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Boom in domestic oil, gas saved U.S. economy

The U.S. economy added just 80,000 jobs in June(Mediocre Jobs Report), a third straight month of weak hiring. The unemployment rate was unchanged at 8.2 percent, but it would have been much worse without the boom in domestic oil and gas production.

There are actual labor shortages in expanding oil and gas areas of the U.S. like North Dakota’s Bakken Shale region. There, the business activity from thousands of new fracking wells have unemployment near 3 percent. Those wells force high pressure liquids into shale layers, releasing formerly trapped oil and gas deposits. This occurs beneath a mile or more of rock layer without damage to shallow fresh water supplies.

In northeastern Ohio, moribund since steel mills closed in the 1970s, a $650 million steel mill is being erected near Youngstown by 10 construction cranes for V&M Corporation to produce steel pipe and other equipment. The mill’s operation will create 350 long-term jobs by the end of 2012, more than doubling V&M’s local workforce. A V&M melt shop, where raw steel is produced by melting scrap in furnaces, will be the next big job creating project at that site.

Nearby in Carroll county, a new 350 acre industrial park is ready for oil and gas related projects. The state of Ohio is expecting 200,000 new jobs by 2018 from the Utica Shale which underlies most of eastern Ohio.

The growing replacement of coal by cleaner natural gas for U.S. electric power is good news for the environment and jobs. EPA rules which restrict coal’s mercury and sulfur (acid rain) emissions are forcing that shift to natural gas, now plentiful from this new fracking drilling technology. The decline in coal’s domestic market is being replaced by increased coal exports. From a 50 percent share of the U.S. electric power market five years ago, coal supplied just 42 percent in 2011, and it is now below 40 percent in 2012. A rise in natural gas use from 20 percent to near 30 percent at our electric utilities is making up most of the difference. At the same time wind and solar power have risen from 1 percent to 3-4 percent of U.S. electric energy supply.

Overall, the expansion in the oil and natural gas industries has created 500,000 good paying new jobs in the past decade. The expansion is not slowing down as several large shale reservoirs are now productive in various parts of the U.S. Overall, U.S. oil production has grown by 10 percent since 2008, and the import share of U.S. oil consumption has dropped to about 45 percent from 60 percent in 2005. This trend will continue, and a new study by Wood MacKenzie reports that oil and gas production could create an additional one million new U.S. jobs by 2018.

The touted jobs future in the “green” sector is limited by its cost per kilowatt-hour. Wind and solar are at least twice as expensive as electricity produced with natural gas. A study for Spain by King Carlos University showed that for every subsidized wind or solar job, more than two jobs were lost in energy consuming industries because of increased electric costs. Some of that Spanish production was moved to France with its lower cost nuclear energy.

There is an entirely new reality with U.S. energy production, consumption, and imports. New oil and gas supply is emerging, and fossil fuel demand is being limited by conservation and efficiency. It is too soon to talk of energy independence, but oil imports are declining to the point that most of our oil need could soon be met from friendly Western Hemisphere sources. Canada continues to develop its vast oil sands deposits, and Brazil will be producing from the world’s largest new oil discoveries in the off shore Santos basin.

As Daniel Yergin noted recently in The New York Times, “What is striking is this great revival in oil and gas production in the United States, with wide impacts on jobs, economic development and the competitiveness of American industry. This new reality requires a new way of thinking about America’s improving energy position and how to facilitate this growth in an environmentally sound way — recognizing the benefits this will bring in an era of economic uncertainty.”

Let’s hope that our government gets the message and supports energy programs that replace imports with American jobs.

(ROLF WESTGARD is a professional member of the Geological Society of America and the American Association of Petroleum Geologists. He teaches classes on energy subjects for the University of Minnesota Lifelong Learning program.)