Mar 192012

In his Weekly Address (Mar 24, 2012) President Obama said that America needs an all-of-the-above energy strategy that invests in new technologies and ends the $4 billion in annual subsidies to oil companies.

I am not a fan of oil industry. In part, this is because its operation still results in huge money flow to OPEG (hopefully, within a decade or two U.S. will stop importing oil). However, I feel that during a recession it’s not a good time to mess with an industry that generates revenue and creates jobs. Let’s consider some facts with a cool head. According to American Petroleum Institute, the oil and gas industry pays the federal government about $86 million a day, or about $31 billion a year in rents, royalties, bonuses and corporate taxes. So, it appears for $4 billion subsidies to Big Oil, we are getting back from them $31 billion. Can we say the same about subsidy to renewable energy? In 2009 Solyndra Corp. got $535 million loan guarantee from US government and $1 billion in private investment. The White House expected this would help to create 4,000 new jobs. Two years later, Solyndra filed for bankruptcy, and laid-off nearly all of its 1,100 workers.

Now, what’s about energy jobs? We always knew oil and gas energy sector had a vital role in the economy and job creation. But a new report from the World Economic Forum shows surprisingly large magnitude of this sector effects. Here are some of the details from the report.
Economists generally classify energy-related jobs into three categories:

  • Direct jobs that are held by people who are employed in the sector;
  • Indirect jobs that are created in industries that supply or service the energy industry;
  • Induced jobs. Spending of people who are employed in the energy industry create demand for goods and services, which increase employment in other industries.

The two latter categories refer to so-called “employment multiplier effect”. According to the WEF report, oil and gas industry have employment multipliers higher than many other industries:

  • Unconventional oil- 4.1;
  • Unconventional gas- 3.2;
  • Deepwater oil and gas- 3.0.

With an employment multiplier greater than three, for every job created in the oil, natural gas and related industries, three or more jobs are also created across the economy. In 2011, oil and gas extraction industry alone created 37,000 new jobs directly. This, in turn, caused another 111,000 U.S. jobs. The total number of  almost 150,000 jobs accounts for 9% of all jobs created in the US last year.

Most jobs in power generation sector are created when the plants are built. However, jobs in the construction phase are always temporary. That’s why they are often described in terms of average “job-years”, rather than the absolute number of jobs. Once a construction phase is over, some permanent jobs remain in the operation of the new power station. Solar and wind constructions have employment multipliers 3.3 and 2.0 respectively. However, once wind and solar PV facilities are built, little labor is required to run them. For example, in the operations phase, natural gas employs 20 times as many people per installed megawatt capacity than wind. Levelized energy cost refers to annual average total cost to build and operate a new power plant over its expected life. It is interesting to note that in spite of low maintenance and operation expenses, the levelized costs of solar and wind energy according to EIA data is twice higher than that of conventional energy.