The Economic Case For Energy Infrastructure

on May 10, 2017 at 10:00 AM

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One of the great things about America’s recent energy renaissance – which has made the U.S. the world’s leading natural gas and oil producer and refiner – is the choices it provides.

Before the resurgence in domestic oil and gas production, our national future was markedly constrained, because our energy future was constrained. Thanks largely to modern hydraulic fracturing and horizontal drilling, there is opportunity for economic growth, increased security and significant progress on climate and air quality. Many of these points are underscored in a new ICF study on how much oil and natural gas infrastructure is possible in the U.S. through 2035.

Short answer: A lot.

ICF estimates that investments in pipelines, refining and oil products transport, surface and lease equipment, gathering and processing facilities, storage, and export terminals – could top $1 trillion, benefiting national and state economies and also reaching individual communities across the country, extending far beyond the construction phase of projects. Key findings:

  • Rapid infrastructure development, which is likely to continue for a long time, will generate between $1.06 trillion and $1.34 trillion in private investments through 2035, the ICF study says. That translates into $56 billion to nearly $71 billion per year.
  • Infrastructure investment will contribute $1.5 trillion to $1.89 trillion to U.S. GDP through 2035, or between $79 billion and $100 billion annually, according to ICF’s study.
  • Infrastructure development will support an average of 828,000 to 1.047 million American jobs annually, the study says. Because of indirect and induced employment, infrastructure investment will support jobs across the entire country, not just in states where infrastructure development is occurring.

A chart from the study showing natural gas and oil capital expenditures (CAPEX) by year (high resource base scenario) through 2035:


This shows an annual average CAPEX of $70.6 billion. The chart below shows CAPEX by infrastructure category over the same time period:


From the ICF study:

A robust environment for oil and gas infrastructure development has not yet run its course and is likely to continue for many years … This investment will have positive impacts on the U.S. economy, employing many individuals and contributing significantly to Gross Domestic Product. It will also foster delivery of lower cost energy to households and businesses, and help the upstream and downstream portions of the oil and gas business develop more fully over time.

Worth repeating: The jobs depicted in ICF’s study are privately financed, well-paying, middle class-sustaining jobs that don’t rely on taxpayer dollars. In other words, this is a broad, impactful economic stimulus that’s not dependent on Washington. Kyle Isakower, API vice president of regulatory and economic policy, and Robin Rorick, API midstream and industry operations group director, discussed the study during a conference call with reporters. Isakower:

“Keeping pace with new production trends requires updating the energy infrastructure network, including pipelines, storage, processing, rail and maritime resources. Expanding our pipeline system will generate well-paying jobs and ensure we move energy efficiently, maximizing our economic and environmental advantages.”

Isakower said infrastructure maintenance and expansion that yields economic benefits of this size depends on timely, efficient regulatory review and approvals for individual projects:

“With state and federal policies that provide regulatory certainty, and facilitate transparent and timely project review, we can ensure the economic and environmental benefits of oil and natural gas are delivered to families and businesses nationwide.”

Rorick said increased use of natural gas has saved consumers in individual states millions of dollars. In Virginia, for example, natural gas use increased more than 50 percent between 2004 and 2014, with falling prices saving consumers more than $193 million compared to five years before. Industrial users saved $57.5 million. Schools and government also have benefited – Virginia Tech’s ongoing switch to natural gas as the university’s energy source will cut an estimated $1 million per year from its annual budget. “Without energy infrastructure, these improvements and cost savings simply would not be possible,” Rorick said.

One final point: The positive economic impact of ICF’s findings sharply contrasts with harsh economic realities underscored in another study released last month that calculated the impacts of an anti-fossil fuel agenda that is being pushed by a small but vocal minority in this country. Below, some of the study lowlights – if the U.S. halted new oil and natural gas leases, banned hydraulic fracturing, prohibited new or expanded coal mines and stopped permitting energy infrastructure:

  • 5.9 million jobs lost by 2040, a figure that accounts for “green” jobs that may be created.
  • $11.8 trillion in cumulative GDP lost by 2040.
  • For consumers, a $4,552 cost increase per household in 2040 – in direct costs but also higher energy costs throughout the economy for transportation fuel, for energy needed to produce goods and services and more. A chart included in last month’s post on the study:


API President and CEO Jack Gerard last month:

“Contrary to claims from the ‘keep it in the ground’ movement, cutting U.S. oil and natural gas production wouldn’t magically reduce world energy demand. But it could raise costs significantly for American families and manufacturers, profoundly damage the U.S. economy, diminish our geopolitical influence, and severely weaken our energy security.”

Two studies – two visions as different as day and night. One vision chooses to harness America’s 21st century energy abundance and spread its benefits to all parts of the country through new and/or expanded infrastructure. The other vision would consign the United States to the energy scarcity of the late 20th century. The right choice for America is to safely and responsibly develop its energy abundance, build out its energy infrastructure and reap domestic energy’s broad benefits.

By Mark Green  

Originally posted May 3, 2017

Energy Tomorrow is brought to you by the American Petroleum Institute (API), which is the only national trade association that represents all aspects of America’s oil and natural gas industry. Our more than 500 corporate members, from the largest major oil company to the smallest of independents, come from all segments of the industry. They are producers, refiners, suppliers, pipeline operators and marine transporters, as well as service and supply companies that support all segments of the industry.