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By Paolo von Schirach
May 27, 2012
WASHINGTON – The US shale gas revolution has already had and will have enormously beneficial economic effects at two critical levels. First of all it supports investments and jobs in the energy sector. But, of even greater importance, lower energy prices sustained over a long period of time will have a major tonic effect that will spread throughout the entire economy. The total impact is likely to be quite significant for America, providing a badly needed lift to an otherwise sagging US economy.
Shale gas adds to energy supply, employment
According to IHS Global Insight, shale gas will contribute to larger and larger percentages of total US natural gas output. Shale gas was 34% of total production in 2011. It will move to 43% by 2015 and jump up to 60% by 2035. The natural gas sector adds to US total economic output. According to a Star-Telegram December 6, 2011 story, it was $ 76.9 billion in 2010. It will go add $ 118.2 billion in 2015 and $ $ 231 billion in 2035. And then there are new jobs, usually high paying jobs. The industry supported 600,000 jobs in 2010. Projections indicate 870,000 by 2015 and up to 1.6 million by 2035.
Ripple effects
Beyond all that, there are vast ripple effects. With a huge supply increase, natural gas prices collapsed, with obvious benefits for average consumers and for industrial sectors that are heavy energy users. American consumers pay less for electricity and for heating their homes, while steel mills and plastics industries see their costs going down and their global competitiveness going up.
Adding to GDP
Some estimate that the positive ripple effects of lower US energy costs could boost average growth by 0.5% or even 1% of GDP for the next decade. This does not sound like much; but it is instead really huge. Over the last 20 years the US economy grew at an average 2.6% rate a year. In the previous 20 years the rate was 3.1%. An additional half a point year after year would make the difference between slow and dynamic growth.
Cheaper fuel, cheaper goods
Improved economic growth is likely to come from the use of natural gas as transportation fuel. Most US goods travel on heavy trucks that burn expensive oil derived diesel. With trucks using cheaper Liquefied Natural Gas, (LNG), much lower fuel costs will translate into lower costs of goods in stores. People will spend less for their day to day living. They will have more disposable income for big ticket items and/or for new investments. On top of that, the use of natural gas in the automotive sector will create new jobs in Detroit and in truck manufacturing companies that will have to develop and roll new lines of products.
New chemical industry investments
The US chemical and plastics sectors will see significant new investments. Corporations will flock to America, lured by low electricity costs and by abundant natural gas used as feed stock in many of their manufacturing processes. For instance, as Reuters reports, ”Chevron Philips Chemical Co. plans to build an ethane cracker that converts ethane from natural gas into chemicals used in plastics. The plant will employ 400 people in Baytown, Texas”.
And then there is the balance of payments angle. The larger and larger use of natural gas as fuel for heavy trucks and later on cars will allow the US to import less oil. And this will mean a lower national bill for imported energy. In 2011 the US spent more than $ 300 billion on imported oil.
Energy security will be enhanced
Finally, there is energy security. Increased reliance on more abundant domestic energy, coupled with increased oil imports from within the Western Hemisphere, justified by increased production in Canada and Brazil, means that the US will no longer be reliant on Middle Eastern oil.
When this will happen, this huge geopolitical shift will also transform US foreign and security policies priorities. When America will no longer need Gulf oil, we shall invest much less in protecting the daily flow of supertankers through the Strait of Hormuz. That oil will still be vital for China and Japan; but not for America. So, it is likely that it will be up to the Chinese Navy to patrol the Arabian Sea. The US 5th Fleet, now anchored at Bahrain, will sail home.