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IHS sees $5.1 trillion in US unconventional spending by 2035

Investments in tight oil and shale gas development will surge to more than $5.1 trillion over the next two decades, according to a new report by consultancy IHS Cera

The report, America’s New Energy Future: The Unconventional Oil and Gas Revolution and the US Economy, suggests that by 2035 $2.1 trillion will be invested in developing America’s growing bounty of tight oil, and an additional $3 trillion for shale gas.

Annual outlays on unconventional plays will reach $87 billion in 2012 and double to $172 billion in 2020. By the end of the forecast in 2035, producers will be spending $353 billion per year, IHS estimates.

From virtually nothing in 2000, unconventional oil now accounts for about a third of US production and shale gas is approaching 37%. IHS vice-president and lead study author John Larson calls the resurgence “one of the most significant energy events in the last 100 years.”

Unconventionals have “fundamentally changed what had been a long-term decline in this country. It’s a very stark contrast to where we were even five years ago.”

IHS says unconventional activity supports nearly 1.8 million jobs, and will grow to 3 million jobs by the end of the decade. IHS expects upstream unconventional oil and gas activity to account for 1.5% of the entire US workforce by 2015, rising to 2% after that.

Tax and other public revenues will rise from $62 billion per year in 2012 to $110 billion by 2020, and generate more than $2.5 trillion for federal and state governments by 2035. “This is not just a near-term boom, it is a long-term boom”, adds Larson.

At the current pace of development, the net US oil import requirement could be about 4.5 million barrels per day (b/d) less by 2020 than it was as recently as 2005. Using the average oil price for the first nine months of 2012 of $112 per barrel, IHS says this represents an annual reduction in the US oil import bill of nearly $185 billion.

Unconventionals are also changing the quality of the resource base from heavier crudes to lighter liquids. Overall natural gas liquids (NGL) production in the US grew by over 500,000 b/d from 2008 to 2012 – a 29% increase attributable to unconventional activity.

Production of NGLs is expected to more than double, from 1.8 million b/d in 2012 to 3.8 million b/d by 2020. The greater availability of NGLs can be expected to support the expansion of US petrochemical manufacturing, which uses them as feedstock. It will be the subject of a future study.

In terms of the value-added contribution to gross domestic product (GDP), upstream unconventional energy activity will contribute more than $237 billion to the US economy in 2012, IHS says. Value-added contributions will increase to more than $416 billion annually in 2020 and reach $475 billion per year by 2035.

Larson says the heady numbers represent a “status quo analysis,” and are “neither optimistic nor pessimistic.”

Still, there are questions with respect to the timing of the study, coming two weeks before the US election. The study was funded with contributions from the American Petroleum Institute, Institute for 21st Century Energy, the American Chemistry Council and the Natural Gas Supply Association – groups generally aligned against the energy policies of incumbent Barack Obama. IHS maintains the independence of its findings.

While Larson agrees the timing gives the report a sense of urgency it may not have otherwise enjoyed, “the intention is not to inject anything into the (election) dialogue.”

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