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Brendan O’Neil
Managing Director
IHS Global Insight
June 4, 2013
About IHS
IHS (NYSE: IHS) is the leading source of information, insight and
analytics in critical areas that shape today’s business landscape.
Businesses and governments in more than 165 countries around
the globe rely on the comprehensive content, expert independent
analysis and flexible delivery methods of IHS to make high-impact
decisions and develop strategies with speed and confidence. IHS
has been in business since 1959 and became a publicly traded
company on the New York Stock Exchange in 2005. Headquartered
in Englewood, Colorado, USA, IHS is committed to long-term,
sustainable growth and employs more than 6,000 people in more
than 30 countries around the world.
Copyright © 2011 IHS Inc. All Rights Reserved.
US Economic Outlook
The US economy continues its uneven expansion
• The economy’s fundamentals are improving, but fiscal policy headwinds will
restrain near-term growth.
• We expect the federal spending sequester to last through September, taking 0.4
percentage point off 2013 real GDP growth, compared with a no-sequester case.
• Monetary policy will remain accommodative into 2015.
• Housing markets will continue their resurgence, supporting growth.
• Consumers will cautiously increase spending in response to gains in asset
values, employment, and income.
• The US energy boom is creating jobs, investment, and a competitive advantage.
• Real GDP growth will pick up from 2.0% this year to 2.8% in 2014. Upside and
downside risks are evenly balanced.
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
US economic growth by sector
(Percent change)
2012
2013
2014
2015
Real GDP
2.2
2.0
2.8
3.2
Consumption
1.9
2.2
2.5
2.5
12.1
16.3
18.5
20.1
8.0
4.7
6.6
7.2
Federal government
-2.2
-5.3
0.1
-1.5
State & local government
-1.4
-0.8
-0.1
0.7
Exports
3.4
2.6
5.1
5.4
Imports
2.4
2.3
5.3
4.2
Residential investment
Business fixed investment
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Other key US indicators
(Percent change unless noted)
2012
2013
2014
2015
Industrial production
3.6
3.2
3.0
3.3
Payroll employment
1.7
1.5
1.6
1.8
Light-vehicle sales (Millions)
14.4
15.3
15.7
16.2
Housing starts (Millions)
0.78
0.97
1.27
1.57
Consumer Price Index
2.1
1.4
1.6
1.6
Core CPI
2.1
1.9
2.0
1.8
Brent crude oil price ($/barrel)
112
105
93
89
Federal funds rate (%)
0.1
0.2
0.2
0.2
10-year Treasury yield (%)
1.8
2.0
2.5
3.0
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Bottom line for the US economy
• The most likely outcome is continued moderate economic growth.
• Fiscal tightening is under way, with the expiration of the payroll tax cut, substantial
tax increases for high-income households, and spending restraints.
• Real GDP growth will pick up in 2014 and 2015, led by strengthening housing
markets and business investment.
• Upside and downside risks are evenly balanced.
• The major downside risks are:
• An intensified debt crisis and deepening recession in Europe.
• An oil-price shock resulting from supply disruptions in the Middle East.
• On the upside, easing credit conditions and a stronger housing-market recovery
could spark faster US growth.
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Regional Outlook
Employment: Top Performers 2012
Rank
State
2012 (% y/y)
Top Sector
Unemployment
Rate (%) *
1
North Dakota
6.0
Mining
3.2
2
Oklahoma
2.6
Mining
5.1
3
Utah
2.4
Mining
5.6
4
Texas
2.4
Mining
6.2
5
Arizona
2.1
Construction
7.9
6
Louisiana
2.1
Mining
6.9
7
Kentucky
2.0
Prof. & Business
8.0
8
Indiana
2.0
Durables Mfg
8.3
9
Colorado
1.9
Mining
7.5
10
Washington
1.7
Durables Mfg
7.5
* Unemployment rate in December 2012.
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Continued modest job growth in 2013
Percent
-0.8 to 0.7
2.3%
0.7 to 1.0
1.1 to 1.4
1.5 to 3.1
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… Picking up in 2014
Percent
0.9 to 1.4
2.3%
1.4 to 1.6
1.6 to 1.9
1.9 to 2.7
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Ohio Employment Forecast
2.5
5350
2.0
5250
1.5
5200
5150
1.0
5100
0.5
5050
0.0
11
12
Growth - L
13
14
Level - R
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5000
Thousands
percent change year ago
5300
5.5
5.5
5.0
5.0
4.5
4.5
4.0
4.0
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0
11
12
Ohio
13
14
US
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
percent change year ago
percent change year ago
Ohio Wage Gains (nominal total wages and salaries)
Ohio Forecast Summary
(Percent unless otherwise noted)
2011
2012
2013
2014
Employment
1.3
1.5
0.6
1.2
Unemployment Rate
8.7
7.2
7.0
6.7
Personal Income
5.4
3.8
2.4
4.4
13.4
16.5
19.5
24.6
Retail Sales
8.3
5.4
2.8
2.4
Real Gross State Product
1.1
2.2
1.1
2.1
Housing Starts (000)
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Economic Contributions of
Unconventional Oil & Gas
Unconventional Oil and Gas Plays in North America
Enough to satisfy more than 100 years of consumption at current rates
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Nearly $5.1 Trillion in Cumulative Capital Investments
are Expected to be Made Between 2012 and 2035.
Unconventional Oil and Gas Capital Expenditures
(billions of 2012 dollars)
400
350
300
Unconventional Gas
Unconventional Oil
250
200
150
100
50
0
2012
2015
2020
2025
2030
2035
Spending will feed into broader the broader supply chain through capital-intensive
purchases of heavy equipment, technical skills and services, and information
technology.
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
From 2012 to 2035, the Employment Contribution of the
Unconventional Oil and Gas Industry will Double
Employment Contributions of
Unconventional Oil and Gas Activity
(thousands of workers)
4,000
3,500
3,000
Induced
Indirect
Direct
2,500
2,000
1,500
1,000
500
2012
2015
2020
2025
2030
2035
The greatest future job growth will occur between 2012 and 2020 – 3 million jobs
by 2020.
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Impact of Unconventionals on the US Economy in 2020
Extensive Supply Chain will spread Economic
Contribution beyond Producing States…
Producing States
Top 10
Copyright © 2011 IHS Inc. All Rights Reserved.
Other
Non-Producing States
Top 10
Other
Top 20 States for Unconventional Related Employment 2012
US State-Level Employment Contribution of Unconventional Oil and Gas: 2012
(Number of workers ranked by total employment contribution)
Direct
Indirect
Induced
Total
Texas
159,474
171,204
245,406
576,084
Pennsylvania
25,628
33,219
43,821
102,668
California
6,480
33,337
56,737
96,553
Louisiana
24,314
25,511
29,142
78,968
Colorado
23,737
21,555
32,329
77,622
North Dakota
19,746
24,099
27,978
71,824
Oklahoma
21,137
18,821
25,367
65,325
Utah
10,123
17,762
26,536
54,421
New York
94
13,144
31,191
44,429
Ohio
4,210
13,601
21,020
38,830
Illinois
3,421
12,563
22,668
38,652
Michigan
8,017
10,551
19,280
37,848
Missouri
12,404
8,574
16,739
37,716
Florida
208
10,603
25,721
36,532
Arkansas
11,933
8,661
12,506
33,100
New Mexico
7,117
7,690
8,818
23,625
Wisconsin
2,280
6,360
11,120
19,760
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Top 20 States for Unconventional Related Employment 2025
US State-Level Employment Contribution of Unconventional Oil and Gas: 2025
(Number of workers ranked by total employment contribution)
Direct
Indirect
Induced
Total
Texas
242,533
299,682
433,487
975,702
Pennsylvania
73,984
83,296
113,148
270,428
Ohio
52,810
54,222
80,796
187,829
Oklahoma
61,882
52,779
72,721
187,382
California
9,207
58,534
102,625
170,366
Colorado
40,241
39,966
61,757
141,964
North Dakota
30,613
38,809
44,870
114,292
Louisiana
34,260
34,522
44,712
113,495
New York
387
23,119
56,284
79,790
Illinois
7,086
24,253
43,331
74,670
Florida
308
21,750
51,424
73,483
Michigan
15,130
21,555
36,690
73,376
Missouri
23,364
16,931
32,324
72,618
Arkansas
18,188
14,698
21,089
53,974
Utah
6,061
14,110
22,020
42,190
Minnesota
5,611
11,058
22,714
39,383
West Virginia
13,736
10,315
14,143
38,194
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
OH Revenue Associated with Unconventional Activity
Contribution of Unconventional Gas and Oil to Government Revenue and Private Lease Payments: Ohio
(2012 $M)
2012
2015
2020
2025
2030
2035
2012-2035**
537
1,235
2,150
2,877
3,673
4,218
57,681
Personal Taxes
439
960
1,619
2,152
2,748
3,168
43,440
Corporate Taxes
98
275
530
725
925
1,050
14,241
Federal Royalty Payments
0
0
0
0
0
0
0
Federal Bonus Payments
0
0
0
0
0
0
0
911
2,438
4,594
6,147
7,626
8,453
120,275
Personal Taxes
164
349
573
723
854
915
14,175
Corporate Taxes
738
2,018
3,789
5,048
6,225
6,841
97,967
Severance Taxes
1
14
53
96
154
215
2,185
Ad Valorem Taxes
8
56
176
274
383
471
5,807
State Royalty Payments
0
1
4
7
10
12
141
State Bonus Payments
0
0
0
0
0
0
0
1,448
3,673
6,744
9,024
11,300
12,672
177,956
4
22
45
67
96
119
1,490
Federal Taxes
State and Local Taxes
Total Government Revenue
Lease Payments to Private Landowners
NOTES: *Total unconventional activity represents the sum of unconventional oil and unconventional gas activity.
**2012-2035 represents the total for all years including those years not reported.
Source: IHS Global Insight
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Upstream Development Causing a Ripple Effect Through
the Economy
Employment Contribution in 2020
Upstream unconventional
oil and natural gas activity,
on average, demonstrates
one of the larger
employment multipliers.
On average direct
employment will
represent about 20% of
all job resulting from
unconventional oil and
gas activity with the
balance contributed by
indirect and induced
employment.
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
U.S. Downstream
Investment will total $217 billion over next six years
Copyright © 2011 IHS Inc. All Rights Reserved.
Striking the Balance
Concern is Motivated by a Variety of Risks, Impacts,
and Uncertainties
Source of
Concerns
Impact
Management
Stakeholder
Uncertainty
•
Priorities unique to each play &
community
•
Local & national debate inform
each other
•
Temptation to confuse the
means with the ends
•
Community preparedness
•
Politicized confidence in
regulators
•
Jurisdictional conflicts
•
All pay for the sins of the few
•
Uneven distribution of benefits
Drinking Water
Local
Road & Traffic
Public Services
Scale of Impact
Complicating Factors
Seismicity
Wildlife
Air Quality
Water Use
Macro
Climate Change
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Timeline for shale gas development and production
Source: IHS CERA.
00502-3_1704
27
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Rapid increase in local bans and moratoriums
• New York
• State moratorium since 2010, future unclear
• Municipalities: 48 bans, 106 moratoriums, 91 more in development*
• Pennsylvania
• Regional moratorium in the Delaware River Basin
• Municipalities: At least 5 prohibitions, including the city of Pittsburgh
• Act 13 passed in February 2012
• Colorado
• Longmont
• Fort Collins
• Ohio
• Yellow Springs
*As of 2/12/13. Source: fracktracker.org
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
NY Moratoria
Source: fracktracker.org
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Dunn County, North Dakota
Growing Pains within County Government Services
30
Tax Department
•
•
•
•
•
•
•
•
High ratio of splitting of properties. ( small acreage sales)
Increase valuation of property. (land priced by the square foot)
$50,000 homes in 2006 have sold for $175,000 in 2011.
The property valuations have increased by 19.4% since 2010.
Increased recording because of sales & splits.
Numerous requests for valuation of land.
Creations of subdivisions have increased work load.
Higher request for determination of land ownership.(many old
problems arise daily because of the lack of good records)
• Department has purchased a service agreement with GIS tracking
system.
• Huge demand for property for housing and industrial business. (truck
parting, RV sites, mobile home parks, small shops, etc.)
Source: Dunn County Commissioner Daryl Dukart
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Clerk of Court
2006 numbers
2012 estimates
• 765 traffic violations
• 2576 traffic violation
• 213 criminal court cases
• 377 criminal court cases
• 205 civil cases
• 298 civil cases
• 3 staff employees
• 6 staff employees
• Recorders office collected
• Recorders office collected
$147,107
• Oil revenue starts to come into
the county
$603,095
• Addition of a new Courtroom
• Moved to digital documents
Source: Dunn County Commissioner Daryl Dukart
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Roads and Traffic
2011
2006
• 1200 miles of road with only 27
•
•
•
•
paved miles
Very few highly impacted roads
from truck traffic
General road maintenance was two
to three operation per year on all
roads
General road surface materials
used are gravel or scoria
Annual cost to maintain was about
$1500 per mile
Source: Dunn County Commissioner Daryl Dukart
• 1202 miles of roads with only 25
•
•
•
•
paved miles
330 miles of heavily impacted truck
traffic routes (over 100 trucks per
day)
Weekly maintenance is required on
the 330 miles of highly impacted
roads
Cost to maintain impacted roads is
$26,000 per mile annually
Materials for road surfacing are
getting tighter in supply because of
competition from the energy sector
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Sheriff’s Department
2006
• 3 employees
• 4 vehicles
• Average calls per day 6
Q1 2012
•
•
•
•
9 employees
9 vehicles
Average calls per day 46
Large amounts of overtime
causing stress to employees
and equipment
• Looking at adding another
employee and vehicle on July
1st 2012
• Budget has increased by
300% over three years
Source: Dunn County Commissioner Daryl Dukart
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
States Attorney Office
• The States Attorney Office has seen a substantial increase in child
abuse and neglect, domestic violence, violent crime, alcohol related
offenses, and illegal drugs.
• Traffic and alcohol related offenses combined had a substantial
increase of 300%.
• Financial problems combined with alcohol and illegal drugs appear to
the be the gateway for an increase in domestic violence and child
abuse and neglect cases.
• Most of the increased case load involves individuals who have
recently relocated to western North Dakota to pursue employment
opportunities in the Bakken.
Source: Dunn County Commissioner Daryl Dukart
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Bakken Shale Development Impacts
Positive:
• Created many new job opportunities
(many $50,000 plus salary type of
jobs )
• Increased salary levels in western
North Dakota
• Brought additional money to the
farm and ranch communities
• Creation of many new businesses in
the area
• Increase sales of trucks, cars, and
farm equipment
• Has changed our life styles
Source: Dunn County Commissioner Daryl Dukart
Negative:
• Estimated 3200 outside workers
drive to Dunn County daily to work
• Overload of patrons at restaurants,
gas stations, and stores of all kinds
• Lack of employees
• Detrition of roads because of heavy
traffic loads
• Traffic everywhere
• Total stress on all county
departments is greater than we
expected
• Lack of funds to meet demands
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Takeaways
• Fiscal and social pressures ride shotgun with prosperity.
• There is a structure to environmental regulation at federal, state, and local levels, as
well as limitations.
• However, some of the boundaries are blurry, and power struggles ensue.
• Local authorities are entering the fray, creating a new and highly uncertain dimension of
regulation.
Discussion Questions
• Can industry and environmental stakeholders really work together?
• Are Energy Security & Economic Development incompatible Environmental Protection
& Health Safety?
• Is “political entrepreneurialism” trumping the political process?
• What steps can industry take? Collaboration with regulators, communities, NGOs?
• What aspects of environmental regulation are most important, and what level of
government is responsible?
• What are the mutually agreeable best practices to optimize opportunities and minimize
risks?
• Will lingering uncertainty be the risk premium that deters future investment?
• Is disenfranchisement the source of local opposition?
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Thank you
Brendan O’Neil
Managing Director
IHS Global Insight
[email protected]