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Matt Smith

Matt Smith

Taking a voyage across the world of energy with ClipperData’s Director of Commodity Research. Follow on Twitter @ClipperData, @mattvsmith01

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How the Shale Boom has Effected the US Economy

I am a huge fan of in-depth research reports, for I relish the challenge of sifting through them to find the simple takeaways that make sense to me (while gracefully admitting defeat to the more complex bits).

And the recent release by IHS of ‘America’s New Energy Future: The Unconventional Oil and Gas Revolution and the US Economy (Part 3)‘ was perfect for said such sifting. For its focus on the repercussions of the US shale revolution highlight a blitz of benefits for the US economy. Here is the simple truth of the report:

HOUSEHOLD INCOME
–The fracking boom has increased disposable income per household by $1200 in 2012. How? Through lower energy costs – in both the form of lower utility bills, but also filtered through to the costs for goods.
–Manufacturers are benefiting from lower costs – which means lower-priced products, while the boost to industrial activity is inducing higher wages.
–The $1,200 per household ($163 million across 120 million households) is set to increase to $2,000 by 2015, and $3,500 in 2025.

JOBS
–Perhaps the most telling influence is seen in employment. In 2012, the energy boom supported 2.1 million jobs, and this is set to increase to almost 3.1 million by 2020, and 3.9 million by 2025.
–Jobs are being created on three fronts: directly-related (i.e., at oil exploration companies), indirectly-related (i.e., in supply industries), and induced ( i.e., consumer goods and services because workers have incomes to spend).

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ENERGY
–The primary beneficiaries of lower energy / feedstock prices for energy will be energy-related chemical industries, and the competitive advantage they will gain.
–Natural gas liquids play will play a huge role as a feedstock in the production of petrochemical products.
–The resulting petrochemicals will drive on energy demand, as these manufacturing sites are energy intensive and widespread – across the sectors of automotives, agriculture, buildings and construction, pharmaceuticals, transport, and textiles.
–A production boom is also projected for ethylene – derived from the NGL of ethane – which is a primary building block for most plastics (and a substitute for the crude oil derivative, naphtha).

Natural Gas Everyday

NET TRADE
–One of the main reasons the US trade deficit is so wide is because of the high volume of oil imports. As domestic production increases, the need for oil imports diminish.
–The deficit will further narrow in a double whammy kind-of-way (lower imports / higher exports) due to an increase in exports of LPGs, LNG, and refined petroleum products.
–Lower energy costs will improve the competitiveness of energy-intensive manufacturing industries to spur on greater domestic demand.
–Meanwhile, declining domestic petroleum demand in the US enables refiners the opportunity to keep utilization rates high, exporting surplus production (to Latin America and Europe).

Refined Products Net Exports

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INDUSTRIAL PRODUCTION
–Industrial production is projected to rise by 2.8% in 2015, by 3.5% by the end of the decade, and by 3,9% in 2025.
–This is seen in two ways: by lower natural gas prices spurring on increased energy investment and production, and secondly through the creation of jobs and lower priced goods to ultimately boost consumer spending.

GDP
–The incremental boost from the oil and gas boom is expected to translate into as much as a $533 billion contribution to GDP through increased goods and services produced.

TAX REVENUES
–Through to 2025, the tax contribution from the oil and gas revolution will surpass $1.6 trillion (cumulatively)
–88% will come from from upstream activities, 4% from downstream activities, and the rest from energy-related chemicals activities

All of this is best summed up quite nicely by Daniel Yergin of IHS: ‘the unconventional oil and gas revolution is not only an energy story, it is also a very big economic story. The growth of long-term, low-cost energy supplies is benefiting households and helping to revitalize U.S. manufacturing, creating a competitive advantage for U.S. industry and for the United States itself.’ Positive stuff indeed.

By. Matt Smith




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