Posted June 17, 2014
By Marlon Hewitt, Associate at RAS & Associates
The developments in the oil and gas sector in recent years have been drastic, whether in relation to new technologies and techniques in extraction and logistics or regulatory and public involvement in shaping the future of the industry. Understanding how this industry is changing is vital to nearly every stage in the value chain. Low natural gas prices will affect companies directly via savings in energy or manufacturing use or indirectly via cost savings trickling through partners either downstream or upstream. Boston Consulting Group estimates that even those industries which are less energy-intensive will be able to skim 1-2% of manufacturing costs via these value stream adjustments. Additionally, natural gas prices can be 3-4 times as much in areas of Europe and Asia driving profits for the many companies involved in the export of natural gas and increasing the availability of the fuel domestically as drilling activity continues to increase (B).
Increased domestic activity across industries in both the United States and Colorado will drive benefits and risks to conducting business. At RAS & Associates, we have seen many of the struggles our partners are feeling due to the growth of their businesses, not solely in energy. However, anything relating to oil and gas, especially in Colorado, requires staying abreast of new regulatory developments and the agility to react to unplanned changes in the landscape. For instance, economists from the University of Colorado predict losses of 93,000 jobs, $12B in GDP, and almost $1B in tax revenue in Colorado if proposed hydraulic fracturing bans are implemented (A). Along with these direct impacts, the increase in fuel costs, from drilling and importing, will be felt across all states and companies. It is imperative that companies position themselves to react or shape changes like this if and when they occur.
On a more positive note, if the oil and gas industry continues on its current track, the industry should prove to drive value in many areas for years to come. In Colorado alone, jobs grew at 3% during 2013 with some areas growing as fast as 5.2% due to certain industry presence, particularly energy and construction (C). The oil shale boom will remain vital for continued economic growth, as it currently contributes over $29.6B, or 11%, to the state’s total GDP and over $682 per year to schools and other public entities (D). There are many benefits being generated and shared by the shale energy boom, and they are felt globally through job and business growth, increases in community involvement and not-for-profit contributions, increased access to natural resources, and growing interest to ensure a safe and effective supply chain. Everyone is affected by the changing landscape in the energy industry, so we should all be focusing resources to understanding how that affects our business, our resources, and our communities today and in the future.
Neil Westergaard and Heather Draper
University Of Colorado Study Suggests Major Job Loss From Proposed Fracking Ban
Denver Business Journal
March 26, 2014
The Boston Consulting Group
Nearly Every Manufacturer in the U.S. Will Benefit from Low-Cost Natural Gas
Colorado Job Growth Rate In 2013 Highest Since 2000
The Denver Post
Economics 101 Info Graph: Colorado’s Oil & Gas Industry
February 21, 2014