Thursday 28 June 2012

Natural Gas Windfall is One of The Most Important Economic Developments in the Last 60 Years

On an energy-equivalent basis, natural gas remains 87% cheaper than oil, equivalent to a price of $14 per barrel.

Martin Neil Baily, senior fellow in Economic Studies at the Brookings Institution, and Philip Verleger, president of PKVerleger and visiting fellow at the Peterson Institute for International Economics, emphasize in their recent CNN article that America "hit the energy jackpot" with oil and shale gas, making it "one of the most important developments for the U.S. economy in the last 60 years."  Here are some excerpts:

"Shale extraction... is pushing down energy prices and creating many new opportunities for jobs, investments and manufacturing.

And the new innovations are unique to the United Sates. Although other countries will exploit shale, none will come close to the low costs in the U.S. That's because the U.S. has a unique governmental structure in which many powers remain with the states, along with a very competitive market for the product, as opposed to the monopolies and oligopolies that control the market in almost every other country.

While it may sound like the latest energy fad, the shale boom is for real and a serious game changer because of its size and potential longevity. Based on equivalent amounts of energy, natural gas has been about half as expensive as oil for many years (MP: See chart above, gas has actually been closer to 80% less expensive since the use of fracking increased significantly in 2008-2009).

Cheap gas may not be enough to offset the drag of a slowing global economy this year, but it will boost long-term investment, help the beleaguered manufacturing sector and increase exports.

Building petrochemical plants could suddenly become attractive in the United States. Manufacturers will "reshore" production to take advantage of low natural gas and electricity prices. Energy costs will be lower for a long time, giving a competitive advantage to companies that invest in America, and also helping American consumers who get hit hard when energy prices spike.

After years of bad economic news, the natural gas windfall is very good news. Let's make the most of it."

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