Sep 24, 2014 - 4:45pm

Shale Energy Supply Chain Supports 500,000 Jobs. More Growth Expected.


Senior Editor, Digital Content

Bloomberg_Marcellus_pipes_800px.png

Drilling pipes stacked at a hydraulic fracturing site atop the Marcellus shale rock formation in Pennsylvania. Photographer: Ty Wright/Bloomberg.
Drilling pipes stacked at a hydraulic fracturing site atop the Marcellus shale rock formation in Pennsylvania. Photographer: Ty Wright/Bloomberg.


Over 50 years ago, Leonard Read wrote a short story, "I, Pencil," that explains how no one person on earth has the capability of making a pencil all by himself. The late Nobel Prize-winning economist, Milton Friedman, popularized the story in his PBS television series, Free to Choose.

Just as no one person can make something as basic as a pencil, no one person or company can get oil or natural gas out of shale rock. It takes hosts of people and companies working together to make the materials and equipment and provide the services needed for shale development.

How many people exactly?

A report produced by IHS for the Energy Equipment and Infrastructure Alliance finds that in 2012, 524,000 people worked in the supply chain industries that support shale energy development, and they earned over $41 billion in earnings. IHS expects the number of jobs in these industries to grow to 757,000 with earnings reaching almost $60 billion by 2025.

The chart below gives you a sense of how extensive the supply chain network is that supports shale energy from when it comes out of the ground (upstream) to when it's delivered to a consumer (downstream).

Materials

A lot of materials go into building an oil or natural gas well where horizontal drilling and hydraulic fracturing are performed (pipe, cement, sand). In addition, constructing pipelines and infrastructure needed to transport and store the energy require steel, cement, and other materials.

Capital Goods

Equipment like cranes, trucks, drilling rigs, pumps, and welding equipment are used to construct wells, pipelines, and other infrastructure.

Here’s one example:

[T]hroughout the upstream and midstream sectors, earth-moving construction machinery is necessary to excavate impoundment ponds, prepare access roads, dig pipeline trenches, and prepare the site of a natural gas processing plant. Thus while the original equipment manufacturers benefit from unconventional  development, so do the steel plate producers, metal fabricators, and machine tool shops that create the inputs for finished machinery that end up on upstream and midstream worksites.

Construction and Well Services

For oil and natural gas wells, workers prepare well pads, drill deep into the ground, and construct the wells. For infrastructure, workers build pipelines, pump stations (for oil), and compressor stations (for natural gas), refining and export facilities, as well as roads and other public infrastructure.

Professional Services

A host of professional services are needed: Civil and environmental engineering; waste disposal; land and right-of-way services; accounting; insurance; etc.

Logistics

Until someone invents a Star Trek-like transporter that makes materials magically appear someplace, shale energy development depends on trucks and rail to move pipe, equipment, sand, and water.

An American Petroleum Institute survey lists more than 30,000 companies in every state and the District of Columbia that support oil and natural gas development. As the shale energy boom continues, job creation will also.

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About the Author

About the Author

Sean Hackbarth
Senior Editor, Digital Content

Sean writes about public policies affecting businesses including energy, health care, and regulations. When not battling those making it harder for free enterprise to succeed, he raves about all things Wisconsin (his home state) and religiously follows the Green Bay Packers.