas field machinery and equipment manufacturing sector.

As for business growth, while total employers declined in the overall U.S. economy, the number of employer firms grew in each energy sector examined:

• among oil and gas extraction businesses, by 4.9 percent, including 4.1 percent among firms with less than 20 workers and 4.8 percent among firms with less than 500 workers.

• among drilling oil and gas wells businesses, by 11.3 percent, including 7.9 percent among firms with less than 20 workers and 11.3 percent among firms with less than 500 workers.

• among support for oil and gas operations businesses, by 31.3 percent, including 29.1 percent among firms with less than 20 workers and 31.3 percent among firms with less than 500 workers.

• among oil and gas pipeline and related structures construction businesses, by 14.3 percent, including 12.2 percent among firms with less than 20 workers, and 12.5 percent among firms with less than 500 workers.

• among oil and gas field machinery and equipment manufacturing businesses, by 15.0 percent, including 8.5 percent among firms with less than 20 workers and 14.7 percent among firms with less than 500 workers.

Finally, small firms overwhelmingly populated each sector. Consider that employer firms with less than 20 workers in 2011 (latest data) accounted for 91.1 percent of firms among oil and gas extraction businesses, 79.8 percent of those among drilling oil and gas wells businesses, 83.3 percent among support for oil and gas operations businesses, 65.5 percent among oil and gas pipeline and related structures construction businesses, and 57.6 percent among oil and gas field machinery and equipment manufacturing businesses.

This energy revolution has been an incredible small business story, with all consumers, from individuals to families to businesses, reaping tremendous rewards.

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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: Protecting Intellectual Property, Driving Entrepreneurship and available from Amazon.com here.