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2001 Kansas Oil & Gas
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Kansas Geological Survey Open-file Report 2002-38 |
Estimated Economic Impact--Oil and Gas Production
The US Department of Commerce's Bureau of Economic Analysis (BEA) prepares regional input-output multipliers that estimate the total economic impact of the addition or removal of industries or projects to a given region. This study continues on an approach used in Kansas Geological Survey Open-File Report 98-56 (http://www.kgs.ku.edu/PRS/publication/OFR98_56/index.html), and uses these multipliers to investigate the economic impact of the estimated 1998 to 2001 increase in oil and gas production on Kansas. These estimates are extrapolated to evaluate the economic impact of the change in value of oil and gas production to both the overall economy and the oil and gas industry specifically.
The BEA multipliers account for the interdependence of economic activity throughout a given region, where a region comprises one or more counties. Multipliers are provided for output, earnings and employment, considering final demand and direct effect. These multipliers, plus assumptions of projects or programs introduced into a region, can be used to calculate variables such as the increase in the output value. Multipliers are also instrumental in calculating earnings income such as wages, salaries or proprietor's income less any contributions to private pension funds, and employment levels.
Final demand multipliers for Kansas used in this report are reported in "Regional Multipliers: A User Handbook for the Regional Input-Output Modeling System (RIMS II): US Department of Commerce's Bureau of Economic Analysis, 1992", and the " The Economic Impact of Stripper Wells in the United States: Interstate Oil and Gas Compact Commission, 1998".
The increase in revenue from 1998 to 2001 for oil production in Kansas is estimated at $334 million (Tables 1 and 2a). Using final demand multipliers, the increased output to the Kansas economy is estimated at $500 million with estimated increased earnings of $64.3 million (Table 2a). Statewide increased employment is estimated at 4,742 (Table 2a). The positive impact would appear to offset the decrease in employment reported for the 1997-1998 period (Kansas Geological Survey Open-File Report 98-56). Direct effect multipliers can be used to estimate the impact of increased in revenue from oil production on the Kansas oil and gas industry (Table 2b). The industry is estimated to have had an increase of $33 million in earnings and a potential increase of 3,041 employees. Again this offset the decreases experienced in the 1997-1998 period.
Change in Value at Wellhead (Million$) |
Final Demand Multiplier Output |
Final Demand Multiplier Earnings |
Final Demand Multiplier Employment |
Change in Output (Million$) |
Change in Earnings (Million$) |
Change in Employment |
$334 |
1.4982 |
0.1925 |
14.2 |
$500 |
$64.3 |
4,742 |
Table 2a - Estimated economic effects of oil prices and estimated decreased oil production on the Kansas economy.
Direct Effect Multiplier Earnings |
Direct Effect Multiplier Employment |
Change in Earnings (Million $) |
Change in Employment |
0.0984 |
9.1014 |
$32.87 |
3,040 |
Figure 2b - Estimated economic effects of oil prices and estimated decreased oil production on the Kansas oil and gas industry.
The increase of value of gas production of more than $800 million would have had a significant impact on the Kansas economy (Tables 1 and 3a). Using final demand multipliers, the increased output to the Kansas economy is estimated at $1,200 million with estimated increased earnings of $154 million (Table 3a). Statewide increased employment is estimated at 11,374 (Table 3a). Direct effect multipliers can be used to estimate the impact of increase in revenue from 1998 gas production on the Kansas oil and gas industry (Table 3b). The industry is estimated to have had an increase of $79 million in earnings and a potential increase of 7,292 employees. These are estimates that are subject to debate and flaws in analysis, but it appears that the industry has recovered from the long-term depression that reached a maximum in 1998. An industry that employs more than 7,000 Kansas citizens and contributes more than $2.5 billion to the economy is on the rebound. However, continued prosperity is dependent on energy prices.
Change in Value at Wellhead (Million$) |
Final Demand Multiplier Output |
Final Demand Multiplier Earnings |
Final Demand Multiplier Employment |
Change in Output (Million$) |
Change in Earnings (Million$) |
Change in Employment |
$801 |
1.4982 |
0.1925 |
14.2 |
$1,200 |
$154 |
11,374 |
Table 3a - Estimated economic effects of oil prices and estimated decreased gas production on the Kansas economy.
Direct Effect Multiplier Earnings |
Direct Effect Multiplier Employment |
Change in Earnings (Million $) |
Change in Employment |
0.0984 |
9.1014 |
$78.82 |
7,292 |
Figure 3b - Estimated economic effects of gas prices and estimated decreased gas production on the Kansas oil and gas industry.
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Last updated August 2002
http://www.kgs.ku.edu/PRS/publication/ofr2002-38/P1-06.html