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Resilient Through Recession, Energy Industry Has Potential to be a Key Economic Engine, IHS CERA/World Economic Forum Study Says

(03/09/2012)

Resilient Through Recession, Energy Industry Has Potential to be a Key Economic Engine, IHS CERA/World Economic Forum Study Says

Energy industry’s direct contributions to economic growth are dwarfed by its overall role as the lifeblood of the modern economy

HOUSTON (March 7, 2012) – Having proved resilient throughout the Great 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 Cambridge Energy Research Associates (IHS CERA) and the World Economic Forum. The findings of the study were presented today at CERAWeek 2012, the world’s premier energy conference, in Houston.

The report, Energy Vision 2012: Energy for Economic Growth 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. 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.

“The energy industry is unique in its economic importance,” IHS CERA Chairman and Pulitzer Prize-winning author, Daniel Yergin said. “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 outsize contributions to gross domestic product (GDP) growth, the study says. In the United States, the oil and gas extraction sector grew at a rate of 4.5 percent in 2011 compared to an overall GDP growth rate of 1.7 percent.

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 energy industry’s most important immediate source of economic potential is its high “employment multiplier effect” that 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 United States generates three or more indirect and induced jobs across the economy, the study says. This places oil and gas ahead of the U.S. 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, Head of Energy Industries, World Economic Forum. “But we were still surprised when the data uncovered the magnitude of the sector’s multiplier effects.”

Energy Vision 2012 also examines the role of energy prices in the economy. 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. 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 says.

“One must look at energy’s contribution to the overall economy, not just its direct contribution,” said Samantha Gross, IHS CERA Director, 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.”

Energy Vision 2012 also examines the role of policy in maximizing the economic benefits of energy production and the promotion of steady and reasonable energy prices through stable tax and fiscal schemes and the encouragement of industrial diversification through cluster development. It points to the challenge for resource-rich country to transform oil and gas earning into the foundations of a wider, more diversified economy.

The study includes insights and perspectives from high-level representatives of industry, government, nongovernment organizations and academia, including:

Khalid A. Al-Falih, President and Chief Executive Officer, Saudi Aramco, Saudi Arabia

Jean-Marie Chevalier, Professor of Economics, Université de Paris IX Dauphine, France, Vice President, IHS CERA

Brian Dames, Chief Executive, Eskom Holdings SOC Ltd, South Africa

Stephen Dolezalek, Managing Director and CleanTech Group Leader, VantagePoint Capital Partners, USA

Ditlev Engel, President and Chief Executive Officer, Vestas Wind Systems, Denmark

José Sergio Gabrielli de Azevedo, Chief Executive Officer, Petroleo Brasileiro Petrobras, Brazil

Han Seung-soo, Former Prime Minister, South Korea

John Hoeven, United States Senator, North Dakota, USA

Lin Boqiang, Associate Dean of New Huadu Business School, Director of China Center for Energy Economics Research, Xiamen University, China

Lawrence Makovich, Vice President, IHS CERA, USA

Howard Newman, President and Chief Executive Officer, Pine Brook Partners, USA

Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy and Professor of Economics, Harvard University, USA

Leena Srivastava, Executive Director, TERI, India

Tulsi Tanti, Chairman and Managing Director, Suzlon Group, India

Maxim Timchenko, Chairman of the Executive Board and Chief Executive Officer, DTEK, Ukraine

Peter Voser, Chief Executive Officer, Royal Dutch Shell, the Netherlands

Zhang Guobao, Vice Chairman, Economic Affairs Committee, Chinese People’s Political Consultative Conference, Former Head, National Energy Administration of China

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