Oil and the U.S. Economy: Does Shale Change the Picture? Mine Yücel Federal Reserve Bank of Dallas
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
Million barrels per day, SA 12 U.S. Oil and Gas Production Trillion cubic feet, SA 2.5 2012 Est. 10 8 Crude Oil 2.0 1.5 6 4 Natural Gas 1.0 2 0.5 0 0.0
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 2 116 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 - 141 Northeast Total - 156 TOTAL 33 482
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 2 116 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 - 141 Northeast Total - 156 TOTAL 33 482
Non-OPEC Output: A Changing of The Guard Thousands of barrels per day 2,000 Forecasted 2016 Output 2010 Actual Output 1,500 1,000 500 0-500 -1,000 U.S. Brazil Canada Non-OPEC NGL Norway UK Mexico
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
Index, 1982=100 Oil Price Shocks and Recessions 180 150 120 90 60 30 0 48 51 54 57 60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 11
Percent 20 Petroleum as a share of goods imports 18 16 14 12 10 Petroleum Imports 8 6 4 2 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Trade Deficit and Imports in Sync with Oil Prices Index, 2000= 100 Avg. $/barrel 250 160 Trade Balance 140 200 120 150 100 80 100 Total Imports 60 50 WTI 40 20 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0
Crude Production and Imports M il. barrles/day 12 10 8 Crude Imports 6 4 Crude Production 2 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
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?
Index, 1997= 100 140 Oil Prices and the Dollar Dollarsper barrel 160 130 WTI Spot Price 140 120 120 110 Trade Weighted Value of the Dollar 100 80 100 90 60 40 20 80 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
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
State Employment Shares Percentage of nonagricultural employment 6 Alaska Louisiana New M exico North Dakota 5 Oklahoma Texas Wyoming 4 3 2 1 0 2000 2011 2000 2011 2000 2011 2000 2011 2000 2011 2000 2011 2000 2011 Oil & gas extraction Refining Petrochemicals Oil field equipment Oil & gas support activities
State Oil Production
Shale oil and employment growth 2006 2012 yearly growth rates U.S. Annual Average Growth -0.15
Energy sector wages high Dollars 3.50 2012 Estimate 3.00 2.50 Share of Oil & Gas Extraction 2.00 1.50 Share of Oil & Gas Support 1.00 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Temporary housing in Eagle Ford
Texas employment follows oil prices
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
Oil and the U.S. Economy: Does Shale Change the Picture? Mine Yücel Federal Reserve Bank of Dallas
Employment and Total Wages Have Accelerated in Eagle Ford Counties Total Wages 1.85 1.75 Total Employment 280000 1.65 260000 1.55 Total Wages Paid 240000 1.45 1.35 1.25 Total Jobs 220000 200000 1.15 2005 2006 2007 2008 2009 2010 2011 Source: Texas Railroad Commission 180000
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 44 0 10 20 30 40 50 60 70 80
Natural Gas Marketed Production* *Monthly average for 2010 except for AK, LA, NM, OK, TX, and WY which is production for July 2012.
Higher Oil Prices and State Economies Helped Hurt