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How Fracking Has Helped the U.S. Economy

By Arjun Sreekumar – Mar 30, 2014 at 12:00PM

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The surge in U.S. oil and gas production over the past few years has yielded tremendous economic benefits for the nation’s economy.

Over the past few years, the U.S. has witnessed a dramatic turnaround in its energy situation. Thanks largely to a combination of horizontal drilling and hydraulic fracturing, or "fracking," energy producers have been able to tap vast oil and gas deposits buried in deep shale formations. As a result, domestic oil and gas production has surged to multi-decade highs.

This energy boom has yielded tremendous and widespread economic benefits to the United States. A statement from the White House Council of Economic Advisors last year summed it up nicely: "Every barrel of oil or cubic foot of gas that we produce at home instead of importing abroad means more jobs, faster growth, and a lower trade deficit." Let's take a closer look at some of the main ways the energy boom has helped the nation's economy.

Job growth
The first and most obvious way is job growth, both direct and indirect. Since 2003, the direct production of oil and gas has created more than 400,000 jobs, while an additional 2 million jobs have been created indirectly in industries such as transportation, construction, and information services, according to research cited in a recent report by the Manhattan Institute.

An oil worker in North Dakota's Bakken shale preparing for a hydraulic fracturing, or "frac," job. Photo credit: Wikimedia Commons

In fact, the energy boom may have been responsible for roughly a quarter of the jobs U.S. employers have added to payrolls since the global financial crisis of 2008, according to comments by former Federal Reserve Chairman Ben Bernanke.

The energy boom has also helped revitalize sectors of the U.S. economy previously believed to be in secular decline, such as manufacturing, petrochemicals, and steel. Companies in these sectors have benefited tremendously from access to cheap shale gas, which they use as both a source of electricity generation and as a feedstock.

Going forward, the oil and gas sector should continue to be one of the largest contributors to job growth. Out of five major sectors of the economy, oil and gas has the largest potential to drive US GDP and job growth in the years ahead, according to a report by the McKinsey Global Institute. The study projects that continued expansion of the oil and gas sector could add nearly 2 million jobs and almost $700 billion to the nation's economic output through 2020.

Improving trade balance
Another major economic benefit of the energy boom has been a dramatic reduction in U.S. dependence on foreign oil and the associated improvement in the nation's trade balance. Historically, the U.S. has run large trade deficits, which means that the total value of imports exceeded the total value of exports by a wide margin. From 2000 to 2012, the cumulative U.S. trade deficit totaled $7.1 trillion, with imports of foreign oil accounting for roughly 40%, or $2.87 trillion, of that figure.  

But thanks largely to the phenomenal surge in U.S. oil production over the past few years and the associated reduction in oil imports, the U.S. trade deficit fell to $34.3 billion in November, the lowest level in four years. Indeed, the U.S. trade balance is now around 2%-3% of gross domestic product, a sharp improvement from around 6% of GDP in 2008.  

A view of the Houston Ship Channel, one of the nation's busiest seaports and a main waterway for oil shipments. Photo Credit: Flickr/Roy Luck.

And with U.S. oil output expected to approach its record high of 9.6 million barrels per day -- achieved in 1970 -- by as early as next year, the nation will be able to meet a larger share of its fuel needs through domestic production, further reducing reliance on foreign oil. This bodes especially well for U.S. refiners, which are seeing strong profit growth from exporting record volumes of refined products such as gasoline and diesel.

For instance, Valero (VLO -4.50%) exported 133,000 barrels of gasoline per day during the fourth quarter, up 33% year over year, while Phillips 66's (PSX -2.48%) exports of refined products surged 32% to 197,000 barrels per day and Marathon Petroleum's (MPC -1.85%) refined product exports more than doubled to 298,000 barrels per day. All three companies expect refined product exports to remain a major driver of profit growth for the foreseeable future.

America's new reality
All told, the U.S. energy boom has been -- and should continue to be -- a major blessing to the nation's economy, creating both direct and indirect jobs, giving the manufacturing sector a much-needed boost, and reducing the nation's reliance on foreign oil.

With domestic oil and gas production projected to continue growing rapidly, lawmakers are now even thinking about lifting a 40-year ban and allowing the U.S. to export its oil. They've also approved several projects to export U.S. liquefied natural gas. For a country many believed would remain the world's largest energy importer, these are truly remarkable developments.

Arjun Sreekumar owns shares of Marathon Petroleum. The Motley Fool has no position in any of the stocks mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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