When President Biden yesterday unveiled his $2-trillion economic recovery plan, few in his immediate circle likely thought about oil. Yet, the plan will have a positive effect on oil demand because $621 billion of the total would be used for transportation infrastructure, including lots of roads.
And roads are built with asphalt.
Of this $621 billion, $115 billion would be allocated for road and bridge construction, Bloomberg noted in a report, and another $16 billion has been earmarked for laid-off oilfield workers who would be tasked with plugging abandoned oil wells and securing abandoned coal mines across the country.
But the biggest winner from the recovery plan could be Canadian oil sands producers in what could be seen as an ironic twist of fate after Biden canceled the Keystone XL pipeline that might have made life easier for these companies by providing a much needed additional outlet for their growing oil exports to the southern neighbor.
Asphalt is made from bitumen, and bitumen is what the oil sands yield. With ambitious targets for new roads and bridges and for large-scale repair works, asphalt demand in the next few years could soar.
The employment plans for paid-off oil workers are also good news for the troubled industry.
Around 120,000 jobs were lost in the U.S. oil and gas industry last year due to the crash in oil demand and prices and subsequent massive downsizing of staffing levels, Rystad Energy said last month in an industry analysis.
The United States, the third-biggest employer in the oil and gas sector globally, saw the number of jobs in the industry decline to around 960,000 last year, down from approximately 1,080,000 employees in 2019.
The API, however, warned yesterday that the infrastructure plan will be bad for energy industry jobs.
“Targeting specific industries with new taxes would only undermine the nation’s economic recovery and jeopardize good-paying jobs, including union jobs,” the API said. “It’s important to note that our industry receives no special tax treatment, and we will continue to advocate for a tax code that supports a level playing field for all economic sectors along with policies that sustain and grow the billions of dollars in government revenue that we help generate.”
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By Irina Slav for Oilprice.com
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Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London