Booming natural gas production has helped keep small businesses linked to the energy sector afloat while businesses in other industries have struggled these past few years, according to a new report.
A study by the Small Business & Entrepreneurship Council found that “increased [natural gas] production has been good news for the energy sector, including for employment and business growth (especially small and midsize businesses), especially in those states where natural gas production has expanded.”
“The excellent performance of the oil and natural gas sectors of our economy stands in sharp contrast to the gross underperformance of the overall economy since 2007,” reads the report by economist Ray Keating.
For the past few years, hydraulic fracturing, or fracking, and horizontal drilling have allowed energy companies to unlock vast reserves of oil and natural gas trapped in shale formations. The well-stimulation technique has been criticized by environmentalists, but has been hailed by supporters for its economic benefits.
Small businesses linked to natural gas drilling in major production states, like Pennsylvania, have seen huge gains from hydraulic fracturing. Keating’s report found that total U.S. “employer firms declined by 5.0 percent from 2005 to 2011, including a 4.7 percent decline in firms with less than 20 workers, and a 5.0 percent fall in firms with less than 500 workers.”
For starters, the number of small businesses involved in oil and gas extraction grew “4.1 percent among firms with less than 20 workers and 4.8 percent among firms with less than 500 workers.” The number of drilling companies grew “7.9 percent among firms with less than 20 workers and 11.3 percent among firms with less than 500 workers.”
Support businesses in oil and gas operations grew by “29.1 percent among firms with less than 20 workers and 31.3 percent among firms with less than 500 workers.” Oil and gas pipeline and infrastructure companies grew by “12.2 percent among firms with less than 20 workers, and 12.5 percent among firms with less than 500 workers.”
One of the most profound effects of the shale gas boom has been to revitalize small manufacturers in the country. Firms making oil and gas field machinery as well as equipment manufacturing businesses grew by “8.5 percent among firms with less than 20 workers and 14.7 percent among firms with less than 500 workers.”
Booming shale gas production has sparked a national debate over whether or not the federal government should approve terminals to export liquefied natural gas around the world. Detractors, like environmentalists, say exporting gas would raise domestic prices and could exacerbate global warming.
Supporters, on the other hand, argue that increasing exports would have modest effects on the domestic price of gas and would incentivize companies to drill more — extending the reign of the shale boom.
The Energy Information Administration says domestic gas prices could only increase 38 percent or could double by 2040 depending on what assumptions are used. EIA further notes that exports will increase economic output. But what EIA doesn’t note is that natural gas exports could be used to offset the leverage Russia has over Europe and Asia because of its vast natural gas supplies.
“In the end, LNG exports would further enhance incentives for domestic natural gas production, with commensurate benefits being accrued in terms of economic, employment, business, and income growth,” reads Keating’s study. “The lone real obstacle to this tremendous opportunity is government policy going awry, whether that be misguided limits on or obstacles to U.S. exports, or wrongheaded and costly tax and/or regulatory burdens or schemes imposed on carbon-based energy production at the national level or in the states.”
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