US Economy Unlikely to be reignite by shale gas

This week the US Department of Energy’s analysis wing, the Energy Information Administration, said domestic gas production rose by a record 4.8bn cubic feet per day in 2011. This is more than three times its annual growth forecast made a year ago

One million British thermal units is a lot of energy. It can warm the average American home for almost three winter days or get a car from New York to Baltimore.
This week, the price of a million Btus of natural gas tumbled below $2 for the first time in a decade. This astonishingly cheap energy price has important implications. But don’t expect gas to become rocket fuel for the US economy.

Gas has fallen thanks to the shale rock drilling boom that has spread from Louisiana to Pennsylvania. Last year the US produced record volumes. Academics, Wall Street analysts and the popular press are celebrating America’s newfound natural gas riches.
Citigroup has been circulating research saying North America could become the new Middle East, while the cover of Fortune magazine shows the oxidised hand of the Statue of Liberty holding a blue-flamed torch of freedom, highlighting a feature on how shale gas is reviving the US economy.
The benefits are clear: lower heating bills, potentially cheaper electricity and fewer US gas imports. But they should also be put in perspective.

For reference, look at a December 2011 study commissioned by America’s Natural Gas Alliance,US a coalition of 30 drillers. The report found that by 2015 shale gas would contribute $118bn to gross domestic product (in 2010 dollars) and “809,000 more Americans will be employed because of low gas prices”.
Before getting too excited, though, consider these facts. America’s GDP was $15tn last year. Assuming it keeps growing, shale’s contribution would be less than 1 per cent in 2015.
The US has a labour force of 155m people, of whom 12.7m were unemployed last month. If gas put 809,000 more Americans to work tomorrow, it would shave the unemployment rate from its current 8.2 per cent to a slightly less dismal 7.7 per cent.
“It’s certainly a good thing for the economy,” says John Parsons, economist at Massachusetts Institute of Technology and a member of the university’s natural gas study group. “But it’s not any magical elixir. It’s not that large a segment.”
Mr Parsons points out that the US economy has become much less energy-intensive than in past decades, meaning energy cost savings have less impact than they once did.
The ANGA study has even brighter forecasts for the year 2035. But anyone who has spent time on the energy patch knows forecasts can go awry. Indeed, 20 years ago the Financial Times was writing about a US “gas bubble” that had depressed prices. They later rose as high as $15.
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