Fracked Natural Gas Changing The US Economy

According to a recent report issued(12/2011) by IHC  Global Insight**, shale gas (fracked natural gas) has changed the US energy outlook and the economy.   In 2010, shale gas provided 27% of the US natural gas (NG).  IHC forecasts that by 2035, shale gas will provide 60% of the US NG production.  Without the shale gas, a NG supply shortage would have necessitated the importation of liquefied natural gas(LNG). Today’s price of somewhere around $3 to $4 per million BTUs would likely be in the range of $10 to $12 per million Btus if importation had been necessary.  Longer term,  IHC forecasts 2035 NG price at $7.90 per million Btus (All values in their report are in constant 2010 dollars.) thanks to shale gas.

 The job creation due to shale gas has been outstanding and IHC forecasts continued increases in jobs.   IHC reports that shale gas, by 2010, had supported over 600,000 jobs.  They forecast jobs to grow to 1.6 million by 2035.   

There are other benefits as well.  In 2010 the industry contributed $18.6 billion in governmental tax revenues and royalty payments.  By 2035 the cumulative contribution of taxes and royalties are forecast to be $933 billion.   Additionally,  the capital expenditures made between 2010 and 2035 are forecast at $1.9 trillion.

In the future, electricity prices are forecast to drop by 10%  and parts of the chemical industry will be revived.  Our domestic industries will become more competitive because of the lower cost of natural gas as feedstock and NG’s impact on electrical cost.

Although there will be some redundancy relative to the preceding discussion,  the Key Findings page for IHCs report “The Economic and Employment Contributions of Shale Gas in the United States” is an excellent summary.  It follows:

• By 2010, shale gas had grown to 27% of total US natural gas production, and by September 2011,it had reached 34%.

• By 2015, that share will grow to 43% and will more than double, reaching 60%, by 2035.

• Nearly $1.9 trillion in shale gas capital investments are expected between 2010 and 2035.

• Capital expenditures are especially strong in the near future, growing from $33 billion in 2010 to $48 billion by 2015.

• In 2010, the shale gas industry supported 600,000 jobs; this will grow to nearly 870,000 in 2015 and to over 1.6 million by 2035.

Growth in the shale gas industry will make significant contributions to the broader economy in terms of Gross Domestic Product (GDP) and tax revenues:

• The shale gas contribution to GDP was more than $76 billion in 2010. This will increase to $118 billion by 2015 and will triple to $231 billion in 2035.

• In 2010 shale gas production contributed $18.6 billion in federal, state and local government tax and federal royalty revenues. By 2035, these receipts will more than triple to just over $57 billion. On a cumulative basis, the shale industry will generate more than $933 billion in federal, state, and local tax and royalty revenues over the next 25 years.

• The extent of job and GDP contributions reflect the capital intensity of the shale gas industry, the ability to source inputs from within the United States, the nature of the supply chain, and the quality of the jobs created.

The growth of shale gas is leading to lower natural gas and electric power prices and increased productivity:

• The full-cycle cost of shale gas produced from wells drilled in 2011 is 40-50% less than the cost of gas from conventional wells drilled in 2011.

• Without shale gas production, reliance on high levels of liquefied natural gas (LNG) imports would influence US natural gas prices, causing them to increase by at least 100%.

• The lower natural gas prices achieved with shale gas production will result in an average reduction of 10% in electricity costs nationwide over the forecast period.

• By 2017, lower prices will result in an initial impact of 2.9% higher industrial production. By 2035, industrial production will be 4.7% higher.

• Chemicals production in particular stands to benefit from an extended period of low natural gas prices, as it uses natural gas as a fuel source and feedstock. Chemicals producers have already signaled their intentions to increase US capacity.

• Savings from lower gas prices will add an annual average of $926 per year in disposable household income between 2012 and 2015. In 2035, this would increase to just over $2,000 per household.

 It is well worth your reading the full report which can be accessed by clicking here. It is intended that the next posting reviews the IHC report on unconv entional gas’s c ontributions by State.  That posting is to be followed by a look at a similar report by the Bookings Institute on Green Jobs.

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**IHS  Global Insight is one of the world’s leading economic analysis and forecasting firms.