Economics 101: When you send less of the profit from your production overseas, you help your own economy

I started this article last Thursday, but set it aside. From THE WALL STREET JOURNAL:

U.S. Oil Notches Record Growth

Rise in Production Is World’s Largest; Fueled by Fracking

THE WALL STREET JOURNAL, Thursday, 13 June 2013

By Keith Johnson and Russell Gold | Updated June 12, 2013, 7:39 p.m. ET

U.S. crude-oil production grew by more than one million barrels a day last year, the largest increase in the world and the largest in U.S. history.

In the latest sign of the shale revolution remaking world energy markets, crude production in the U.S. jumped 14% last year to 8.9 million barrels a day, according to the newly released Statistical Review of World Energy, an annual compilation of industry trends published by BP PLC for more than six decades.

The wave of new crude, flowing in oil fields from North Dakota to south Texas, helped keep the global market adequately supplied and helped markets weather declining oil production elsewhere in the world.

“The growth in U.S. output was a major factor in keeping oil prices from rising sharply, despite a second consecutive year of large oil supply disruptions,” said BP Chief Executive Bob Dudley.

A lot more at the link.

As we have noted previously, the United States has some economic advantages which have allowed us to escape the fate of other nations which have continually spent more than their production can support, primarily our advantage in controlling our own currency and the act that the dollar is and remains the world’s reserve currency.

At the peak of the United States’ economic dominance, following World War II, we were also the world’s largest petroleum producer, and an oil exporter. We slipped into the status of becoming a net oil importer a few decades ago, and while we are still a net oil importer, we are importing less oil than we have in a couple of decades. Part of that is due to increased energy efficiency, with automobiles going further on a gallon of gasoline, but a large part of that is that we are producing more oil than before.

This has a huge economic impact: less of our production is being sent overseas, and more of the dollars we spend on petroleum are going to workers in Texas and North Dakota than to workers in Mexico and Venezuela. However, the increase in our production of oil and natural gas has come through employing a new technology, hydraulic fracturing, or “fracking.” From Phineas:

New York: the Enviro-Luddites’ Fracking Insanity

"Treasure map" Posted by: Phineas on June 16, 2013 at 12:01 pm

One of the things about the environmental Left that drives me most nuts is its resistance to reason and empirical fact. Global warming is a good example: what started as a theory many years ago, that the Earth is warming dangerously and the climate heading for disastrous changes because of the carbon dioxide Man has been adding to the air, has been shown time and again in recent years by empirical observation to be false. There has been no statistically significant warming since the mid-90s, the polar bears are not dying out, and prediction after prediction made by the warming alarmists has failed to pan out. But, in the face of overwhelming evidence that should at least cause strong skepticism, they cling bitterly to their computer models — which haven’t been right, yet.

Similarly with radical environmentalists who oppose any and all development of hydrocarbon resources (coal, oil, natural gas), no matter what the actual research shows of its safety, no matter the reasonable measures taken to protect the environment, and no matter –perhaps especially regardless of– the economic benefits to people.

Take hydraulic fracturing (“fracking”) for example. That’s the extraction of natural gas and oil by forcing water into cracks in underground rock formations and widening them to release the resources. New York State is one of the states sitting atop the Marcellus Shale formation, which has been estimated to hold immense reserves of natural gas. In an article in the June 17th print edition of National Review, 1 Ian Tuttle talks about Governor Andrew Cuomo’s (D) Hamlet-like coy reticence2 to develop the shale, in spite of the evident economic benefits from fracking for counties that have been hit hard by the “recovery” from the Great Recession and in spite of his own Health Department’s certification that fracking is safe. The article overall is worth reading, but one fact jumps out and that I want to share:

“Twenty-eight New York counties sit atop the Marcellus Shale, a natural gas bearing subterranean rock formation that also stretches across part of Ohio, West Virginia, Maryland, and Pennsylvania. Geologists estimate that the entire region contains 489 trillion cubic feet of natural gas. Given that a third of the Shale’s 55,000 square miles is in New York, the Empire State has access to a sizeable portion of that — certainly enough to supply much of its own in-state natural gas demand: a mere 1.1 trillion cubic feet each year.”

Think about that for a moment and let the implications sink in. Assuming for a moment that the natural gas is evenly spread throughout the Shale (I’m sure it isn’t, but what is there is substantial), there are roughly 163 trillion cubic feet of natural gas under New York, enough to meet the state’s needs for 140-150 years. Natural gas is cheap, clean fuel that could replace coal and oil in homes and businesses. Even if New York’s consumption suddenly doubled, there’s enough for decades, at least. And let’s not forget the the jobs created: in counties where fracking is underway, guys driving water trucks make $60,000 per year. I imagine New Yorkers would like to enjoy the cheap, safe fuel and the good-paying jobs, but their governor and their legislature have more important things in mind, like keeping the Green lobby happy.

More at the link.

Note the map Mr Fahrquar included. The map is from the New York State Department of Environmental Conservation, so they are concerned with things in the Empire State. But the Marcellus Shale region doesn’t stop at the hard line drawn by the DEC along the southern border of New York: it extends in to Pennsylvania and West Virginia and Ohio as well, as the map to the right shows. In Pennsylvania, much more sensibly governed by a Republican governor and a state legislature in which both houses are controlled by the Republicans, we aren’t hesitant at all: we want to participate in the economic development of the natural gas extraction, and we want the jobs which will come from it.

The top two states in economic growth were North Dakota and Texas:

1. North Dakota

  • GDP growth: 13.4%
  • Real 2012 GDP: $38.7 billion (5th smallest)
  • 1-yr. population change: 2.17% (the highest)
  • 1-yr. employment growth: 3.02% (the highest)

For the third consecutive year, North Dakota had the fastest economic growth of any state in the country. It also led the nation in both total population and employment growth last year. Much of this was due to the state’s oil boom; North Dakota is now the second largest oil producer among all 50 states, after Texas. Last year, the mining sector contributed almost 3.3 percentage points to the state’s impressive 13.4% GDP growth. The agriculture, construction, wholesale trade and transportation and warehousing industries also added more to GDP in North Dakota than in any other state. North Dakota’s unemployment rate has been below 4% — the lowest in the United States — for each of the past three full years, due to its thriving resource economy.

2. Texas

  • GDP growth: 4.8%
  • Real 2012 GDP: $1.21 trillion (2nd largest)
  • 1-yr. population change: 1.67% (2nd highest)
  • 1-yr. employment growth: 2.17% (6th highest)

The GDP of Texas, already the nation’s second largest state economy behind California, rose by nearly twice the 2.5% clip for the United States overall. Two factors — the energy boom and population growth — have been driving economic growth, according to Bernstein. Part of a long-running trend, population rose by roughly 1.7% in 2012, the second highest increase in the nation. (The state’s population grew by more than 20% between 2000 and 2010.) Energy also has been a major factor in the state’s growth. The mining industry, which includes oil and gas extraction, contributed 0.9 percentage points to GDP growth, more than all but two other states. The mining industry in Texas is the largest of any state in the nation, accounting for $123.3 billion of the nation’s $285.2 billion in mining output during 2012.

Our economy has been growing, but at a much slower rate than economists expected or for which people hoped. The official unemployment rate clicked up a notch, to 7.6%, in May, while the broader U-6 unemployment rate is a staggering 13.8%.3

This is one of the biggest problems amongst our friends on the left. They really do want to see economic growth, because even they realize that, without economic growth, we will be poorer. But they only want the right kind of economic growth, the green jobs that they thought would materialize and spur the economy, the sit-behind-a-computer-terminal jobs in which the workers can eat their morning bagels and drink latte and never, ever get dirt under their fingernails. The increases in oil and natural gas production, why that’s just the wrong sort of economic growth. Perhaps it’s easier for our friends on the left to be opposed to job creation when it’s the wrong kind of job creation when they personally already have jobs. For the man who has to put food on the table and needs a job, I would guess that such concerns are not very important.

But, we’ve said it before: if liberals really understood economics, they wouldn’t be liberals.

  1. Sorry, no direct link is available. The issue has a five-article section on resource development. I highly recommend buying it or hunting it up at your local library. Footnote in the original.
  2. Meaning he’s afraid to go against a legislature largely owned by the enviro-lobby, and he wants the lobby’s cash and campaign work for when he runs for president in 2016, what’s right for his state be damned. Footnote in the original.
  3. The U6 unemployment rate counts not only people without work seeking full-time employment (the more familiar U-3 rate), but also counts “marginally attached workers and those working part-time for economic reasons.” Note that some of these part-time workers counted as employed by U-3 could be working as little as an hour a week. And the “marginally attached workers” include those who have gotten discouraged and stopped looking, but still want to work. The age considered for this calculation is 16 years and over

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