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
industrys role as a driver of investment and job
creation, as well as energys importance as the key input
for most goods and services in the economy. Fig. 1 shows the
energy sectors share of business-sector gross domestic
product (GDP) along with other industries in several
Organization for Economic Cooperation and Development (OECD)
Fig. 1. Share of business-sector
and energy compared to other
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 industryby nature,
capital intensive and requiring high levels of
investmenthas 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 industrys 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
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
sectors multiplier effects.
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
energys 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
economys 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.