Oil and the U.S. Economy: Does Shale Change the Picture?

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1 Oil and the U.S. Economy: Does Shale Change the Picture? Mine Yücel Federal Reserve Bank of Dallas

2 Increased energy production from shale Oil Global market Will not necessarily protect from oil price shocks or price volatility May not lower prices for consumers (depends on OPEC s reaction) Lower trade balance Increase regional growth and employment Decrease vulnerability oil supply shocks Natural Gas Domestic market Higher output lowers prices

3 Million barrels per day, SA 12 U.S. Oil and Gas Production Trillion cubic feet, SA Est Crude Oil Natural Gas

4 Surge in shale resources Shale Play Technically Recoverable Resources Oil (Billion barrels) Gas (TCF) Monterey/Santos 14 - West Coast Total 14 - Haynesville - 66 Eagle Ford 2 50 Gulf Coast Total Fayetteville - 13 Woodford - 22 Mid-Continent Total - 38 Barnett - 43 Barnett-Woodford - 32 Southwest Total 3 76 Bakken 5 - Niobrara 7 - Rocky Mountain Total 12 - Marcellus Northeast Total TOTAL

5 Surge in shale resources Shale Play Technically Recoverable Resources Oil (Billion barrels) Gas (TCF) Monterey/Santos 14 - West Coast Total 14 - Haynesville - 66 Eagle Ford 2 50 Gulf Coast Total Fayetteville - 13 Woodford - 22 Mid-Continent Total - 38 Barnett - 43 Barnett-Woodford - 32 Southwest Total 3 76 Bakken 5 - Niobrara 7 - Rocky Mountain Total 12 - Marcellus Northeast Total TOTAL

6 Non-OPEC Output: A Changing of The Guard Thousands of barrels per day 2,000 Forecasted 2016 Output 2010 Actual Output 1,500 1, ,000 U.S. Brazil Canada Non-OPEC NGL Norway UK Mexico

7 Increased oil and gas output: what does it mean for the U.S. economy? National/international effects Trade balance Dollar State and local effects Employment and income growth State fiscal effects Texas example

8 Index, 1982=100 Oil Price Shocks and Recessions

9 Percent 20 Petroleum as a share of goods imports Petroleum Imports

10 Trade Deficit and Imports in Sync with Oil Prices Index, 2000= 100 Avg. $/barrel Trade Balance Total Imports WTI

11 Crude Production and Imports M il. barrles/day Crude Imports 6 4 Crude Production

12 Trade Balance Issues Lower oil imports reduce transfers to oil exporting countries. But some of these petrodollars are recycled back into the U.S. Two issues: How much of the petrodollars are recycled back? Do domestic and foreign producers spend their revenues in the same way?

13 Index, 1997= Oil Prices and the Dollar Dollarsper barrel WTI Spot Price Trade Weighted Value of the Dollar

14 Regional Effects Increased energy activity brings oil and gas extraction and oil-field support jobs Local areas: lease and royalty payments, infrastructure construction and increased spending on retail, leisure and hospitality, and health services. Local governments: greater sales taxes State governments: increased severance tax revenues

15 State Employment Shares Percentage of nonagricultural employment 6 Alaska Louisiana New M exico North Dakota 5 Oklahoma Texas Wyoming Oil & gas extraction Refining Petrochemicals Oil field equipment Oil & gas support activities

16 State Oil Production

17 Shale oil and employment growth yearly growth rates U.S. Annual Average Growth -0.15

18 Energy sector wages high Dollars Estimate Share of Oil & Gas Extraction Share of Oil & Gas Support

19 Temporary housing in Eagle Ford

20 Texas employment follows oil prices

21 Summary Increased U.S. oil production will Lower trade balance Increase regional growth and employment Decrease vulnerability oil supply shocks Will not necessarily protect from oil price shocks or price volatility May not lower prices for consumers (depends on OPEC s reaction) Not energy independent, but more energy secure

22 Oil and the U.S. Economy: Does Shale Change the Picture? Mine Yücel Federal Reserve Bank of Dallas

23 Employment and Total Wages Have Accelerated in Eagle Ford Counties Total Wages Total Employment Total Wages Paid Total Jobs Source: Texas Railroad Commission

24 North American shale oil breakeven prices ($/bbl) Utica Shale 68 Anadarko tight oil 64 Alberta Bakken 55 Cardium Shale 51 Niobrara Shale 51 Eagle Ford Shale 50 Permian M idland 50 Permian Delaware 44 Bakken Shale

25 Natural Gas Marketed Production* *Monthly average for 2010 except for AK, LA, NM, OK, TX, and WY which is production for July 2012.

26 Higher Oil Prices and State Economies Helped Hurt