$1.3 trillion private investment in oil and gas infrastructure could add almost $2 trillion to U.S. GDP

By 2035, if the right regulatory policies are in place, private investment could exceed $1.3 trillion for oil and natural gas infrastructure, and create more than one million jobs, according to American Petroleum Institute VP of Regulatory and Economic Policy Kyle Isakower.

Isakower’s comments reference a new study commissioned by the API, provided by ICF, that projects economic results of oil and natural gas infrastructure development in the U.S. over the next two decades. The 155-page report details the economic effects of such a large build. The study finds that rapid infrastructure development is likely to continue for a prolonged period of time, generating between $1.06 and $1.34 trillion in private investment from 2017 through 2035—$56 to $71 billion per year.

Oil & Gas Infrastructure Could Generate 1 Million U.S. Jobs, Bump GDP by Almost $2 Trillion

Source: API/ICF

The impact on job opportunities is significant, with infrastructure development supporting an average of 828,000 to 1,047,000 American jobs annually, not only within states where infrastructure development occurs, but across all states because of indirect and induced labor impacts.

“These are good-paying, middle class-sustaining jobs that do not rely on taxpayer dollars,” the API said.

ICF also projects that infrastructure investment will contribute $1.50 to $1.89 trillion to U.S. GDP, or between $79 and $100 billion annually.

Study bottom line

  • Up to a million jobs could be supported.
  • Up to $1.34 trillion in private natural gas and oil infrastructure investment could occur.
  • Up to $1.89 trillion could be added to the U.S. GDP.

The ICF study used a base case and a high case in its analysis. In each scenario, growth in shale gas and tight oil production continues, and production growth from cost-effective plays like the Marcellus and Utica in the Northeast U.S. and the Permian Basin in West Texas will be the main driver of oil and gas infrastructure development.

Robust supply growth will continue to foster increased output from U.S. refineries, development of natural gas liquid (NGL) and liquefied natural gas (LNG) exports, incremental exports of natural gas to Mexico, new petrochemical facilities spread across the Northeast and near the Gulf Coast, and increases in gas-fired power generation. These factors, in turn, support oil and gas infrastructure development.

Summary of Scenario Trends

Oil production

 

Oil & Gas Infrastructure Could Generate 1 Million U.S. Jobs, Bump GDP by Almost $2 Trillion

Source: API/ICF

  • In aggregate, U.S. oil production is relatively constant in the Base Case, but increases by roughly 4 million barrels per day or by roughly 50 percent in the High Case. Tight oil supplies are a focus for development in each case.

Gas production

Oil & Gas Infrastructure Could Generate 1 Million U.S. Jobs, Bump GDP by Almost $2 Trillion

Source: API/ICF

  • Natural gas production grows from roughly 70 billion cubic feet per day at present to over 110 billion cubic feet per day by 2035 in the Base Case, and to over 130 billion cubic feet per day in the High Case.

NGLs production

  • NGL production is projected to grow to 6 to 7 million barrels per day by 2035 from the current level of roughly 3 million barrels per day.

Refinery output increases driven by U.S. tight oil

Oil & Gas Infrastructure Could Generate 1 Million U.S. Jobs, Bump GDP by Almost $2 Trillion

Source: API/ICF

  • Refinery output will increase from a little over 16 million barrels per day at present to between 17 and 19 million barrels per day by 2035, driven by development of U.S. tight oil supplies.

Gas and NGLs market growth underpinned by LNG exports, exports to Mexico

Oil & Gas Infrastructure Could Generate 1 Million U.S. Jobs, Bump GDP by Almost $2 Trillion

Source: API/ICF

  • Natural gas market growth is strong in each scenario. The total market growth is underpinned by growth in LNG exports and exports to Mexico, growth in gas use as a fuel and feedstock in petrochemical facilities, and growth in gas-fired power generation.

    Oil & Gas Infrastructure Could Generate 1 Million U.S. Jobs, Bump GDP by Almost $2 Trillion

    Source: API/ICF

  • NGL market growth is also substantial in each scenario with new ethane crackers and polypropylene facilities being added to the mix, and incremental export capability being developed over time.

Transport capacity

  • Between 3.0 and 5.0 million barrels per day of new oil transport capacity is placed into service in each of the scenarios.
  • Between 49 and 68 billion cubic feet per day of new natural gas transport capacity will be needed to support the levels of gas production and associated market growth projected through 2035.
  • Between 1.8 and 2.6 million barrels per day of new NGL transport capacity will be needed to support the levels of NGL production and associated market growth projected through 2035.

Summary of projected infrastructure development

Total capital expenditures for oil and gas infrastructure from 2017 to 2035 are projected to be $1.06 and $1.34 trillion, equating to annual averages of $56 to $71 billion.

In the Base Case, roughly 45 percent of the investment is attributed to natural gas infrastructure development, roughly 49 percent is attributed to oil infrastructure development, and the remaining investment is attributed to NGL infrastructure development.

In the High Case, natural gas infrastructure development rises to 49 percent of the total investment, while oil infrastructure development falls to 45 percent of the total, and NGL infrastructure development remains at about the same percent as in the Base Case.

Infrastructure investment by category

Onshore, offshore drilling: 24,000-28,000 new wells and 9-10 new platforms each year

  • Surface and Lease Equipment will account for the largest portion of infrastructure development with a CAPEX of $318 to $365 over the investment horizon. The CAPEX is fairly equally split between onshore and offshore development, with investment in lease equipment for an average of 24,075 to 28,175 new wells and 9 to 10 new oil platforms each year.

Adding 27,000 – 46,000 miles of pipelines

  • Oil, gas, and NGL pipelines come in second with a total CAPEX of $234 to $362 billion throughout the projection. Within this infrastructure category, investment is greatest for natural gas pipelines with a CAPEX totaling $190 to $290 billion throughout the projection. Roughly 1,400 to 2,400 miles of natural gas pipeline are built each year, with a total of between 27,000 to 46,000 miles put in place throughout the projection.

Gathering and processing

  • Gathering and processing is third with a total CAPEX of $236 to $280 billion over the projection. The scenarios project 11,485 to 12,612 miles of gathering line, 1.2 to 1.5 million horsepower of compression, 3.7 to 4.5 billion cubic feet per day of processing plant capacity, and 256,000 to 335,000 million barrels per day of fractionation plant capacity will be added or replaced each year throughout the forecast period.

Refinery enhancements

  • Refining and oil products transport ranks fourth with a total CAPEX of $196 to $217 billion during the projection. The vast majority of the investment in this category is for refinery enhancements, upgrades, replacements, and refurbishments, with annual expenditures averaging $9.42 to $10.2 billion.

LNG and NGL exports

  • LNG and NGL exports rank fifth among the categories with a total CAPEX of $55 to $93 billion. The scenarios increase LNG exports to between 10 and 19 billion cubic feet per day after 2025. The scenarios also add 45,300 and 76,000 barrels per day of NGL export capacity each year.

Storage

  • Oil and gas storage ranks last among the investment categories with a total CAPEX of $21.1 to $25.5 billion. Much of the investment in this category is for replacement of natural gas storage injection and withdrawal wells related to well integrity management programs.

Geography: where the money would go

ICF found that not just the producing states, but all states would see advantages, including:

  • $95 billion GDP and 48,000 jobs per year for Ohio
  • $85 billion GDP and 40,000 jobs New York

Regionally, the largest portion of infrastructure development occurs in the Southwest, with investment for the area totaling $381 to $501 billion over the projection. Investment for this area is widespread across a number of infrastructure categories. The Northeast ranks second with total investment of $204 to $278 billion.

Marcellus/Utica pipes drive the NE activity

The largest portion of the expenditures for this area are for gas pipelines to transport Marcellus/Utica production to markets. However, gathering and processing investments are also quite significant in this area. Offshore investment ranks third among the regions, with a total CAPEX of $177 to $204 billion. Collectively, all other areas project total investment in oil and gas infrastructure of $296 to $360 billion.

Summary of the economic impact analysis

The study also assesses economic benefits of the projected infrastructure development. Economic benefits of oil and gas infrastructure development are very significant, as highlighted below:

  • The total investment of $1.06 to $1.34 trillion adds $1.50 to $1.89 trillion to U.S. Gross Domestic Product (GDP) from 2017 through 2035.
  • Gross State Products increase across the U.S., and the five states that benefit most from the infrastructure development include Texas, Louisiana, Pennsylvania, California, and Ohio, in that order.
  • Federal and State tax coffers are also larger as a result of oil and gas infrastructure investment. Federal taxes associated with infrastructure development will total $304 to $386 billion, and state and local taxes associated with development will sum to $236 to $299 billion from 2017 through 2035. 73
  • The level of employment (i.e., the number of jobs) supported by infrastructure development averages 828,000 to 1,047,000 each year throughout the projection. There are an average of 277,000 to 350,000 employees directly supported by the development. But, employment impacts are widespread across the U.S. as there are also indirect and induced labor impacts included in the job totals.
  • These employment and GSP benefits do not consider employment in the upstream and downstream portions of the oil and gas business, nor do they consider the operation and maintenance of the infrastructure. Those unconsidered segments would account for millions of jobs and significant contribution to GSP, which would add to the totals discussed here.
  • Infrastructure development will have wide-ranging benefits for millions of Americans. The midstream business is critical to the growth of the upstream and downstream portions of the oil and gas business. Without adequate infrastructure to support processing and transport of oil and gas, the upstream and downstream will develop less fully over time, and the foregone economic benefits would be very significant. In addition, oil and gas infrastructure development fosters delivery of lower cost energy to households and businesses, which is another positive economic impact that has not been considered in this analysis.
Oil & Gas Infrastructure Could Generate 1 Million U.S. Jobs, Bump GDP by Almost $2 Trillion

Source: API/ICF

In a media call about the study, API provided examples of how building oil and gas infrastructure has generated cost savings for companies and brought business development wins to various states.

Virginia lookback: gas usage up 50%, cheap natural gas saved industrial sector millions

The API briefing said that natural gas use in Virginia has increased more than 50 percent between 2004 and 2014, and falling natural gas prices saved consumers $193.4 million compared to five years before, while industrial consumers saved $57.5 million. In Carroll County, the administration building switched from fuel oil to natural gas and saves more than $40,000 a year. When fully implemented, Virginia Tech’s ongoing transition to natural gas as the school’s source of energy will cut an estimated $1 million per year from the university’s annual budget of approximately $6.5 million. The point being that having the natural gas delivery infrastructure to transport natural gas to the area made the regional and local savings possible.

 

The complete infrastructure study from API/ICF is available to download here.

 


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