Construction critical to growth of unconventional energy market

Marcia Doyle Headshot
Updated Oct 2, 2014
An oil rig is shown on near Williston, North Dakota. Oil extraction discoveries have led to rapid industrial development and job creation in the area. Tom Reichner / Shutterstock.comAn oil rig is shown on near Williston, North Dakota. Oil extraction discoveries have led to rapid industrial development and job creation in the area. Tom Reichner /

Construction is a key player throughout the “unconventional” oil and gas supply chain, according to a just-released study by the Energy Equipment Infrastructure Alliance, and conducted by IHS Global Insight.

The industry is one of five critical economic sectors when it comes to the unconventional energy market, defined as oil and gas extracted by horizontal drilling and hydraulic fracturing.

Screen Shot 2014-09-30 at 3.18.20 PMThe study, “Supplying the Unconventional Revolution: Sizing the Unconventional Oil and Gas Supply Chain,” looked at 56 industry sectors representing 40 percent of the employment across the entire unconventional energy sector. IHS calls the study the “first comprehensive assessment on the unconventional energy supply chain, focusing on the economic contributions associated with the oil and gas industry’s broad network of suppliers.”

Construction is present during upstream, midstream and downstream segments of the supply chain, and includes well services and drilling support, well pad and access infrastructure, pipelines, infrastructure to support processing and refining, and roads.

Unconventional energy development is also kindling adjacent construction activity, resulting in added housing, commercial buildings and infrastructure. IHS reports that this supplemental construction investment will range between $2.8 to $3.6 billion annually through 2025. Jobs created by supplemental construction peaked at 16,800 in 2013, and will decline over time to about 10,000 jobs in 2025, IHS says.

Adding both direct and supplemental construction prompted by unconventional energy, IHS says the 16 energy producing states will see 134,243 construction workers in this segment in  2015, a number that will drop to 108,521 in 2020.

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In addition, the sand and gravel material segment plays a key role, according to the report. The construction sand and gravel mining sector is the largest in the unconventional energy supply chain in terms of employment, gross output and labor income contributions, IHS says. Employment in this sector is expected to almost double from 28,000 workers in 2012 to nearly 50,000 workers in 2025. Gross output will increase from about $6 billion to more than $10 billion in the same time period.

At a predicted 2.9-percent growth in employment from 2012 to 2025, employment in the unconventional energy supply chain will be almost triple that of IHS’s 1.1 percent estimate for total U.S. employment over the same time period. Wages in the sector are expected to average $79,000, versus the average U.S. wage of $68,000.

More than 70 percent of unconventional energy will be produced by 10 states: Texas, Louisiana, Pennsylvania, Colorado, North Dakota, Ohio, Oklahoma, California, Arkansas and Utah.

Mark Gilbertson, owner of Fargo Rentall, Fargo, North Dakota, is quoted in the report: “The development of the Bakken Shale formation has been the fundamental driving force in the rapid and sustain growth of the state’s capital stock, and specifically in the amount of rental equipment working in North Dakota. We have experienced multiple years of double digit growth in our rental fleet that is only constrained by our access to capital.”

He’s echoed by Don Shilling, president of General Equipment & Supplies, also in Fargo. “Over the past few years, my company has doubled its revenue, mostly because of energy development. These increased sales and continues strong business climate have come at a time when our market share has remained constant. During the same period, we went from  125 employes to over 250 today. In fact, we would hire dozens more if we could find enough skilled labor.”

The full report can be accessed here.