Tuesday, January 3, 2012

U. S. Economy Getting Boost From Unlikely Sector – the Energy Sector

Why It Is So Difficult to Prognosticate on the Economy

One of the reason why the United States imports so much of its energy is that demand has been rising and supply has been falling.  The supply that remains in the U. S. is expensive to develop and not all that competitive in price with the rest of the world.  In the past several years this has changed.

Shale gas and oil, gas and oil trapped in rock formations deep below the earth are being developed at an ever increasing rate.  This is reducing the price of natural gas and stimulating industries dependent upon natural gas. (Exactly what one would expect in Econ 101, but always a surprise to many people).

Shale-gas production is spurring construction of plants that make chemicals, plastics, fertilizer, steel and other products. A report issued earlier this month by PricewaterhouseCoopers LLC estimated that such investments could create a million U.S. manufacturing jobs over the next 15 years.

Even better for economic development, the gas is being found in areas of Appalachia and the industrial Midwest and the sparsely populated northern plains states.  These area have suffered more than other parts of the country from bad  economic times, and if better times are to be had, this is the place to have them.

West Virginia's legislature, meeting in a special session, passed a bill this month setting rules for shale gas drilling and production. The legislation ensures "a reliable supply" of shale gas in West Virginia and should dispel regulatory uncertainty that could slow investment, Keith Burdette, the state's commerce secretary, said in an interview.

Because the increased production of lowers energy costs for everyone, the economic benefits will go beyond the local areas where the gas is produced or where investment in manufacturing that uses natural gas is taking place.  Prices are low for gas, and the change in gas prices is in stark contrast to the price of other carbon based energy sources, as this set of charts show.


So what’s the problem?  (There’s always a problem).  Producing and transporting gas and oil from shale deposits is horribly destructive to the environment.  The potential exists for massive environmental disasters, and this is going to be a major cost of this new energy.  But this cost will be borne by future generations, so a lot of people are not going to worry about that now.  After all, that is just one more cost the current folks are shoving onto the kids, like huge student debt, huge national debt, and huge environmental problems. 

They can thank us later.

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