The US energy sector has been a rare bright spot through much of the past four years as first financial firms and then the rest of the global economy has struggled to recover from a grinding and often jobless recession.
Statistics about jobs vary, but any region with significant oil or gas resources has noted the uptick in employment in those sectors as development has accelerated. The most recent numbers from Pennsylvania’s Department of Labor and Industry, for example, show core employment in the Marcellus Shale developments in the state up by 177.5% from first quarter of 2009 to the first quarter of 2012, even as the state’s overall employment level has lagged that of the rest of the country.
The message from the top energy economists and analysts gathered for the US Association for Energy Economics North American conference this week in Austin, Texas is clear: Prepare for that sector to shine even brighter.
Read more about the USAEE Conference here.
Hit first by uncertainty about financial hedging practices and holding cash in reserve as demand for power and other energy products slipped, energy companies four years ago were preparing along with the rest of corporate America for the global economy to go off a cliff. The global economy recovered faster than the government response to the crisis, and expanding Asian markets and the impact of spreading use of technologies like fracking worked alongside stimulus funding for renewable energy products to maintain growth in much of the energy sector even as the rest of the economy remained moribund.
Investment has been striking in both traditional fossil fuels and for renewable energy supply. The United Nations estimates $211 billion was invested in renewable energy in 2010 globally, and the American Petroleum Institute says US oil and gas companies alone spent $476 billion the same year. That makes up more than half of all capital investment in that year, according to recent data revisions by the US Census Bureau in its Annual Capital Expenditures Survey. “In 2010, U.S. nonfarm businesses invested $1,105.7 billion in new and used structures and equipment,” the group said. It is worth noting those statistics are not perfectly comparable, but they demonstrate the centrality of the US energy sector to US business activity in recent years.
New Urgency: An Integrated Energy Shock
Much of the investment of the past few years has focused on the oil and gas sector, with continued consolidation in the power sector amid sustained uncertainty about what regulators and politicians would be do about everything from transmission pricing to transportation and North American energy exports.
With a seemingly eternal US presidential election on the verge of being decided – and remaining in dead heat in the final days – a sense of impending pivot in the energy sector from watching and waiting to “doing” has been lent additional urgency by the impacts of Hurricane Sandy. The massive Northeastern storm created one of the longest high-profile blackouts in recent memory, and served as a reminder that US energy infrastructure remains both centrally important to the broader economy and that much of it is aging and ill-suited to new usage patterns and generation types.
Electricity regulators have forecast more than $4 trillion in necessary spending on infrastructure and new generation in the US, much of which will need to come from higher prices garnered under recently revised federal and state market structures like FERC Order 1000, which went into effect only weeks ago after years of work. For more on that story, read here.
In comments at the USAEE event, IHS CERA Vice Chairman and author Daniel Yergin said that Sandy represented, like other recent megastorms, an “integrated energy shock.” Multiple parts of the energy supply chain shut down, revealing gaps in not only energy infrastructure but in knowledge about energy data and places where infrastructure connects.
Change Remains a Constant
The presidential election and Sandy’s still-lingering devastation are combining to highlight the energy sector in the US at the very time it is set to expand and change.
Issues from taxation to emissions regulations to energy trading could finally start to be resolved after four years of sustained uncertainty, and the entire energy sector is preparing to boost its role – and its profile – in the US after many years of operating in the background of an economy concerned more with consumer goods or financial products.
Active engagement with Middle East policy and pursuit of solutions to the crises in Syria, Iran, Israel and Palestine will remain vital components of a US energy policy after the election, former US Ambassador and current Baker Institute Director Edward Djerejian told Breaking Energy at the USAEE event today.
“Energy independence is an oxymoron, energy security is realistic,” Djerejian said. “What happens in Saudi Arabia affects the price of oil even with the expansions of oil and gas production in the Western hemisphere.” Ongoing engagement with the region’s problems remain an essential part of the US energy picture, even as production in the US allows for lessened reliance on Middle Eastern energy exports, Djerejian said.