Good News for the Economy

Good News for the Economy

Written by Gary Wartik

Notwithstanding the current action, or inaction of the US House of Representatives with respect to funding the federal government, there is continuing good news in the American economy on another front.  Time will take care of the budget issues, perhaps with a bit of political blood on the floor before it is all over, but hopefully without substantial delay.

So, what is the good news?  It is no secret that America is becoming energy sufficient.  While a large part of the world’s oil and gas reserves are in “bad neighborhoods,” such as Iran and Venezuela, and in the unstable Middle East, the value and volume of recoverable oil and natural gas continues to grow in the United States as well as in Australia, Brazil, Canada and Mexico.

Shale gas in particular has made headlines as new gas fields have opened up in Arkansas, California, Louisiana, North Dakota, Oklahoma, Pennsylvania and Texas.  These fields have contributed to nearly a 90 percent decrease in the wholesale cost of natural gas as gas production has increased 20 percent during the last four years.  Annual production increases of 5.3 percent are projected by the industry through the year 2030.  As a result, heating homes and industry, and generating electricity will continue to cost less, saving Americans billions of dollars in annual energy costs.

Hunting for oil is known to be very costly, and often consumes huge volumes of energy.  While conventional oil extraction continues in coastal waters off the United States, Norway, Great Britain, Vietnam and Brazil in particular, it is oil extracted from shale rock, employing new technology that is allowing for extraction of oil thought unrecoverable less than ten years ago. With world oil selling for around $103 per barrel on October 1, extracting new oil with new technologies has become cost effective.

The oil boom in the seven states mentioned has contributed to a notable decrease in the amount of oil imported by the US. According to The Economist, new recovery methods have accounted for $238 billion in economic activity since 2009, with 1.7 million new jobs created and $62 billion in new taxes generated by state and local governments.  The benefits of cheaper natural gas and oil are noteworthy, with one estimate cited by The Economist as valued at $342 billion in projected new economic activity in the period 2015-2020 that will include generation of another 1.2 million new jobs.

One of benefits of this change in America’s expanded “Oil Patch” is that new oil should contribute to stabilizing domestic and foreign oil markets, keeping the cost of energy in check.  That scenario should contribute to lower costs to do business in the US, particularly in the manufacturing sector that hopefully will contribute to retaining and also growing the US manufacturing sector.  Absent this change, more factories would likely close with jobs exported abroad.

The second benefit is political.  America will be less vulnerable to political pressure by those who would employ tactics similar to OPEC’s 1973 and 1979 oil embargoes.  The country will also be much less impacted by prospective disruptions in the flow of oil from the Middle East during whatever crisis may be around the corner.

The current financial crisis manufactured in Congress related to funding the government will eventually be resolved.  The future of oil and gas exploration in the US is long-term, and will literally brighten America’s economic and political future.  Something to celebrate for sure.

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