North American Energy – Closing the Growth & Jobs Gap

Oil & Gas Development Boosts the Economy and Industrial Resurgence

Jul 25 2013

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The revolution in oil and natural gas production technology has shifted the domestic energy supply curve dramatically to the right. Hydraulic fracturing and directional drilling have made large domestic crude oil and natural gas reserves accessible at production costs that are competitive with international prices, enabling domestic producers to gain back a share of crude oil sales from imports, preserve North American self-sufficiency in natural gas, and even to seek a share of overseas natural gas markets.

The build-out of the domestic oil and gas supply is pumping billions of dollars into the still ailing economy and creates jobs in the industry, the largely domestic supply chain, and throughout the economy. Increased oil and gas production creates real value, lends a competitive advantage to U.S. manufacturing, and promises sustained economic growth.



Abundant oil and gas reserves. The domestic reserves of crude oil and natural gas now accessible are so large they will last for many decades. The Energy Information Administration’s (EIA) latest estimate of the country’s technically recoverable natural gas resources is 2,327 trillion cubic feet, which would last roughly 100 years at the current rate of U.S. consumption; its estimate of crude oil resources is 222.6 billion barrels, which amounts to 90 years of U.S. field production at the current rate.

According to a prominent University of Texas study of 15,000 wells in the Barnett Shale formation of northern Texas, 44 trillion cubic feet of natural gas, which is equal to two years of U.S. consumption at current rates, can yet be produced from Barnett alone. This is more than three times what has been produced so far from that formation. The Barnett study, and similar ones under way, suggests that natural gas production in the United States will not plateau until 2040.

Stable production costs. The large resource base of tight oil and shale gas suggests that production can expand over a wide range of output without substantial cost increases. Unless it becomes more difficult to find and extract the resources, drilling and production costs per unit of output will not increase—and given the enormous size of shale plays in the United States that may not occur for a long time. Exhibit 2 shows estimates of long-run supply curves from different sources of natural gas in the United States based on present technology. A substantial portion of the estimated shale resource base is economic at prices between $4 and $8 per MMBtu.

The advancements that have made unconventional production economical occurred only a few years ago and costs may yet decline even further as the unconventional methods are honed—the supply curve may shift further down and to the right. Indeed, estimates of oil and gas resources typical increase over time.



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