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* Unconventional oil and gas to support 3 mln jobs by 2020
* Close to two-thirds U.S. domestic oil to come from sector
* Sector faces major tax, environmental, trade policy issues
By Roberta Rampton
WASHINGTON, Oct 23 (Reuters) - The U.S. oil and gas rush is cutting into jobless numbers, supporting a total of 1.7 million jobs this year, a number that will swell to almost 3 million by 2020, a leading consultant said in a study released on Tuesday.
The report by forecaster IHS Global Insight is part of a series attempting to quantify the impact that booming production of so-called "unconventional" oil and gas has had on the American economy.
Using new technology to blast fossil fuels trapped in shale rock has transformed the U.S. energy sector.
After five years of rapid growth, unconventional oil accounts for about 2 million barrels per day of U.S. production in 2012, IHS said. Total U.S. crude oil production is expected to average 6.3 million barrels per day, according to the Energy Information Administration.
Unconventional oil will outpace conventionally drilled oil by 2015 and reach close to 4.5 million bpd by 2020, representing close to two-thirds of total U.S. crude and condensate production, IHS said.
"At which point do you stop calling this unconventional?" said John Larson, a vice-president at the firm and lead author of the study, in an interview.
"This is going to become the convention."
Oil, gas and chemical lobby groups helped pay for the study but did not influence its independent, data-driven results, Larson said.
President Barack Obama cited an earlier report in the IHS series on the campaign trail and in a State of the Union address that documented 600,000 jobs created by the natural gas sector.
That natural gas employment estimate has since swelled to 900,000 jobs, Larson said, noting more data is now available about new "plays" where companies are drilling.
By 2020, IHS forecasts about 1.3 million additional jobs in unconventional oil and gas, with the sector contributing more than $416 billion to the economy.
Of the 3 million total jobs, IHS said about 20 percent would come directly from the upstream oil and gas industry, with more than 900,000 people employed by suppliers and about 1.5 million "induced" jobs from spending by workers in the sector.
With 12 million Americans unemployed and about 23 million underemployed, the growth in unconventional oil and gas jobs is helping take some slack out of the jobs market, Larson said.
"This is really overwhelmingly net new jobs being added to the economy," he said.
The report comes as the Environmental Protection Agency considers what role it should play in regulating hydraulic fracturing or "fracking," the technology used by drillers to blast sand, water and chemicals into shale rock to unleash the oil and gas.
Environmental groups have raised concerns that fracking can pollute groundwater and air, but the industry says the practice is safe so long as wells are properly built.
The projections in the report assume the industry remains regulated mainly at the state level, and also assumes that most growth in drilling continues to happen on privately owned land, Larson said.
The sector currently contributes more than $61 billion in revenues to government, rising to more than $111 billion by 2020, assuming no changes to the industry's tax incentives.
However, both Obama and Republican presidential candidate Mitt Romney have talked about rolling back those tax breaks as U.S. policy makers look for ways to boost revenues to help avert massive spending cuts and personal income tax increases that are part of the "fiscal cliff" looming at the end of the year.
In February, IHS is planning another report in the series looking at how the energy boom has led to a "renaissance" in the U.S. manufacturing sector.
Part of that report will forecast jobs created by proposed exports of liquefied natural gas, Larson said.
IHS currently assumes exports of 4 billion to 6 billion cubic feet per day by 2035, Larson said -- far less than what companies have proposed to build.
Even if the Energy Department gives a green light for exports, IHS does not believe the global market is strong enough to support all the proposals, Larson said.
"It's really hard for us to see how all those (terminals), even if they were approved, end up being built," he said.