US Shale Economic Impact: GDP gain realized in shale boom’s first 10 years

[ceo_energemsier + 1,818]

GDP gain realized in shale boom’s first 10 years

 

The U.S. shale boom—a product of technological advances in horizontal drilling and hydraulic fracturing that unlocked new stores of energy—has benefited the nation’s oil trade balance and oil-producing regions and led to unusually large employment and output gains.

While quantifying the boom’s benefits is difficult, we show in a working paper analyzing the shale boom during 2010 to ‘15 that the benefits extended to the overall economy, adding perhaps 1 percent to U.S. gross domestic product (GDP) during that time.

The widespread use of horizontal drilling and hydraulic fracking started in the mid-2000s with natural gas production in the Barnett Shale in North Central Texas. By

the start of this decade, the technique had been applied to several shale oil formations—most notably, the Permian Basin in West Texas and New Mexico—with remarkable results.

U.S. shale oil production rose by more than 7 million barrels per day (mb/d) from 2010 to 2019. Total U.S. oil production, which had declined to 4.4 mb/d in mid-2005, has since nearly tripled to 12.2 mb/d.

Handful of States Experience Boom

Two states account for the bulk of U.S. shale oil production: Texas and North Dakota. Since the beginning of 2010, North Dakota’s output has risen from 235,000 barrels per day to the current 1.4 mb/d. Texas’ crude oil output has climbed from 1.1 to 5.0 mb/d, with the state producing more than half of U.S. shale oil.

In the early years of the shale boom from 2011 to 2014, when oil prices averaged $95 per barrel, these two states experienced strong employment and GDP growth. North Dakota’s GDP expansion was 4.5 times that of the U.S., while Texas’ was 1.5 times the U.S. rate. Similarly, North Dakota’s employment growth averaged 5.3 percent and Texas’ averaged 3.0 percent, while U.S. employment expanded only 1.7 percent.

Surprising Production Overwhelms Pipelines

The tremendous amount of oil coming from shale during 2010 to ‘15 depressed the benchmark West Texas Intermediate (WTI) crude oil price. The differential between domestic WTI and international benchmark Brent widened considerably, to a high of $27, in August 2011.

There were two reasons for the weakness in WTI prices relative to Brent. One was inadequate pipeline capacity in the Permian Basin, where much of the shale oil is produced. The other was the U.S. crude oil export ban. The ban, a holdover from the early 1970s following the OPEC oil embargo of 1973 to ‘74, was finally lifted at the end of 2015.

As oil production increased, the ban had become an effective constraint on prices from late 2013 until the restriction ended.

U.S. Becomes Major Crude Oil Exporter

In 2006, before the shale boom, the U.S imported about twice the oil it produced. That share has declined to two-thirds of domestic production. As a result, the U.S. petroleum trade balance narrowed from negative $492 billion in 2005 to negative $136 billion in 2018.

U.S. exports of petroleum products have steadily risen, increasing fivefold to 5.0 mb/d since 2006. In recent years, the U.S. has also become a major exporter of crude oil, with exports rising from less than 0.5 mb/d in December 2015 to 3.0 mb/d in July 2019.

Model Points to Broader Impacts

Our study, described in the working paper, models the shale oil boom explicitly and can assess the quantitative impact of the boom on the overall economy. Our analysis employs a two-country, multiperiod equilibrium model describing the decisions and interactions of households, oil producers, refiners and the nonoil production sector. It assesses the boom’s implications from 2010 to 2015 by comparing the shale boom’s effect on a model economy with what happens in the economy absent the boom.

We find that the shale boom caused both oil prices and oil product prices to fall. Although refiners amped up output by using a greater amount of their refining capacity, the sheer magnitude of crude production was so high that not all the oil could be absorbed, leading to a significant decline in imports. The decline in imports generated a major improvement in the trade balance for oil, amounting to about 1 percent of GDP.

Given that crude oil accounts for the bulk of the marginal cost of producing fuels—such as diesel and gasoline—the model shows that the shale boom led to 14 percent lower fuel prices in the U.S. and in the rest of the world. The magnitude of the decline in fuel prices was similar in the U.S. and the rest of the world because, unlike with crude oil, there had been free trade in refined products such as fuels.

Measuring the Overall Effect

How did the shale boom affect the rest of the economy? Our model indicates that cheaper fuel prices allowed households to consume about 3.6 percent more fuel. Households also increased their consumption of other goods because the decline in fuel prices increased their disposable income, leading to a 0.7 percent increase in overall consumption.

The decline in fuel prices increased firm fuel use in the energy sector and in non-oil sectors, according to the model. Our model shows that lower fuel prices led to higher output in non-oil sectors and higher U.S. aggregate investment. Altogether, these effects led to a GDP increase of 1 percent in 2015 relative to 2010.

Given that the actual increase in U.S. GDP was 10 percent over the period, the shale boom accounted for one-tenth of the overall increase. Although the oil sector makes up less than 1.5 percent of the economy, our results suggest that the shale boom generated significant positive spillovers.

 

 

 

______________________________________

 

1, 2, 3...................... let the shale attacks begin................

 

[James Regan + 1,776]

34 minutes ago, ceo_energemsier said:

GDP gain realized in shale boom’s first 10 years

 

The U.S. shale boom—a product of technological advances in horizontal drilling and hydraulic fracturing that unlocked new stores of energy—has benefited the nation’s oil trade balance and oil-producing regions and led to unusually large employment and output gains.

While quantifying the boom’s benefits is difficult, we show in a working paper analyzing the shale boom during 2010 to ‘15 that the benefits extended to the overall economy, adding perhaps 1 percent to U.S. gross domestic product (GDP) during that time.

The widespread use of horizontal drilling and hydraulic fracking started in the mid-2000s with natural gas production in the Barnett Shale in North Central Texas. By

the start of this decade, the technique had been applied to several shale oil formations—most notably, the Permian Basin in West Texas and New Mexico—with remarkable results.

U.S. shale oil production rose by more than 7 million barrels per day (mb/d) from 2010 to 2019. Total U.S. oil production, which had declined to 4.4 mb/d in mid-2005, has since nearly tripled to 12.2 mb/d.

Handful of States Experience Boom

Two states account for the bulk of U.S. shale oil production: Texas and North Dakota. Since the beginning of 2010, North Dakota’s output has risen from 235,000 barrels per day to the current 1.4 mb/d. Texas’ crude oil output has climbed from 1.1 to 5.0 mb/d, with the state producing more than half of U.S. shale oil.

In the early years of the shale boom from 2011 to 2014, when oil prices averaged $95 per barrel, these two states experienced strong employment and GDP growth. North Dakota’s GDP expansion was 4.5 times that of the U.S., while Texas’ was 1.5 times the U.S. rate. Similarly, North Dakota’s employment growth averaged 5.3 percent and Texas’ averaged 3.0 percent, while U.S. employment expanded only 1.7 percent.

Surprising Production Overwhelms Pipelines

The tremendous amount of oil coming from shale during 2010 to ‘15 depressed the benchmark West Texas Intermediate (WTI) crude oil price. The differential between domestic WTI and international benchmark Brent widened considerably, to a high of $27, in August 2011.

There were two reasons for the weakness in WTI prices relative to Brent. One was inadequate pipeline capacity in the Permian Basin, where much of the shale oil is produced. The other was the U.S. crude oil export ban. The ban, a holdover from the early 1970s following the OPEC oil embargo of 1973 to ‘74, was finally lifted at the end of 2015.

As oil production increased, the ban had become an effective constraint on prices from late 2013 until the restriction ended.

U.S. Becomes Major Crude Oil Exporter

In 2006, before the shale boom, the U.S imported about twice the oil it produced. That share has declined to two-thirds of domestic production. As a result, the U.S. petroleum trade balance narrowed from negative $492 billion in 2005 to negative $136 billion in 2018.

U.S. exports of petroleum products have steadily risen, increasing fivefold to 5.0 mb/d since 2006. In recent years, the U.S. has also become a major exporter of crude oil, with exports rising from less than 0.5 mb/d in December 2015 to 3.0 mb/d in July 2019.

Model Points to Broader Impacts

Our study, described in the working paper, models the shale oil boom explicitly and can assess the quantitative impact of the boom on the overall economy. Our analysis employs a two-country, multiperiod equilibrium model describing the decisions and interactions of households, oil producers, refiners and the nonoil production sector. It assesses the boom’s implications from 2010 to 2015 by comparing the shale boom’s effect on a model economy with what happens in the economy absent the boom.

We find that the shale boom caused both oil prices and oil product prices to fall. Although refiners amped up output by using a greater amount of their refining capacity, the sheer magnitude of crude production was so high that not all the oil could be absorbed, leading to a significant decline in imports. The decline in imports generated a major improvement in the trade balance for oil, amounting to about 1 percent of GDP.

Given that crude oil accounts for the bulk of the marginal cost of producing fuels—such as diesel and gasoline—the model shows that the shale boom led to 14 percent lower fuel prices in the U.S. and in the rest of the world. The magnitude of the decline in fuel prices was similar in the U.S. and the rest of the world because, unlike with crude oil, there had been free trade in refined products such as fuels.

Measuring the Overall Effect

How did the shale boom affect the rest of the economy? Our model indicates that cheaper fuel prices allowed households to consume about 3.6 percent more fuel. Households also increased their consumption of other goods because the decline in fuel prices increased their disposable income, leading to a 0.7 percent increase in overall consumption.

The decline in fuel prices increased firm fuel use in the energy sector and in non-oil sectors, according to the model. Our model shows that lower fuel prices led to higher output in non-oil sectors and higher U.S. aggregate investment. Altogether, these effects led to a GDP increase of 1 percent in 2015 relative to 2010.

Given that the actual increase in U.S. GDP was 10 percent over the period, the shale boom accounted for one-tenth of the overall increase. Although the oil sector makes up less than 1.5 percent of the economy, our results suggest that the shale boom generated significant positive spillovers.

 

 

 

______________________________________

 

1, 2, 3...................... let the shale attacks begin................

 

@ceo_energemsier You can't argue with data, is this considering also the decline in the Permian which we are seeing in 2019 which the graph does not show?

 

 

[ceo_energemsier + 1,818]

Natural gas deliveries to U.S. LNG export facilities set a record in July

https://www.eia.gov/todayinenergy/detail.php?id=40953

[Douglas Buckland + 6,308]

The widespread use of horizontal drilling and hydraulic fracturing was in effect long before the shale oil fiasco began. Furthermore, the shale oil industry has not measurably furthered these technologies. Next you'll be claiming that the shale oil industry birthed rotary steerable technology!

How do you contribute to the GDP when your entire industry suffers from a negative cash flow?

[Boat + 1,324]

On 8/20/2019 at 2:51 PM, ceo_energemsier said:

GDP gain realized in shale boom’s first 10 years

 

The U.S. shale boom—a product of technological advances in horizontal drilling and hydraulic fracturing that unlocked new stores of energy—has benefited the nation’s oil trade balance and oil-producing regions and led to unusually large employment and output gains.

While quantifying the boom’s benefits is difficult, we show in a working paper analyzing the shale boom during 2010 to ‘15 that the benefits extended to the overall economy, adding perhaps 1 percent to U.S. gross domestic product (GDP) during that time.

The widespread use of horizontal drilling and hydraulic fracking started in the mid-2000s with natural gas production in the Barnett Shale in North Central Texas. By

the start of this decade, the technique had been applied to several shale oil formations—most notably, the Permian Basin in West Texas and New Mexico—with remarkable results.

U.S. shale oil production rose by more than 7 million barrels per day (mb/d) from 2010 to 2019. Total U.S. oil production, which had declined to 4.4 mb/d in mid-2005, has since nearly tripled to 12.2 mb/d.

Handful of States Experience Boom

Two states account for the bulk of U.S. shale oil production: Texas and North Dakota. Since the beginning of 2010, North Dakota’s output has risen from 235,000 barrels per day to the current 1.4 mb/d. Texas’ crude oil output has climbed from 1.1 to 5.0 mb/d, with the state producing more than half of U.S. shale oil.

In the early years of the shale boom from 2011 to 2014, when oil prices averaged $95 per barrel, these two states experienced strong employment and GDP growth. North Dakota’s GDP expansion was 4.5 times that of the U.S., while Texas’ was 1.5 times the U.S. rate. Similarly, North Dakota’s employment growth averaged 5.3 percent and Texas’ averaged 3.0 percent, while U.S. employment expanded only 1.7 percent.

Surprising Production Overwhelms Pipelines

The tremendous amount of oil coming from shale during 2010 to ‘15 depressed the benchmark West Texas Intermediate (WTI) crude oil price. The differential between domestic WTI and international benchmark Brent widened considerably, to a high of $27, in August 2011.

There were two reasons for the weakness in WTI prices relative to Brent. One was inadequate pipeline capacity in the Permian Basin, where much of the shale oil is produced. The other was the U.S. crude oil export ban. The ban, a holdover from the early 1970s following the OPEC oil embargo of 1973 to ‘74, was finally lifted at the end of 2015.

As oil production increased, the ban had become an effective constraint on prices from late 2013 until the restriction ended.

U.S. Becomes Major Crude Oil Exporter

In 2006, before the shale boom, the U.S imported about twice the oil it produced. That share has declined to two-thirds of domestic production. As a result, the U.S. petroleum trade balance narrowed from negative $492 billion in 2005 to negative $136 billion in 2018.

U.S. exports of petroleum products have steadily risen, increasing fivefold to 5.0 mb/d since 2006. In recent years, the U.S. has also become a major exporter of crude oil, with exports rising from less than 0.5 mb/d in December 2015 to 3.0 mb/d in July 2019.

Model Points to Broader Impacts

Our study, described in the working paper, models the shale oil boom explicitly and can assess the quantitative impact of the boom on the overall economy. Our analysis employs a two-country, multiperiod equilibrium model describing the decisions and interactions of households, oil producers, refiners and the nonoil production sector. It assesses the boom’s implications from 2010 to 2015 by comparing the shale boom’s effect on a model economy with what happens in the economy absent the boom.

We find that the shale boom caused both oil prices and oil product prices to fall. Although refiners amped up output by using a greater amount of their refining capacity, the sheer magnitude of crude production was so high that not all the oil could be absorbed, leading to a significant decline in imports. The decline in imports generated a major improvement in the trade balance for oil, amounting to about 1 percent of GDP.

Given that crude oil accounts for the bulk of the marginal cost of producing fuels—such as diesel and gasoline—the model shows that the shale boom led to 14 percent lower fuel prices in the U.S. and in the rest of the world. The magnitude of the decline in fuel prices was similar in the U.S. and the rest of the world because, unlike with crude oil, there had been free trade in refined products such as fuels.

Measuring the Overall Effect

How did the shale boom affect the rest of the economy? Our model indicates that cheaper fuel prices allowed households to consume about 3.6 percent more fuel. Households also increased their consumption of other goods because the decline in fuel prices increased their disposable income, leading to a 0.7 percent increase in overall consumption.

The decline in fuel prices increased firm fuel use in the energy sector and in non-oil sectors, according to the model. Our model shows that lower fuel prices led to higher output in non-oil sectors and higher U.S. aggregate investment. Altogether, these effects led to a GDP increase of 1 percent in 2015 relative to 2010.

Given that the actual increase in U.S. GDP was 10 percent over the period, the shale boom accounted for one-tenth of the overall increase. Although the oil sector makes up less than 1.5 percent of the economy, our results suggest that the shale boom generated significant positive spillovers.

 

 

 

______________________________________

 

1, 2, 3...................... let the shale attacks begin................

 

Excellent information, I gave you an up arrow. Now if only we weren’t killing the planet with unnecessary flaring. Then there the unnecessary refineries churning out particles that kill the babies and the elderly along with shortening the lives of all of us. Now part of this pollution is a necessary evil but a large chunk of that pollution is imported and not necessary for US consumption.

I am for 100% US in-house energy. But that’s it. Then we hope conservation, a smaller US population and improvements like renewables and electric cars will cut into FF demand over time. Because we want to all love the future babies and live longer lives. 

[ceo_energemsier + 1,818]

5 hours ago, Boat said:

Excellent information, I gave you an up arrow. Now if only we weren’t killing the planet with unnecessary flaring. Then there the unnecessary refineries churning out particles that kill the babies and the elderly along with shortening the lives of all of us. Now part of this pollution is a necessary evil but a large chunk of that pollution is imported and not necessary for US consumption.

I am for 100% US in-house energy. But that’s it. Then we hope conservation, a smaller US population and improvements like renewables and electric cars will cut into FF demand over time. Because we want to all love the future babies and live longer lives. 

Flaring solutions!

 

[Ward Smith + 6,615]

On 8/20/2019 at 1:29 PM, James Regan said:

@ceo_energemsier You can't argue with data, is this considering also the decline in the Permian which we are seeing in 2019 which the graph does not show?

 

 

Correct me if I'm wrong, but doesn't that graph measure production INCREASE? So if on a percentage basis, the Permian isn't growing at as breakneck a pace as it was, your interpretation is productive is declining? If you're not already employed there, you could have a great career as a politician or MSM "reporter".

[wrs + 893]

8 hours ago, Douglas Buckland said:

 

How do you contribute to the GDP when your entire industry suffers from a negative cash flow?

Negative cash flow isn't no cash flow it just means you are spending down savings or borrowings.  GDP is not profit and doesn't have a thing to do with profit.  You should go read what it is to answer your question.

Edited August 24, 2019 by wrs

[ceo_energemsier + 1,818]

2 hours ago, wrs said:

Negative cash flow isn't no cash flow it just means you are spending down savings or borrowings.  GDP is not profit and doesn't have a thing to do with profit.  You should go read what it is to answer your question.

Shale in the US has reduced trade gap for petroleum imports, has generated revenues and tax for exports, tens of thousands of jobs created, those people in turn spend their $$$ across the US economy, school districts in shale counties have more $$$, county and state budgets have been balanced and post surpluses, royalties have paid hundreds of millions of $$$ to mineral owners, sign up bonuses have helped thousands of families across the country... service companies and contractors and subcontractors, overflows into housing both short term and long term, restaurants, food delivery and dozens and dozens of small businesses and mom and pops have been started and made $$$$.  Just about bveryone involved in the chain has benefited.

 

And for people who bring up shale debt, name any industry that is not in debt? entire mortgage fiasco debt problem!!!

Shale has done a lot of good and if only lasts another 15 years so what? not all resources last an entire life cycle of an average person's life. It is there to be utilized for the benefits that it provides. Shale companies will fail , merged or be acquired , and more shale will be developed by bigger larger integrated companies and better operators and technologies are not stagnant , in each niche area of shale new techs are developed and are evolving.

And here is another one, so everyone should dump XOM ?

 

Debt Is a Way Bigger Problem for Exxon Stock than You Might Think

https://finance.yahoo.com/news/debt-way-bigger-problem-exxon-111019138.html

 

[ceo_energemsier + 1,818]

A 2019 Permian Output Surge May Impact Oil Prices

 

 

 

Over the next eighteen months, pipeline capacity from the Permian is expected to increase by 1.5-2.0 mb/d, including increased delivery capacity to export terminals. This should have a number of effects, mostly positive for producers, but other constraints will mean that a sudden surge should not be expected. Higher prices for Permian crude and greater volumes will be the primary results, although an increase in flaring might bring new pressure to regulate ‘wastage’ of gas. 

The EIA projects slower growth in production from the 4^th quarter of 2019 to the fourth quarter of 2020 -- 0.99 mb/d versus 1.75 mb/d from 4^th quarter 2018 to 4^th quarter 2019. This could be partly due to lower capital spending by shale oil producers, but it still seems unusually low. 

Although pipeline capacity theoretically comes online instantaneously--pipelines have to be filled, pressure ramped up, and some testing will mean it will take place over days or weeks—the supply change should not be that strong. Instead, supply now moving by rail and truck will be switched to pipeline, at least until production exceeds capacity again. So, the market impact won’t be the same as, say, major oil fields in Libya going on- and offline suddenly.

There are also constraints on how quickly production can increase. The large and growing number of unproductive wells in the Permian suggests that new pipeline capacity, allowing for higher wellhead prices, will see a surge in well fracking/completions, depending on the availability of crews. 

Historically, the number of wells fracked in a given month in the Permian has been as high as 668 (October 2014) versus a recent level of 530, and the rate has increased as much as 20-30/month, sometimes much higher. It seems unlikely that the number of fracked wells can increase by more than 50/month, but since the typical well adds about 600-700 b/d of gross output, the implication is that Permian output could grow by an additional 30 tb/d per month, or 360 tb/d by December 2020 versus the year earlier amount.  This amount is probably incremental to existing projections. 

 

 

[Boat + 1,324]

On 8/24/2019 at 4:36 PM, ceo_energemsier said:

A 2019 Permian Output Surge May Impact Oil Prices

 

 

 

Over the next eighteen months, pipeline capacity from the Permian is expected to increase by 1.5-2.0 mb/d, including increased delivery capacity to export terminals. This should have a number of effects, mostly positive for producers, but other constraints will mean that a sudden surge should not be expected. Higher prices for Permian crude and greater volumes will be the primary results, although an increase in flaring might bring new pressure to regulate ‘wastage’ of gas. 

The EIA projects slower growth in production from the 4^th quarter of 2019 to the fourth quarter of 2020 -- 0.99 mb/d versus 1.75 mb/d from 4^th quarter 2018 to 4^th quarter 2019. This could be partly due to lower capital spending by shale oil producers, but it still seems unusually low. 

Although pipeline capacity theoretically comes online instantaneously--pipelines have to be filled, pressure ramped up, and some testing will mean it will take place over days or weeks—the supply change should not be that strong. Instead, supply now moving by rail and truck will be switched to pipeline, at least until production exceeds capacity again. So, the market impact won’t be the same as, say, major oil fields in Libya going on- and offline suddenly.

There are also constraints on how quickly production can increase. The large and growing number of unproductive wells in the Permian suggests that new pipeline capacity, allowing for higher wellhead prices, will see a surge in well fracking/completions, depending on the availability of crews. 

Historically, the number of wells fracked in a given month in the Permian has been as high as 668 (October 2014) versus a recent level of 530, and the rate has increased as much as 20-30/month, sometimes much higher. It seems unlikely that the number of fracked wells can increase by more than 50/month, but since the typical well adds about 600-700 b/d of gross output, the implication is that Permian output could grow by an additional 30 tb/d per month, or 360 tb/d by December 2020 versus the year earlier amount.  This amount is probably incremental to existing projections. 

 

 

Compared to 2014 it is flat amazing how much production has been gained compared to wells completed. A modern man made miracle. I feel bad for the unemployed in both the gas and oil sector.