Energizing California - Chevron

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Energizing California Milken Institute Industry Profile and Economic Impacts Background One of the world’s largest integrated energy companies, Chevron is primarily engaged in the production, manufacturing, and marketing of oil and natural gas, as well as the exploration, transportation, and marketing of fuels or petroleum products. While the company maintains its core focus on oil and natural gas, it has also expanded its operations in fields such as unconventional hydrocarbons, alternative and renewable energy, and energy efficiency. Following the discovery of oil in California’s Pico Canyon, Chevron was born as the Pacific Coast Oil Company in 1879. The business later changed its name to Standard Oil Company of California, and eventually became Chevron after the acquisition of Gulf Oil Corporation in 1984. 2 As California’s population swelled and new industries developed, the state’s demand for energy grew. Chevron expanded right along with the state’s economy, meeting this ever-escalating need. With its extensive oil and natural gas assets, Chevron is headquartered in California. It has long been a leader in the U.S. energy industry, and has more recently emerged as a key international player in renewable energy innovation. Its growth in recent years accelerated with the acquisitions of Texaco and Unocal. 3 As of 2006, Chevron ranked as the largest oil producer and the sixth-largest gas producer in California. 4 Through its operations, facilities, and partners, Chevron has a vast footprint in the Golden State. Analyzing the economic ramifications of Chevron’s presence in California is crucial to understanding the underpinnings of the state’s economic base and planning for California’s long-term prosperity. In order to present an accurate portrait of Chevron’s economic impacts in California, we performed a detailed multiplier analysis at the state and regional levels. We have identified not only the direct contributions created by Chevron in terms of jobs, earnings per employee, and output, but also the broader economic activity generated by the company. We have also attempted to assess the size of the industry as a whole so as to quantify Chevron’s role from a relative standpoint. Industry-wide impacts will account for Chevron and all other firms whose economic activity is classified in the eleven industry codes specified on page 12. 2 Chevron company profile, http://www.chevron.com/about/leadership/. 3 Ibid. 4 California Department of Conversation, Division of Oil, Gas, and Geothermal Resources, “Oil and Gas Statistics,” in 2006 Annual Report of the State Oil and Gas Supervisor (Publication PR06), p. 68. 11
Energizing California Milken Institute Based on the North American Industry Classification System (NAICS) and according to Bureau of Labor Statistics (BLS) guidelines, Chevron’s primary economic activity falls under the following eleven NAICS codes: Chevron's primary industries By NAICS code NAICS Code Industry 211111 Crude petroleum and natural gas extraction 212111 Bituminous coal and lignite surface mining 324110 Petroleum refineries 324191 Petroleum lubricating oil and grease manufacturing 424690 Other chemical and allied merchant wholesalers 424720 Petroleum and petroleum products merchant wholesalers* 483111 Deep-sea freight transportation 483113 Coastal and Great Lakes transportation 486110 Pipeline transportation of crude 531190 Lessors of other real estate property 541320 Landscape architectural services** Sources: Office of Management and Budget, Chevron. *Except bulk stations and terminals; **Includes planning and designing the development of land areas for projects. The Bureau of Economic Analysis (BEA) assigns unique coefficients, known as “multipliers,” to these industry codes in order to help capture the extent of the economic impacts stemming from the industry and its location. Until we apply these multiplicative values to Chevron’s current size, it is difficult to fully grasp the firm’s total effect on the state economy. Multipliers enable us to quantify how employment, earnings, and output generated by an industry within a region ripple through and impact other regional economic sectors. In addition to providing data on an industry’s regional impact, economic multipliers also bring to light region-wide interdependencies and inter-industry relationships. It is important to highlight these relationships because they directly influence how regional economies respond to changes in long-term industry structures and business cycles. The jobs Chevron directly generates, the earnings per employee, the tax revenue it generates, and the output it creates comprise its direct impacts on the state economy. These direct impacts also have an additional, broader benefit: They immediately translate into economic stimulus for other sectors that support the industry (such as services, trade, and construction). Chevron’s presence creates an opportunity for supplier industries to service the company’s operations and meet its continuous demand for technological improvements and value-added services. An example of such an indirect impact occurs when the company hires subcontractors or contracts with vendors in support of its production processes. The extent of the impact is typically determined through the length and characteristics of the supply chain throughout the region. A longer and higher-quality supply chain has a greater overall impact in a region—and the employment multiplier for the petroleum refinery industry in California is relatively high. The industry requires an extensive production infrastructure and a large proportion of highly skilled and specialized labor, including many researchers and engineers. With this need comes a higher demand for supply-related goods and services, which are likely to stem from the same region. 12
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Energizing California - Chevron

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