IHS report: Unconventional oil & gas to be economic driver

A surge in unconventional oil and gas extraction nationwide will trigger more than $5.1 trillion in capital spending and support more than 3.5 million jobs by 2035, according to a new IHS Global Insight study.

The findings suggest that domestic energy development — specifically unconventional oil and gas extraction — will be a bright spot in an otherwise dim economy, said lead author John Larson, a vice president at the research firm.

“You’re talking about a growth opportunity in an economy that doesn’t have a lot of strong growth leaders right now,” Larson said.

The report builds on a portfolio of research highlighting the economic impacts of shale gas development and for the first time offers numbers on the possible jobs and spending tied to unconventional oil extraction in the U.S. It was financed in part by the American Petroleum Institute, the Institute for 21st Century Energy, the American Chemistry Council and the Natural Gas Supply Association.

In contrast to  conventional  drilling — which seeks to tap underground pockets of fossil fuels — energy companies are increasingly using horizontal drilling and hydraulic fracturing technology to unlock natural gas and oil trapped in the pores of dense rock formations. The result is a surge in unconventional oil and gas drilling in North Dakota, Texas, Pennsylvania and other states.

The work takes more initial resources, spending and equipment than traditional fossil fuel extraction. But the initial investment tends to pay off longer, with more production over the long term.

Larsen noted that a conventional gas well could run $500,000 to $1 million, while the  price tag for an unconventional well could range from $3 million to  $10 million.

“You have a much steeper starting point,” Larson said. “These tend to be much more capital intensive investments compared to their conventional counterparts.”

According to IHS, unconventional drilling will be responsible for more than $5.1 trillion in capital spending from now until 2035, with $2.1 trillion linked to unconventional oil and gas  in the U.S.

IHS projects that activity will support more than 1.7 million jobs this year and 3 million jobs in 2020. The 2020 jobs figure includes 600,000 directly tied to the oil and gas industry,  900,000  indirectly related, and 1.5 million created or sustained by the spending of direct and indirect employees.

With unconventional drilling, the supply chains are long — and the ones serving the U.S. industry mostly are domestic — so investments in  unconventional plays can ripple throughout the U.S. economy, even in areas without rigs and oil field workers.

For instance, New York’s financial community stands to benefit from the investments in this arena, even though a moratorium bars hydraulic fracturing and natural gas drilling in the state.

State governments and federal coffers also can expect to benefit from the activity. IHS projects that unconventional oil and natural gas activity will contribute nearly $62 billion in tax receipts this year,  more than  $111  billion a year by  2020, and  a total of $2.5 trillion from 2012 to 2035.

The report comes as domestic energy development — and its potential contribution  to the economy — remains a hot issue on the campaign trail. Both presidential candidates, Mitt Romney and Barack Obama, have unveiled energy plans that highlight the role of domestic development in reviving the U.S. economy.