Energy sector ‘to lead economic recovery’
New York, March 7, 2012
The energy sector has a major role to play in global economic growth and recovery, with its indirect contributions outweighing the already considerable direct effects, according to a new report.
The World Economic Forum report entitled Energy for Economic Growth – Energy Vision Update 2012 launched today (March 7) at the CERAWeek energy conference in Houston provides a framework for understanding the larger economic role of the energy industry.
The oil and gas industry, for example, contributed 37,000 direct jobs in 2011. This drove the creation of an additional 111,000 indirect jobs during the same period, given an employment multiplier effect of three.
These 150,000 jobs represent 9 per cent of all jobs created in the US in 2011. While multiplier effects for solar and wind energy were lower during operation, their contribution during the construction phase also reached as high as 3.3 indirect jobs per energy job.
“The energy industry is unique in its economic importance and has the potential to be a tremendous catalyst for job creation and sustainable growth without harming the sector’s overall performance,” said IHS CERA chairman Daniel Yergin.
The energy industry is by nature capital intensive and requires high levels of investment. It thus has the ability to generate significant contributions to GDP growth, the report says. In the United States, the oil and gas extraction sector grew at a rate of 4.5 per cent in 2011 compared to an overall GDP growth rate of 1.7 per cent.
The sector’s highly skilled workforce is also well-paid compared to other sectors, the report notes. Compensation per worker in energy-related industries is about twice the average in Germany, Norway, the UK and the US and four times the average in Mexico and South Korea.
As a result of higher wages, energy industry employees contribute more absolute spending per capita to the economy than the average worker and contribute a larger share of GDP per worker than most.
“We always suspected that energy had a vital role to play in the economic recovery,” said Roberto Bocca, senior director, head of Energy Industries, World Economic Forum.
“But we were still surprised when the data uncovered the magnitude of the sector’s multiplier effects.”
Energy for Economic Growth – Energy Vision Update 2012 examines the role of energy prices in the economy. Lower prices reduce input costs for nearly all goods and services, thus making them more affordable.
Over the short term, economic models show that, for example, lower natural gas prices will help the US economy in several measurable ways: a 1.1 per cent increase in GDP in 2013; 1 million more jobs in 2014; and 3 per cent higher industrial production in 2017 than would be anticipated without shale gas development.
Many countries such as China, India and South Korea are increasingly focusing on renewable energy sources, including wind and solar, as potential growth sectors for their economies. However, the higher costs of these technologies create trade-offs that must be considered, the report says.
“Energy prices will always be volatile and thus represent a challenge for long-term economic planning,” said Kenneth Rogoff, Thomas D Cabot Professor of Public Policy and Professor of Economics, Harvard University. “The interesting question is how to make this volatility less economically damaging.”
Energy for Economic Growth – Energy Vision Update 2012 includes perspectives from high-level representatives of industry, government, non-governmental organizations and academia. – TradeArabia News Service