The local economic impacts of the oil and gas industry: Boom, bust and resilience to shocks

Rickman D., Wang H.

The recent boom and bust in the US oil and natural gas sector provide a unique opportunity to assess whether the impacts of energy development are symmetric across the differing phases of the energy cycle. This study uses the synthetic control method to examine the boom and bust effects for the four most oil and gas dominated states: Louisiana, North Dakota, Oklahoma and Wyoming. The four states are chosen as case studies because of their status as top oil and gas producers and the stronger influence of the oil and gas sector on their overall economies. The results reveal differing employment impacts across the four states in both the short and long run and asymmetry during the boom and bust phases. Variation in the overall impacts and asymmetry of impacts across the boom-bust cycle are suggested to be at least in part connected to state and local government expenditures.

Weinstein A.L., Partridge M.D., Tsvetkova A.

Many U.S. towns reportedly boomed after new technologies in oil and gas extraction led to rapid development of shale resources. Recent research on the expected economic impact mainly focused on the employment effects associated with new oil and gas jobs. Instead, our focus is on the impact of oil and gas industry growth on local earnings while paying attention to the spatial and sectoral effects and assessing whether an increase in earnings due to energy development seeps out due to the peculiarities of the industry. Our estimation results suggest that oil and gas earnings multipliers are modest and similar to oil and gas employment multipliers, with relatively large shares of the earnings leaving the county on average. Likewise, oil and gas multipliers tend to be smaller or comparable to the estimated multipliers for equal-sized shocks in the rest of the economy, suggesting that oil and gas is not a special industry case. Given the high wages in the sector (and potentially large royalty payments), these results may be surprising.

Hoy K.A., Kelsey T.W., Shields M.

During the onset of shale gas development, a variety of economic impact studies were released through the ‘gray literature’ without formal peer review. In a review of six such impact reports, Kinnaman (2011) speculates about several major issues worth scrutiny arising with analysis using input-output models. His central critique focuses on the assumptions of how industry spending is represented and how leasing and royalty dollars are spent. In this study, we use detailed county records and results from a survey to directly address these assumptions, and compare our results to the findings in an economic impact study of Marcellus Shale development in Pennsylvania which Kinnaman critiqued. Our results, which are only about 52% of the prior study, confirm his supposition that some ex ante studies use unrealistic assumptions which lead to gross overestimates of the impacts.

Maniloff P., Mastromonaco R.

This paper quantifies the local economic impacts of hydraulic fracturing. We match extremely detailed oil and natural gas well data to county-level aggregate and sectoral employment data. Controlling for time-varying unobserved determinants of job growth, we find approximately 550,000 local jobs attributable to the shale boom. While this is substantial, it is smaller than previous studies. We also show that the effects are heterogenous across sectors. Impacts are concentrated in extractive industries, in local non-tradable and service sectors, and in areas with the largest increase in drilling activity.

Feyrer J., Mansur E.T., Sacerdote B.

We track the geographic and temporal propagation of local economic shocks from new oil and gas production generated by hydrofracturing. Each million dollars of new production produces $80,000 in wage income and $132,000 in royalty and business income within a county. Within 100 miles, one million dollars of new production generates $257,000 in wages and $286,000 in royalty and business income. Roughly two-thirds of the wage income increase persists for two years. Assuming no general equilibrium effects, new extraction increased aggregate US employment by as many as 640,000, and decreased the unemployment rate by 0.43 during the Great Recession. (JEL D86, L14, L81, L82)

Tsvetkova A., Partridge M.D.

The US shale boom has intensified interest in how the expanding oil and gas sector affects local economic performance. Research has produced mixed results and has not compared how energy shocks differ from equal-sized shocks elsewhere in the economy. What emerges is that the estimated impacts of energy development vary by region, empirical methodology, as well as the time horizon that is considered. This paper captures these dimensions to present a more complete picture of energy boomtowns. Utilizing US county data, we estimate the effects of changes in oil and gas extraction employment on total employment growth as well as growth by sector. We compare this to the effects of equal-sized shocks in the rest of the economy to assess whether energy booms are inherently different. The analysis is performed separately for nonmetropolitan and metropolitan counties using instrumental variables. We difference over 1-, 3-, 6-, and 10-year time periods to account for county-fixed effects and to assess responses across different time horizons. The results show that in nonmetro counties, energy sector multiplier effects on total county employment first increase up to 6-year horizons and then decline for 10-year horizons. We also observe positive spillovers to the non-traded goods sector, while spillovers are small or negative for traded goods. In metro counties, there are no significant effects on total employment, although positive spillovers are present in some sectors. Yet, equal-sized shocks in the rest of the economy produce more jobs on average than oil and gas shocks, suggesting that policymakers should seek more diversified development.

Komarek T.M.

The energy extraction boom of the mid 2000s impacted local economies in areas with substantial shale oil and gas reserves. I examine the impact of the energy boom on the labor market by exploiting a natural experiment in the Marcellus region. In particular, I compare counties with fracking activity in Pennsylvania, Ohio and West Virginia to the control group of counties in New York, which imposed a moratorium and later ban on fracking. I look at how the benefits to the labor demand shock are shared between industries as well as how employment and wages in related industries adjust over the course of the resource boom. The results suggest total employment and wages per job increase by 7% and 11% respectively above pre-boom levels in the three years after the boom, but decline after 4 years or more. The results also show significant positive spillovers to related sectors, such as construction, transportation, retail trade and accommodations. However, there is no evidence of the so called ‘resource curse’ crowding out employment or increasing wages in manufacturing.

Bjørnland H.C., Thorsrud L.A.

Traditional studies of the Dutch disease do not account for productivity spillovers between the booming resource sector and other domestic sectors. We put forward a simple theory model that allows for such spillovers. We then identify and quantify these spillovers using a Bayesian dynamic factor model. The model allows for resource movements and spending effects through a large panel of variables, while also identifying disturbances to other shocks. Using Australia and Norway as representative cases studies, we find that a booming resource sector has substantial productivity spillovers on non-resource sectors, effects that have not been captured in previous analysis.

Betz M.R., Partridge M.D., Farren M., Lobao L.

Coal mining has a long legacy of providing needed jobs in isolated communities but it is also associated with places that suffer from high poverty and weaker long-term economic growth. Yet, the industry has greatly changed in recent decades. Regulations, first on air quality, have altered the geography of coal mining, pushing it west from Appalachia. Likewise, technological change has reduced labor demand and has led to relatively new mining practices, such as invasive mountain-top approaches. Thus, the economic footprint of coal mining has greatly changed in an era when the industry appears to be on the decline. This study investigates whether these changes along with coal’s “boom/bust” cycles have affected economic prosperity in coal country. We separately examine the Appalachian region from the rest of the U.S. due to Appalachia’s unique history and different mining practices. Our study takes a new look at the industry by assessing the winners and losers of coal development around a range of economic indicators and addressing whether the natural resources curse applies to contemporary American coal communities. The results suggest that modern coal mining has rather nuanced effects that differ between Appalachia and the rest of the U.S. We do not find strong evidence of a resources curse, except that coal mining has a consistent inverse association with measures linked to population growth and entrepreneurship, and thereby future economic growth.

Munasib A., Rickman D.S.

The dramatic increase in oil and gas production from shale formations has led to an intense interest in its impact on local area economies. Exploration, drilling and extraction are associated with direct increases in employment and income in the energy industry, but little is known about the impacts on other parts of local economies. Increased energy sector employment and income can have positive spillover effects through increased purchases of intermediate goods and induced local spending. Negative spillover effects can occur through rising local factor and goods prices and adverse effects on the local area quality of life. Therefore, this paper examines the net economic impacts of oil and gas production from shale formations for key shale oil and gas producing areas in Arkansas, North Dakota and Pennsylvania. The synthetic control method (Abadie and Gardeazabal, 2003; Abadie et al., 2010) is used to establish a baseline projection for the local economies in the absence of increased energy development, allowing for estimation of the net regional economic effects of increased shale oil and gas production.

Jacobsen G.D., Parker D.P.

The current US oil and gas boom is injecting labour, capital and revenue into communities near reserves. Will these communities be cursed with lower long-run incomes in the wake of the boom? We study the oil boom-and-bust cycle of the 1970s and 1980s to gain insights. Using annual data on drilling to identify western boom-and-bust counties, we find substantial positive local employment and income effects during the boom. In the aftermath of the bust, however, we find that incomes per capita decreased and unemployment compensation payments increased relative to what they would have been if the boom had not occurred

Weber J.G.

Improvements in technology have made it profitable to tap unconventional gas reservoirs in relatively impermeable shale and sandstone deposits, which are spread throughout the U.S., mostly in rural areas. Proponents of gas drilling point to the activity's local economic benefits yet no empirical studies have systematically documented the magnitude or distribution of economic gains. I estimate these gains for counties in Colorado, Texas, and Wyoming, three states where natural gas production expanded substantially since the late 1990s. I find that a large increase in the value of gas production caused modest increases in employment, wage and salary income, and median household income. The results suggest that each million dollars in gas production created 2.35 jobs in the county of production, which led to an annualized increase in employment that was 1.5% of the pre-boom level for the average gas boom county. Comparisons show that ex-ante estimates of the number of jobs created by developing the Fayetteville and Marcellus shale gas formations may have been too large.

Marchand J.

The impacts of energy price boom and bust are analyzed through the differential growth in employment and earnings between local labor markets with and without energy resources in Western Canada. The estimated differentials attributed to the boom-induced labor demand shocks show significant direct and indirect impacts on the earnings and employment within the energy extraction and other non-energy local sectors respectively. The local job multipliers indicate that job creation within the energy extraction sector leads to modest job creation within the non-energy local sectors during boom periods. For every ten energy extraction jobs created during a boom period, approximately three construction jobs, two retail jobs, and four and a half service jobs are created.

Deaton B.J., Niman E.

We empirically examine the relationship between the share of employment in the mining sector and poverty rates in Appalachian counties of the United States. Using panel data we decompose the effect of an increase in a sector's employment share (i.e. mining, manufacturing, agriculture, services and construction) to identify an immediate and lag effect. With regard to the mining sector the empirical results suggest that the immediate effect reduces poverty rates while the lag effect is associated with increases in the poverty rate. We assess these results in the context of previous literature that examines the relationship between resource intensive economies and economic development.

Lin A., Gong X.

Cheng J., Dai J., Liu Y., Zhao W.

Li C., Yu G., Deng H., Liu J., Li D.

Because the complexity of the external environment has put great pressure on the agricultural economy, making it vulnerable, it is necessary to promote a system of resilience in the agricultural economy so that Chinese agriculture can continue to persevere in the face of serious external uncertainties. Therefore, this paper investigates the spatio-temporal pattern and evolution of the distributional dynamics of China’s county-level agricultural economic resilience based on 2000–2020 data covering 2,545 counties. The results are as follows: first, from 2000 to 2020, the mean value of China’s county-level agricultural economic resilience showed an obvious upward trend, which indicates that China’s agricultural economy gradually increased its ability to resist risks and continued to develop in a favourable manner. Specifically, the county-level agricultural economic resilience index of the northeast region grew the most significantly, while the index of county units in the western region was relatively low. Second, the centre of gravity of the spatial distribution of China’s agricultural economic resilience gradually migrated to the northwest, showing a dominant direction from northeast to southwest and a tendency to develop from southeast to northwest. Third, the spatial differences in China’s agricultural economic resilience generally showed an upward trend, while county-level differences were the main source of the overall differences, followed by inter-provincial differences, inter-municipal differences and inter-regional differences. Additionally, the contribution of county-level differences to the overall differences fluctuated within the range of 54%-58%. Fourth, there is a possibility of localized convergence in China’s agricultural economic resilience, which is continuous in spatial effects and has obvious positively correlated spatial effects at different times and in different county spaces.

Piya S.

The supply chain of many industries, including Oil and Gas, was significantly affected by the disruption caused by the Covid pandemic. This, in turn, had a knock-on effect on other industries around the globe. Sustaining the impact of the disruption posed a major challenge for the industry. This study contributes to the existing literature by identifying and analyzing the most significant drivers that affected the sustainability of the Oil and Gas supply chain during the Covid pandemic. Fifteen drivers were identified based on an extensive literature review and a survey conducted with experts working in the Oil and Gas industry. Multi-criteria decision-making methodologies were used to analyze these drivers. The analysis from the fuzzy analytical hierarchy process found that the most important drivers for the sustainability of the Oil and gas supply chain during the pandemic were “Risk management capacity”, “Government regulation” and “Health and safety of employees”. On the other hand, the driver “Community Pressure” was found to be of the least importance. Furthermore, the study integrated the results of the fuzzy analytical hierarchy process with the fuzzy technique for order of preference by similarity to ideal solution to calculate the supply chain sustainability index. A case example was demonstrated to rank the industries based on such calculations. This study can support the governmental institutions in benchmarking the Oil and Gas industry based on its sustainability index. Additionally, the outcomes of the study will help industrial decision makers prioritize the drivers the company should focus and devise strategies based on the priority to improve the sustainability of their supply chain during severe disruption. This will be crucial as the World health organization has cautioned that the world may encounter another pandemic in the near future.

Pan C., Sun T., Mirza N., Huang Y.

Promoting a green financial sector is imperative to achieve the goals of circular economies. The role of green finance is not only limited to providing robust financing for the transition but is also relevant to sustaining environmentally friendly business models. This research aims to evaluate whether investors demand a risk premium for transitions to low emission firms in countries where high emitters from natural resources-related firms exhibit significant market power. We use a time series sample of firms from six GCC countries between 2011 and 2020 and introduce an emission-based risk factor in the conventional asset pricing framework. Our findings suggest that carbon emissions are systematically priced in the stock returns. Therefore, we argue that the investors will require additional compensation to include low emitters in their portfolios to substitute for more polluting but dominant firms resulting in a higher cost of capital for green firms. We suggest that fiscal interventions in the short to medium term can help in incentivizing the investors to adopt sustainable investment styles. • The study employs a time series sample of six GCC countries from 2011 to 2020. • The study introduces an emission-based risk factor in the conventional asset pricing framework. • The results suggest that carbon emissions are systematic and are priced in stock returns. • These findings are not encouraging from a pro-ecological perspective. • The study suggests that fiscal interventions can help investors adopt sustainable investment styles.

Fadeev A.M., Vopilovskiy S.S., Fedoseev S.V., Zaikov K.S., Kuprikov N.M., Kuprikov M.Y., Avdonina N.S.

The article discusses a range of economic issues related to the efficient use of the industrial potential of coastal territories (by the example of the Murmansk region) in the development of shelf deposits. A comprehensive analysis of the industrial complex and an objective assessment of conditions for the development of the oil and gas industry in the Murmansk region are given. Considerable attention is paid to the formation of organizational and economic mechanisms for using the industrial potential of regional enterprises in the implementation of oil and gas and large industrial projects in the territory of a new producing area.

Wang D., Chen F., Mao J., Liu N., Rong F.

The authenticity and quality of industrial statistical data directly affects all types of systematic research based on it. Considering the limitations of extant data quality evaluation literature on research objects and evaluation methods, we constructed a new data quality comprehensive inspection and evaluation model based on Benford's Law (BL) and the technique for order of preference by similarity to ideal solution (TOPSIS), selected coal-related industries as the research object, and conducted an empirical test along the research path of “Industry→Province→Indicator”. The results showed that, at industry level, the quality of statistical data for China's coal-related industries from 2001 to 2016 was generally poor. Among the eight sample industries selected, the data quality for five industries (including coal, electricity, and steel) was assessed as poor or slightly poor. Furthermore, at the provincial level, there is significant spatial heterogeneity in the quality of statistical data for various industries affected by factors such as economic structure, marketization level, and industrial diversity. Compared with other types of statistical indicators, industry financial indicators are more prone to data quality problems at the indicator level, and the suspicious indicators of different industries show certain common characteristics and some industry differences. To improve the quality of industrial statistical data and reduce the possible adverse impacts of data quality problems, based on the research findings, we propose targeted countermeasures and suggestions on how to prevent data fraud and effectively identify and rationally use suspicious data. • A novel model for evaluating the quality of industrial statistical data is proposed. • The quality of statistical data for China's coal and its downstream industries is generally poor. • There is significant spatial heterogeneity in the level of statistical data quality between provinces. • The suspiciousness indicators not only show certain industry common features, but some industry differences.

Gong X., Lin A., Chen X.

We propose and test a novel determinant of crash risk: gender congruence with the chief executive officer (CEO) or chief finance officer (CFO). To ensure the homogeneity of the analyzed companies, our study chooses a sample of 116 energy companies from 2007–2017, we find that the CEO–CFO gender congruence improve the quality of corporate information processing and corporate governance , which in turn inhibits corporate executives from hoarding bad news and ultimately reduces crash risk in energy companies. Further, we observe a significant negative impact of CEO–CFO gender congruence on crash risk in both traditional and new energy companies; while this effect is significant only in state-owned energy companies. Additionally, we explore two potential mechanisms for the impact of CEO–CFO gender congruence on the reduction of crash risk in energy companies. The results reveal that the effect of CEO–CFO gender congruence on reducing energy companies’ crash risk is stronger in companies with low information asymmetry and at weak level of external monitoring. Overall, this paper proposes an ”information processing” mechanism for same-sex CEO–CFOs and demonstrates the effect of CEO–CFO​ gender congruence on crash risk in energy companies. Our results highlight the importance of CEO–CFO association indicators on corporate decision-making and crash risk.

Roach T., Maisch J., Oller J.

The Indian Removal Act forced many native groups in the USA into what is now the state of Oklahoma. This new land was soon contested, in part, for the mineral wealth that lay beneath. In this research, we document how the recent surge in oil and gas production brought on by hydraulic fracturing has differentially affected native and non-native communities in this region and surrounding states. We make use of the sudden and unexpected increase in oil production to determine how “fracking” has changed labor market outcomes for native and non-native groups in the resource extracting sector as well as other spillover sectors. To study this, we make use of data from the Quarterly Workforce Indicators (QWI) and exploit the natural experiment setting that the advent of hydraulic fracturing provides. We find that earnings in the oil and gas extraction sector have increased for white workers by about 10%, but that earnings for Native workers are un-changed. Regarding spillovers into other sectors, we do find evidence that fracking increased employment and earnings for Native workers, but that these gains are not at the same scale as white workers.

Piya S., Shamsuzzoha A., Khadem M.

The COVID-19 pandemic has significantly affected the supply chains (SCs) of many industries, including the oil and gas (O&G) industry. This study aims to identify and analyze the drivers that affect the resilience level of the O&G SC under the COVID-19 pandemic. The analysis helps to understand the driving intensity of one driver over those of others as well as drivers with the highest driving power to achieve resilience. Through an extensive literature review and an overview of experts’ opinions, the study identified fourteen supply chain resilience (SCR) drivers of the O&G industry. These drivers were analyzed using the integrated fuzzy interpretive structural modeling (ISM) and decision-making trial and evaluation laboratory (DEMATEL) approaches. The analysis shows that the major drivers of SCR are government support and security. These two drivers help to achieve other drivers of SCR, such as collaboration and information sharing, which, in turn, influence innovation, trust, and visibility among SC partners. Two more drivers, robustness and agility, are also essential drivers of SCR. However, rather than influencing other drivers for their achievement, robustness and agility are influenced by others. The results show that collaboration has the highest overall driving intensity and agility has the highest intensity of being influenced by other drivers. • This study identified fourteen drivers that affect supply chain resilience (SCR) of the oil and gas industry during the COVID-19 pandemic. • The drivers were analyzed using an integrated Fuzzy ISM–DEMATEL approach. • The analysis shows that the major drivers of SCR are government support and security. These two drivers influence other drivers of SCR. • Agility and robustness are essential drivers of SCR. However, these drivers do not influence other drivers; rather, other drivers of resilience influence them. • Among the identified drivers, collaboration has the highest overall driving intensity and agility has the highest intensity of being influenced by other drivers.

Sergeeva T.

The oil industry in Russia is currently rapidly developing. According to the ratings, Russia is one of the three world leaders in oil production. In early 2020, due to the spread of the epidemic and the restrictions imposed on the world market, there was a sharp drop in oil prices, which negatively affected the income of oil companies, which in turn could not but affect transportation. The choice of the transport mode depends on many factors: on the transported cargo volume, the location of oil refineries and consumers, the degree of the transport infrastructure development. The fall in global oil consumption due to the pandemic, the adoption of the agreement OPEC + to limit production led to the need to reduce the costs of oil companies. The task of reducing the transport component and, accordingly, the costs of operating companies of railway rolling stock for the oil and oil products’ transportation is becoming urgent. This can be achieved by outsourcing some of the work performed by the rolling stock operators. This article discusses the conditions necessary for the termination of work by the forces of the rolling stock operator. A tool for performing such an analysis is presented, and the outsourcing effectiveness is assessed. The use of outsourcing will allow railway rolling stock operators to reduce their costs, focus their efforts on the processes that are core for the company, i.e., on those that directly bring profit.

Chen X., Gong X., Yang Z.

This paper investigates whether media report favoritism affects firm crash risk both in the traditional and new energy sector. Crash risk is caused by a suddenly outflow of a large amount of cumulatively hidden bad news. Media report favoritism mitigates firm information asymmetry and impairs managements' ability to conceive bad news to outsiders. We find that media report favoritism, measured by total number of news covering firm, significantly reduces the energy firms' crash risk for both traditional news and online news. Our results are robust for Heckman selection model and alternative measures of independent variables. Further, we find that the relation between media coverage and crash risk is more pronounced for new energy firms, non-SOEs firms, firms with higher analyst following, and firms with larger board size. These results indicate that media coverage could play a role in mitigating information asymmetry and reduces firm crash risk. • The paper examines the link between media report favoritism and corporate crash risk. • Media coverage plays an important role in mitigating information asymmetry. • Media coverage has an important effect on curbing managements' ability to hide bad news. • Media coverage is increasingly effective in reducing crash risk among new energy firms and Non-SOEs firms.

Boccard N.