PLANO, Texas—The world’s economy has moved into a rare growth alignment and that will benefit North America’s energy industry greatly, according a Caterpillar Inc. economist. But it also threatens to raise costs and create a labor shortage that could bring that economic growth to a halt.
“Pipeline investment requires oil and gas growth on a global basis, as well as in the U.S.” Laura Speake, regional chief economist for energy and transportation for the big construction equipment firm, said in her Nov. 8 keynote address to the 3rd annual Pipeline Leadership Conference. And that’s happening now, she said: “We are experiencing the best economic growth on a global basis that we have seen in a decade.”
All 45 developed nations in the Organization for Economic Cooperation and Development have growing economies now “and that doesn’t happen very often,” Speake added, noting this is only the fourth period in 50 years when that has occurred. “We seldom see global growth in sync in this manner.”
That’s good news for the U.S. energy business at a time when the industry has started to emphasize exports in a manner that has never happened before—while domestic oil and gas demand has started to grow again. Crude oil exports are growing, petroleum product demand abroad remains strong and the nation is emerging as a major LNG supplier.
The one negative to that export boom, according to Speake, “is a coming glut in the LNG industry” as U.S. capacity expands at the same time as Australia and Mideast producers expand. However, new U.S. LNG liquefaction capacity is coming on the market at a much lower cost than foreign competitors and that will assure the domestic gas business will be a major worldwide player.
Speake, whose career was in energy and utilities before joining Caterpillar, said exports represent one of four components that create domestic economic expansion. The others are public consumption, investment and government expenditures. All four are strong now, she said.
In oil and gas, “we have investment again that has been missing” since the 2014 commodity price crash, she said. “Growth is getting better in the U.S.” Growing demand and economic expansion are good for oil and gas, of course, but they also threaten the energy business.
“Continuing market growth means we could be getting tight on labor,” Speake said. Upstream producers and midstream operators need the same workers who drill wells and completion equipment; or build processing plants, lay pipelines and build terminals; or drive trucks, pave roads and construct houses and offices. And there are only so many of them out there.
“The job market is very healthy” and “everything could get more expensive” as a result as strong demand and short supply combine to push up wages, she said.
When will it end? No one knows but it will, the economist said. The end of the U.S. economic expansion that began in 2009 following the severe recession of the last decade will occur sometime and probably—the questions are when and why, Speake said. It has been going for nearly nine years and that is a very long stretch for an economic trend.
“Expansions don’t die of old age, something kills them,” she added. What will kill the current growth remains to be seen.
Paul Hart can be reached at pdhart@hartenergy.com.
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