The current oil surge is generating millions of jobs across the United States. One of the key drivers of activity is the opening of unconventional oil- and natural gas-bearing formations through technological advances such as hydraulic fracturing. One of the first big plays to be unlocked by fracking is the Barnett Shale.
For well over a decade, the Barnett Shale has been a source of economic and fiscal stimulus to the North Texas regional economy (and the rest of the state) which is significant even within the context of the large Metroplex economy. Exploration and production, royalties and lease bonus payments, and pipeline activity have generated opportunities for the people and businesses across the area and beyond.
The oil- and natural gas-bearing formation lies beneath more than 5,000 square miles of North Texas, including a substantial part of the Dallas-Fort Worth Metroplex. It was discovered in the early 1980s, but it was not until about 2001 that significant development began as a result of a combination of technological improvements in recovery methods and a favorable price environment for natural gas.
In the early years of its development, drilling activity was strong and natural gas production grew rapidly. Although lower natural gas prices and the national recession temporarily slowed development, exploration activity for both natural gas and oil is likely to increase in the future as price and market conditions change. In addition, ongoing production provides royalty income and other sources of benefits for area residents, businesses, and municipalities.
We have been studying the economic and fiscal effects of the Barnett Shale for a number of years. In our most recent analysis, we found that the current regional gains in business activity and tax receipts related to the Barnett Shale include $11.8 billion in gross product per year and more than 107,650 permanent jobs. This economic activity generates annual tax receipts to the local government entities (including cities, counties, and school districts) and the State of an estimated $480.6 million and $644.7 million, respectively.
Looking at the total economic benefits since 2001, when exploration and production activity escalated in the Barnett Shale, we found that the cumulative gains in business activity include $110.7 billion in gross product and almost 993,600 person-years of employment. The associated tax effects since 2001 total about $4.5 billion to the local governments and more than $6.0 billion for the State.
Over the next 10 years, anticipated pricing patterns for oil and natural gas will likely lead to a moderate increase in drilling activity. We estimate that the total contribution of the Barnett Shale over the next 10 years (2014 through 2023) will include $153.4 billion in gross product and 1,354,727 person-years of employment. The statewide activity should provide tax receipts of $6.1 billion to the local governments and almost $8.0 billion to the State.
New recovery methods are also leading to the development of other Texas shales. The Eagle Ford Shale in south Texas is one hot spot; another is the Cline Shale which runs northwest from San Angelo. These and other unconventional formations are greatly enhancing the state’s production capacity and economy. They’re also contributing billions to the State and local governments.
In addition, the energy produced from these newly unlocked plays is an important domestic fuel source for the nation with significant strategic and economic value. Energy security is enhanced as we become less dependent on oil and natural gas from foreign sources, and we are a little more insulated from price shocks.
While market factors will undoubtedly lead to cycles in the industry, underlying demand growth will spur ongoing development. Oil and gas exploration and production in unconventional formations such as the Barnett Shale has been and will continue to be a notable source of economic and fiscal stimulus.
Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.