The figures appear to come largely from a study prepared by the consultants Wood Mackenzie and published last month by the American Petroleum Institute (API). (Perry explicitly footnotes it in his plan.) That study found that "U.S. policies which encourage the development of new and existing resources could, by 2030... support an additional 1.4 million jobs". About 1.2 million of those are based on expansion of U.S. production by 6.0 million barrels per day of oil and 22.4 billion cubic feet of gas per day by 2030, along with approval of the Keystone XL pipeline. (The rest come from future U.S.-Canada pipelines). The study projects interim impacts of 700,000 new jobs by 2015 and 1.1 million by 2020.
WoodMac assumes five policy changes in order to generate this expansion, all of which are echoed in Perry's and Romney's plans:
- Open the Eastern Gulf of Mexico, parts of the Rocky Mountains, the Atlantic and Pacific Outer Continental Shelves, the Alaska National Wildlife Refuge, the Alaska National Petroleum Reserve, and Alaska offshore to drilling. There is certainly a sharp contrast here with the Obama administration. Whether a new president could make all of these things happen is another question -- in many cases, the nearby states would be strongly opposed.
- Gulf of Mexico permitting is returned to its previous pace. It isn't clear, though, that this is actually a new policy -- given the resources by Congress and a bit of time, the Obama administration might well do the same.
- Lifting of the drilling moratorium in New York State. Neither Perry nor Romney, of course, has any power over this, so it's inappropriate to include it in estimates of federal policy.
- Forgo federal regulation of shale gas and tight oil development, including, in particular, tighter regulation of fracturing and water disposal. The assumption here is that federal rules would be stricter than state ones; WoodMac assumes that they would add 30 cents per thousand cubic feet to the cost of producing gas. It's not clear that that's true -- states like clean water too.
- Approve the Keystone XL pipeline and other future U.S.-Canada pipelines. This may or may not be a policy shift from the Obama administration -- we'll have to wait and see what happens with Keystone XL first.
There are, in essence, two problems here: the estimates assume that the Obama administration will be harsh toward oil and gas, and that a new president could roll over the states and Congress to be much more permissive. To the extent that those beliefs aren't true, the jobs estimates will be too high.
Let's put some numbers on this. Many of the projected jobs come from opening up new areas to production. As I noted above, though, many of the barriers to doing that are at the state level. How much might accounting for that blunt the jobs projections? California offshore accounts for about 120,000 of the new jobs, the Atlantic offshore makes up another 140,000, and the Gulf of Mexico offshore contributes 290,000, of which 150,000 are in Florida. Let's assume that California blocks development and that half of the Atlantic development is held up by states. I'm not sure how to handle Florida, which has a ban on drilling in state waters; let's say, I think generously, that half of the projected drilling materializes. Let's also say that the assumptions about future Obama administration slowdowns on Gulf of Mexico permitting are probably overstated, but still assume that a new president would speed things up somewhat, as a result increasing production from Texas and Louisiana by half as much as WoodMac estimates. That slices another 70,000 jobs from the projection. All in, we've cut the jobs projections by about 330,000.
The onshore numbers reported by WoodMac are trickier to parse, in large part because they lump regulatory and access impacts together. But they're important: fully 700,000 of the projected jobs come from there. A little less than a quarter of that comes from New York State, but as I noted earlier, that's not a matter of federal policy, so scratch about 150,000 jobs. Opening up the Rockies appears to add another 150,000 jobs or so, leaving us with about 400,000 that need to be explained by weaker federal regulation (dominated by impacts on Texas and Louisiana). I observed above, tough, that the study probably exaggerates the likely stringency of Obama administration regulation, so it's fair to slice this in half. So far, then, we've cut 330,000+150,000+200,000=680,000 of the projected jobs.
The final 270,000 projected jobs, or about 20 percent, come from new U.S.-Canada pipelines. This number is grossly overstated. According to WoodMac, "these jobs are primarily a result of U.S. services and the production of capital and intermediate goods exported to Canada for the development of the oil sands". But blocking U.S.-Canada pipelines isn't going to stop Canadian production from growing: it would slow things down, but ultimately, other export routes would likely materialize so long as oil prices were high enough. Those U.S. jobs wouldn't disappear. To be generous, though, let's say that delays and uncertainty associated with building other pipelines would kill 20 percent of the U.S. jobs, and that there's a 25 percent chance that the Obama administration will kill all pipelines; credit 14,000 jobs to a new pro-pipeline policy, 256,000 fewer than WoodMac projects.
Let's take stock. We started with 1.4 million jobs; we've identified about 930,000 of those that either will exist regardless of what a new president does, or whose fate depends largely on states' decisions. That leaves us with a more realistic estimate of about 470,000 jobs.
But we're not done yet. WoodMac estimates that for every direct job that the oil and gas industry generates, 2.5 jobs are created elsewhere, either in suppliers or in the broader economy as oil and gas workers spend the money they make. That 470,000 job estimate, then, corresponds to 130,000 jobs in the oil and gas industry itself. Some of those would, presumably, come at the expense of jobs elsewhere in the economy. The same thing goes for the induced and indirect ones.
The other caveat to the WoodMac estimates is that they assume high and steadily rising oil and gas prices. Oil prices start at $80 per barrel in 2012 and rise to $160 (in constant dollars) by 2030. WoodMac assumes that adding 6 million barrels per day of extra U.S. production won't blunt that increase, but I don't buy that - we're talking about a lot of oil. In reality, if production were to start increasing the way WoodMac claims it can, the price impact would likely deter some of the other development it projects. Of course, lower prices would also help the rest of the economy, but that isn't part of the WoodMac projections or of Romney's and Perry's jobs claims.
Natural gas prices, meanwhile, start at $6 per thousand cubic feet in 2012 in the WoodMac model (for what it's worth, spot prices are barely half that today), and rise to $12 by 2030; once again, policy changes don't affect that. That's a pretty high price projection, particular for a scenario where you're expecting a huge boost in natural gas supplies. Alas, as with the oil case, lower prices mean that many of the projected energy sector jobs won't materialized.
Which brings us to the bottom line. The numbers that Perry and Romney are offering for job creation in the energy sector are unrealistic. They assume that they will be reversing deeply anti-industry Obama policies that don't actually exist (which is not to say that the Obama policies have no flaws), ignore real constraints at the state level, and don't fully account for market dynamics. Five hundred thousand is a reasonable upper limit for the number of jobs that a new policy might create by 2030, of which 130,000 or so might actually be in oil and gas. Taking into account market dynamics could lower those numbers further. That's still nothing to sneeze at - but it's not 1.2 million jobs either.
Source: the Atlantic
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