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Expanding energy exports good for West Virginia

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Raymond J. Keating Raymond J. Keating

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. He is the author of a new SBE Council report titled "The Benefits of Natural Gas Production and Exports for U.S. Small Businesses."

President Obama recently stated that "the idea of being energy independent — which seemed far-fetched as recently as 10 years ago—now is actually a possibility." Natural gas has been the game changer for the U.S. energy situation. Whereas a few years ago there was a fear of potential decline in domestic energy, rising production now means opportunities for increased natural gas exports. 

Helping to move that discussion along, the Department of Energy recently approved one of some 20 outstanding applications to export natural gas – as liquefied natural gas (LNG) – from a facility in Freeport, Texas. 

Additionally, Capitol Hill has held a series of hearings and meetings on this topic. Most recently, the Senate Energy and Natural Resources Committee held a series of forums in May exploring the future of natural gas in the U.S, including the idea of exporting LNG. These forums came in the wake of comments by President Obama suggesting that a final decision to export LNG would come from him. 

Given the impending decision on exports, an analysis of the recent history of the U.S. natural gas industry and the impact in West Virginia is warranted. Important factors to consider are the small business growth and the job creation spurred by recent production of natural gas. 

Consider the actual effects that recent dramatic changes in the U.S. natural gas market have had on the economy in West Virginia. 

From 2005 to 2011, for example, the annual average price of natural gas declined by 55 percent, due to a 27 percent expansion in natural gas production in the U.S. This production expansion has come overwhelmingly from shale gas, where production increased by 947 percent due to improvements in technology, namely, a combination of horizontal drilling and hydraulic fracturing.

In West Virginia, where natural gas production increased by 78.2 percent, the benefits from growth in the energy sector have been substantial.

While U.S. total employment fell by 3.7 percent from 2005 to 2010 (employment and business numbers based on latest U.S. Census Bureau data), jobs in West Virginia expanded by 44.2 percent in the drilling oil and gas extraction sector; 9.4 percent in the drilling oil and gas wells sector; and 99 percent in the support sector for oil and gas operations.

As for the number of businesses (with employees), U.S. total employer establishments declined by 1.4 percent from 2005 to 2010, including a 3.5 percent decline in establishments with less than 20 workers. 

In contrast, business growth was strong in key energy industries in West Virginia. The number of oil and gas extraction employer establishments grew by 9.6 percent from 2005 to 2010, including growth of 5.3 percent among establishments with less than 20 workers. Among drilling oil and gas wells businesses, the number of employer establishments grew by 12.5 percent, including growth of 36.6 percent among establishments with less than 20 workers, while among supporting oil and gas operations businesses, the number of establishments grew by 48.3 percent, including growth of 45.2 percent among those with less than 20 workers. In addition, growth among establishments in the oil and gas pipeline and related structures construction sector registered 14.3 percent, including 30.2 percent among establishments with less than 20 employees.

In fact, small and midsize firms overwhelmingly populate key West Virginia energy sectors. For example, businesses with less than 20 workers came in at 86.9 percent of oil and gas extraction employer establishments; 77.8 percent of drilling oil and gas wells establishments; 88.2 percent of oil and gas support operations establishments; 75 percent of oil and gas pipeline and related structures construction establishments; and 50 percent among establishments in the oil and gas field machinery and equipment manufacturing sector.

The opportunity exists for exporting LNG, given the large differential in natural gas prices in the U.S. versus elsewhere in the world, and rising global demand. The Department of Energy should expedite the remaining applications for LNG exports.  Increased demand for U.S. natural gas in international markets will result in greater natural gas production. That means increased investment, economic growth, rising incomes, small business expansion, and more jobs for West Virginia.