CED

November 2014

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November 2014 | Construction Equipment Distribution | www.cedmag.com | 29 Sector Check supply chain will grow at an annual compound rate of about 3 percent from approximately 524,000 jobs in 2012 to 757,000 jobs in 2025, an increase of about 45 percent. The total supply chain-related gross output will increase from nearly $146 billion in 2012 to almost $206 billion in 2025. How important is the market to construction equipment dealers? The study breaks down the impact for two relevant NAICS codes: wholesale machinery* (4238) and rental and leas- ing of construction, mining and forestry machinery** (532412). In the wholesale machinery classi- fication, the direct impact of uncon- ventional oil and gas is documented by IHS at $3.5 billion in 2014. Rental and leasing accounts for another $1.6 billion. Together the two markets will total more than $5 billion in 2014, and are forecast to exceed $7.2 billion by 2025. "If you are a dealer or a manufactur- er, the study shows you how the market is projected to grow," said Toby Mack, president and CEO of Energy Equipment and Infrastructure Alliance (EEIA), an association representing members that provide equipment, materials, construc- tion, services, logistics and workers to unconventional oil and gas exploration, production, transportation and processing. "You have a good road map to look at where the oppor- tunities are and to prepare yourself for the kinds of investments you are going to need to take advantage of the opportunities," he added. EEIA supported the study, with IHS exclusively responsible for all of the analysis and content. Producing Versus Nonproducing States The far-reaching impact of the unconventional oil and gas boom is evident in the state-by-state analysis. The Top 10 producing states account for more than 70 percent of the energy supply chain contributions in terms of employment, labor income, and gross output. These include Texas, Louisiana, Pennsylvania, Colorado, North Dakota, Ohio, Okla- homa, California, Arkansas, and Utah. However, nonproducing states benefit from unconventional oil and gas as well. Wisconsin and Minnesota have benefit- ed by selling their high quality frac sand to oil and gas companies. Illinois, with its high concentration of capital good suppliers, was the largest beneficiary of unconventional oil and gas activity among nonproducing states. Manufacturing as well as sand and gravel mining are the key drivers of gross output among nonproduc- ing states. States that will experience the most growth in unconventional oil and gas output over the 2012-2025 time period include Ohio, with a compound annual growth rate (CAGR) of 7 percent and Oklahoma (CAGR 6.3%). The Big Play in Ohio Development is in its early stages in Ohio but has expanded rapidly. In a July 2014 meeting, the Ohio Department of Natural Resources reported that the production in 2013 was nearly double of 2012 due to activity in Utica shale. Unlike states with a more fully developed infrastructure to move products to market, Ohio needs adequate midstream capacity develop- ment before companies can fully tap the potential of Utica Shale. That will require significant investment. David Mustine, the Department's JobsOhio senior managing director, reported more than $6 billion had been invested in midstream processing and fraction- ing facilities over the past two years. "If you are a dealer in Ohio you had better to get ready to service this market, or you're going to lose a huge opportunity." added Mack."Most deal- ers are aware, but I am not sure they see the scale." According to the Energy Informa- tion Administration (EIA), Oklahoma is currently the fifth-largest shale gas producing state. Several emerging unconventional oil plays will attract significant energy company investment and between 2014 and 2025 – output is expected to double. "Texas is by far is the biggest beneficiary because there is already a resident supply chain built up around oil and gas," said Brendan O'Neil, managing director, Consult- ing, Economics and Country Risk for IHS. "North Dakota doesn't have the resident supply chain." The study (continued on next page) Top 10 Producing States Unconventional energy supply chain gross output (2012 $M) 2014 2025 1. Texas $54,799 $65,327 2. Louisiana $16,256 $11,652 3. Pennsylvania $13,953 $24,813 4. Colorado $9,059 $12,783 5. North Dakota $7,540 $6,925 6. Ohio $7,029 $11,419 7. Oklahoma $6,920 $13,538 8. California $5,148 $6,175 9. Arkansas $3,589 $4,718 10. Utah $3,177 $2,003 The other producing states are Kansas, Mississippi, Montana, New Mexico, West Virginia, and Wyoming. Top 10 Nonproducing States Unconventional energy supply chain gross output (2012 $M) 2014 2025 1. Illinois $4,214 $7,080 2. New York $1,691 $3,111 3. Wisconsin $1,484 $2,489 4. Minnesota $1,408 $2,379 5. Michigan $1,373 $2,264 6. Indiana $1,320 $2,146 7. Missouri $1,048 $1,703 8. Florida $789 $1,186 9. Alabama $780 $982 10. Iowa $779 $1,115 The other nonproducing states are Arizona, Connecticut, Delaware, Georgia, Idaho, Iowa, Kentucky, Maine, Mary - land, Massachusetts, Nebraska, Nevada, New Hampshire, New Jersey, , North Carolina, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Vermont, Virginia, and Washington.

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