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Is the American oil industry too big to fail?

The US oil and gas industry employs more than 11 million people and is worth more than $ 1.6 trillion, making the energy transition more difficult than you might think.

The Biden administration is moving forward to reduce its reliance on fossil fuels for US energy demand. The federal post-pandemic plan includes hundreds of billions of dollars in renewable energy and electric vehicle projects. But getting rid of oil and gas can be harder than some believe.

recently report Commissioned by the American Petroleum Institute, PwC describes the oil and gas industry as an important industry for the United States in terms of both direct and indirect impacts in the form of employment, labor income, and added value. Did. The report will be an extremely interesting and calm reading.

For example, the oil and gas industry employed 11.3 million Americans directly and indirectly in 2019. Labor income from these jobs, which PwC defines as wages and salaries, benefits, and owners’ income, was $ 892.7 billion in the same year. Finally, in 2019, the US oil and gas industry added value of about $ 1.688 trillion. In other words, the oil and gas industry contributed nearly $ 1.688 trillion to GDP.

PwC said each direct employment in the oil and gas industry supports an additional 3.5 in other industries. And, as the report author points out, it only counts so-called backward links. Backlinks are links to industry suppliers. Forward linkage, which was not included in the calculation of the impact of oil and gas on the US economy, refers to linkage with consumers in the industry.

Well, last year’s pandemic caused havoc in the oil and gas industry, but it didn’t kill it-if you do, it’s too big to kill. This year we are in recovery mode and, albeit cautiously, even production is growing consistently. However, the Green Transition Plan assumes that oil and gas will play a much smaller role in the US economy. What replaces it?

The obvious answer would be “renewable energy”. However, the construction of wind and solar power plants is very different from the production of oil and gas. As the simplest example, let’s talk about employment. Wells are drilled, monitored and maintained. Once built, solar farms require far less maintenance and monitoring than oil wells. After all, it’s one of the best things about solar. The panel just sits there and absorbs the heat of the sun and turns it into electricity. Oil and gas, on the other hand, require someone to monitor their proper outflow from the ground.

This means that oil and gas production requires more people than running a solar farm. And this means that oil and gas production will permanently create more jobs than the construction of solar farms. On the one hand, this makes oil and gas an uneconomical industry. On the other hand, it creates jobs, and job creation is good for the economy.

And what about the $ 1.688 trillion that oil and gas production, transportation, storage, and property have generated for the US economy? According to PwC, this total of about $ 1.4 trillion comes from direct and indirect businesses. An additional $ 245.4 billion was added by industry capital investment. Total accounted for 7.9% of US GDP in 2019.

Here are some of the industries in which oil and gas have indirectly affected GDP production: The services sector was by far the most affected, followed by finance, insurance, real estate, leasing and leasing. Wholesale and retail, to a lesser extent, were heavily influenced by oil and gas, as were manufacturing, transportation, warehousing and information. The combined indirect impact of oil and gas on these industries was $ 924.3 billion, both in terms of operational and capital investment.

Now let’s consider renewable energy and its impact on job creation and GDP. 2016 report According to the International Renewable Energy Agency, “Given the decentralized and labor-intensive nature of renewable energy, direct and indirect employment in the renewable energy sector could reach 24.4 million in 2030. There are 24.4 million people in the world.

IRENA estimates that “doubling the share of renewable energy in the global energy mix will increase global GDP by up to 1.1% in 2030, equivalent to US $ 1.3 trillion.” This is compared to the US alone contribution of oil and gas to GDP in 2019 of $ 1.688 trillion.

recently reportSince last year, IRENA has been working on the global energy sector under ambitious yet realistic energy transition scenarios that will enable the world to reach its goal of limiting global warming to 2 degrees Celsius. The total number is expected to increase to almost 100 million. .. That’s almost double the 58 million people hired for energy in 2017.

Regarding what happens to these renewable energy jobs, IRENA lacks details and mentions renewable energy and energy efficiency as a means of some work in the scenario. At the same time, the agency predicts that fossil fuel jobs will decrease by 40% in North America and Europe.

IRENA also mentions the impact of energy transitions on GDP, stating that these are mostly positive, but will depend on the differences in “socioeconomic starting points.” But in North America, the agency expects the transition to increase GDP to $ 659 per capita annually.

From an IRENA perspective, this is more important than the economic benefits that any country’s oil and gas industry can provide, as it is closely related to emissions. However, US government data cited in the PwC report suggest that it may be difficult to let go of oil and gas contributions, with or without emissions.

this paper Originally published Oilprice.com

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Is the American oil industry too big to fail?

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