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Energy for economic growth

04.01.2012  |  Thinnes, Billy,  Hydrocarbon Processing Staff, Houston, TX

Keywords: [OECD] [energy jobs] [growth] [GDP] [economy] [global]

Having proved resilient throughout the recent recession compared to other sectors, the energy industry has the potential to be a key engine of economic growth and recovery, according to a new study by IHS CERA and the World Economic Forum. The report provides a framework for understanding the larger economic role of the energy industry at a time when issues of employment and investment are so critical in a troubled global economy, its authors said.

The report examines the industry’s role as a driver of investment and job creation, as well as energy’s importance as the key input for most goods and services in the economy. Fig. 1 shows the energy sector’s share of business-sector gross domestic product (GDP) along with other industries in several Organization for Economic Cooperation and Development (OECD) countries.

  Fig. 1. Share of business-sector GDP
  and energy compared to other industries. 

“The energy industry is unique in its economic importance,” said Daniel Yergin, IHS CERA chairman. “The energy sector has the potential to be a tremendous economic catalyst and source of innovation in its own right, while it simultaneously produces the very lifeblood that drives the broader economy.”

The energy industry—by nature, capital intensive and requiring high levels of investment—has the ability to generate outsized contributions to GDP growth, the study says. In the US, the oil and gas extraction sector grew at a rate of 4.5% in 2011 compared to an overall GDP growth rate of 1.7%.

The highly skilled technical nature of energy industry jobs is reflected in compensation levels. As a result, employees of the energy industry contribute more absolute spending per capita to the economy than the average worker, and contribute a larger share of GDP per worker than most industries, the study says.

The energy industry’s most important immediate source of economic potential is its high “employment multiplier effect,” which is a result of its extensive supply chain and relatively high worker pay. Every direct job created in the oil, natural gas and related industries in the US generates three or more indirect and induced jobs across the economy, the study says. For further illumination, Fig. 2 shows energy sector employment when compared to other industries in select OECD countries.

  Fig. 2. Share of business-sector
  employment and energy compared to
  other industries. 

In the US, this places oil and gas ahead of the financial, telecommunications, software and non-residential construction sectors in terms of the additional employment associated with each direct worker.

“We always suspected that energy had a vital role to play in the economic recovery,” said Roberto Bocca, senior director and head of energy industries at the World Economic Forum. “But we were still surprised when the data uncovered the magnitude of the sector’s multiplier effects.”

Energy prices.

As the key input for most goods and services in the economy, lower energy prices reduce expenses for consumers and businesses and increase the disposable income available to be spent elsewhere. Many countries, such as China, India and South Korea, are increasingly focusing on renewable energy sources as potential growth sectors for their economies, the report said.

Developed countries are also investing in renewables in an effort to meet sustainability goals and emerge at the forefront of this growing sector. However, the higher costs of these technologies create tradeoffs that must be considered, the study said.

“One must look at energy’s contribution to the overall economy, not just its direct contribution,” said Samantha Gross, IHS CERA director of integrated research. “Maximizing direct jobs in the energy sector may not be the right goal if it reduces efficiency and increases energy prices to the detriment of the economy’s overall productivity.”

The study also examines the role of policy in maximizing the economic benefits of energy production, promoting steady and reasonable energy prices through stable tax and fiscal schemes, and encouraging of industrial diversification through cluster development. It points to the challenge for a resource-rich country to transform oil and gas earnings into the foundations of a wider, more diversified economy.  HP

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