The shale gas - research.natixis.com

October 16 2012 – No. 683
The shale gas “revolution” in the United
States: assessment and outlook
Inconceivable 10 years ago, the development of shale gas industry has led to
considerable changes in the US economy. In addition to hydraulic fracturing
and horizontal drilling techniques, a significant rise in unconventional gas
production has been possible due to a number of factors: advantageous
geological conditions, large gas reserves, an infrastructure network already
in place, and a favorable regulatory framework.
Consequently, even though oil still holds the lion’s share of the country’s
energy consumption structure, natural gas has begun to play an increasingly
important role in the economy. The cheap gas supply has largely benefited
the
electricity
production
and
the
industrial
sector
(in
particular,
petrochemicals, iron and steel industries), but also the residential sector that
enjoyed the decline in energy prices. In the medium term perspective it has a
potential to support the gas-powered transportation and the LNG exports.
Moreover, the process of substitution of certain oil products by natural gas,
coupled to increased shale oil production, should put the country on the path
to lower energy dependence.
This
source
of
cheaper
energy
should
keep
contributing
to
the
reindustrialization potential of the country in the coming years, the trend that
ECONOMIC RESEARCH
Authors:
Inna Mufteeva
Thomas Julien
Clémentine Cazalets
should finally lead to a decline in the chronic US trade deficit.
Introduction: an
economy with high
energy intensity
Following the trend of the world’s largest developed nations, the United States
underwent a substantial decrease in its energy intensity 1 during the 20th century as
an industrialized society gradually transformed into a society based on services with
a lower energy consumption profile. The trend has continued since the mid-1970s,
this time following improvements to the country’s energy efficiency (rather than a
modification of its production apparatus) 2 . Even if the United States substantially
reduced the amount of primary energy required to produce one unit of output, the
US is, however (along with Canada), one of the less energy efficient nation in the
G7 (Chart 1). As so, the energy sufficiency remains a crucial issue for the North
American economy. The recent discovery of new drilling techniques that allowed the
exploitation of the vast unconventional gas reserves at low cost should thus create
a considerable boost for the US in macroeconomic terms.
Chart 1
Ene rgy inte ns ity (Btu/dollars , 2005)
18000
United States
United Kingdo m
Canada
EU-27
OEC D
Japan
18000
16000
16000
14000
14000
12000
12000
10000
10000
8000
8000
6000
6000
4000
4000
Sources: EIA
2000
2000
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
The place of natural
gas in the US economy
Although oil is by far the main primary energy source used in the United States,
natural gas has now taken up the second place (Chart 2). This resource is used
either as the input in electricity production and in a number of other industries, or as
a final product by households, mainly for heating purposes. The natural gas is
mostly produced within the United States (approximately 90%), while the rest is
imported from Canada. In the long-term scenario, as natural gas has few captive
usages (contrary to oil that is not replaceable on the big scale for the transportation
sector), it has to remain price-competitive with respect to its substitutes. New
extraction techniques and a number of favorable factors have made this resource
more attractive, to the extent that it now takes a greater place within the economy, a
trend which looks set to continue in the medium to long run.
First of all, we take a look at the factors behind this “revolution”. Then we review the
various sectors benefiting from this resource, and finally examine the potential
implications for the American economy.
1
2
Energy intensity is defined here as the ratio between consumption of primary energy and GDP.
Metcalf (2009): “An Empirical Analysis of Energy Intensity and Its Determinants at the State Level”.
Flash 2012 –683- 2
Chart 2
Unite d State s : s tructure of prim ary e ne rgy
cons um ption in 2011
9%
Oil
9%
36%
Natural gas
Coal
Nuclear
20%
Renewables
So urce: EIA
26%
The shale gas
“revolution”
One of the principal drivers of the recent development in the sector is the
technological change that allowed implementing two complementary drilling
techniques applied to shale gas reserves: hydraulic fracturing (also known as
“fracking”) and horizontal drilling.
Unlike conventional gas, shale gas is not found in a reservoir, but trapped in limited
quantities within shale formation. The horizontal drilling technique can be used on a
much larger section of rock, making the shale gas well more profitable. The
horizontal section generally begins at a depth of between 5,000 and 10,000 feet,
and can be up to 0.6 or 1.2 miles in length. The aim of fracking is to make the shale
permeable; the technique consists of high-pressure injection of a mixture of water,
sand and chemicals in order to create micro-fractures in the shale and extract the
gas.
A shale gas drilling rig is approximately 3 times more productive with respect to the
conventional gas sector. Even considering the substantial decrease in productivity
of shale gas wells after 2 years, the difference is still large. According to IHS Global
Insight, to extract 35 million cubic feet of natural gas per day some 18,700
conventional wells would be required, whereas the new technique requires only
10,500 shale gas wells. Moreover, the cost of extracting shale gas is between 40%
and 50% lower than conventional gas extraction (HIS puts the breakeven point of
most shale gas wells at approximately 4$/MM Btu).
Flash 2012 –683 - 3
Factors favorable to
the sector
In addition to the discovery of the drilling technique, a number of positive factors
have assisted in the development of shale gas operations:
1. Sound geological conditions: the US has shales boasting a large content of
organic matter, with a high recovery potential.
2. Low population density, favoring acceptance by local communities: shale
gas extraction is not rejected by public opinion in the US, unlike many European
countries (including France, Germany, Bulgaria, and probably the Czech Republic).
Moreover, large amounts of gas are concentrated in formations and basins in areas
with a very low density of population.
3. Favorable legal and fiscal framework:
 Between 1987 and 1992 producers enjoyed tax credits for production
of non-conventional gas, which assisted in the development of shale
gas extraction techniques.
 Fracking is permitted in most US states (Box 1).
 Ownership rights over natural ressources belong to landowners.
4. Infrastructures: producers have a well developed infrastructure network, with
a large number of pipeline facilities for gas distribution, and a dynamic, competitive
industry which support the development of new technological processes.
Box 1
Low regulatory risk
Hydraulic fracturing is considered a rather controversial technique in view of its effects
on the environment: it entails risks of pollution of groundwater reserves and the
surrounding land, and also risks of minor earthquakes. The process also requires large
amounts of water, and therefore affects its availability. Ecologists also claim that
development of shale gas restricts the development of renewable energies, which will
be needed in the longer run. If leakages occur, there is also a risk of strong CO2
emissions.
Under federal law, shale gas extraction is subject to the same regulations as the
extraction of conventional gas, mainly measures to protect the environment such as
the Clean Air Act or the Clean Water Act. US States, however, may introduce
additional constraints, such as compulsory publication of the list of chemicals injected
into wells. Some States merely impose a stricter regulatory framework (with respect to
conventional extraction), whereas others (New York, New Jersey and Vermont) have
placed a temporary ban on fracking.
By the end of 2012 the Environmental Protection Agency will publish a survey affecting
the future regulation of shale gas extraction. A full federal ban is unlikely, but there
could be tougher measures in store. EIA estimates the impact of new environmental
protection standards to add 7% to the drilling costs.
All in all, if in general Republicans are less concerned with environmental issues, the
Democrats (if returned to office) would not interfere with development of the shale gas
either due to the potential of job creations and a boost to growth.
Flash 2012 –683- 4
As the result of lower production costs, the non-conventional gas industry (mostly
shale gas, but also tight gas and coalbed methane) has undergone major
development in recent years. In fact, although previously most natural gas
production was conventional gas, shale gas accounted for 33% of the total gas
supply in the United States in 2011. This share looks set to increase in the years
ahead (Chart 3).
Rapid development in
recent years
Chart 3
United States: natural gas supply sources
160
Forecasts
33%
140
Shale gas
120 0.76%
48%
100
Tight gas
Non-associated
offshore
80
Alaska
60
Coalbed methane
40
Associated with oil
20
Non-associated
onshore
Source: EIA
0
1990 1996 2002 2008 2014 2020 2026 2032
Rapid development of the unconventional gas sector has led to greater production,
thereby creating a positive supply shock. On the strength of contracting demand
and a sluggish economic recovery following the collapse of the housing bubble,
natural gas prices have fallen considerably: the Henry Hub spot price (the US
market’s benchmark) was around 6$/MM Btu in 2004, and had fallen to around
2.5$/MM Btu by 2012 (Chart 4).
Substantially lower
prices
This major decrease gives the US a comparative edge over Europe and Japan,
where natural gas prices average 10$/MM Btu and 18$/MM Btu respectively (the
gap between these countries has widened considerably since 2010, Chart 5).
Chart 4
Unite d State s : gas price s and s hale gas
production
Chart 5
Natural gas price s ($/M M Btu)
Spo t P rice, USD / M M B tu (H enry H ub), lhs
18
Shale gas pro ductio n (cm s), rhs
16
15
14
200
12
So urces: EIA
10
150
8
100
6
4
50
2
0
0
01
02
03
04
05
06
07
08
09
10
11
12
United States (Henry Hub)
18
Euro pe
250
15
Japan
13
13
10
10
8
8
5
5
3
3
Sources: Dat ast ream, B lo omb erg , NA TIX IS
0
0
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Flash 2012 –683 - 5
The beneficiary sectors
Several sectors of the US economy have benefited from this advantage. For certain
industries, lower natural gas prices mean smaller energy bills or lower input costs,
others have benefited from stronger demand for their final products.
The areas of the economy that have reaped most advantages from shale gas
development are the industrial sector, electricity generation, and the residential and
commercial sector, together accounting for 86% of demand for natural gas in the
US economy (Chart 6).
Chart 6
United States: dem and for natural gas by
sectors (%)
100
90
80
70
60
50
40
30
20
10
0
Co mmercial
Industrial
Transpo rt
Electricity
Other
Expo rts
Sources: EIA
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
1 – Electricity
production: the end of
coal?
Over the last decade, the electricity sector has substantially increased the use of
natural gas. Hitherto, half of the electricity production was based on coal due to its
low cost. A number of factors, however, gradually reduced the appetite for coal in
favor of gas-powered plants (Chart 7):
-
-
-
Tougher regulations on CO2 emissions, since coal-based electricity production
generates large amounts of greenhouse gases (the Cross State Air Pollution
Rule in July 2011 and the Mercury and Air Toxics Standards in December
2011);
The correlation between coal and oil prices;
Ageing coal-based power plants (Chart 8);
The emergence of much more productive combined-cycle power plants (using
natural gas as input);
Development of gas-based facilities that need smaller investment and lower
operating costs for greater output compared to coal-based plants with similar
production capacities;
More recently, lower natural gas prices and their décorrélation from oil prices
(Chart 9).
Thus, we have observed a process of substitution of coal by natural gas for
electricity production, illustrated by much higher investment in gas-based plants
since the beginning of the 2000s (Chart 8). This means the electricity production
sector has become more dependent on supplies of natural gas, and has reaped the
advantages of shale gas development with a more stable supply available at lower
cost. The lower production costs could be passed on to consumer prices for
electricity, thus benefiting to the economy.
Flash 2012 –683- 6
Chart 7
Unite d State s : e le ctricity ge ne ration by fue l
(Bn KW/h)
Co al
Natural gas
Renewables
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
Other (including o il)
Nuclear
Chart 8
Unite d State s : capacity by initial ye ar of
ope ration and fue l type (M W)
Sources: EIA
Sources: EIA
Oil
50000
Other renewables
Nuclear
40000
Hydraulic po wer
25%
15%
Natural gas
30000
Co al
23.5%
20000
52%
44%
43%
Forecasts
10000
0
98
01
04
07
10
13
16
19
22
25
28
31
34
40 45 50 55 60 65 70 75 80 85 90 95 00 05 10
Chart 9
United States: coal futures, natural gas prices
and prices of raw m aterials
Co al futures (CA P P Central A ppalachian, USD/M M B tu, lhs)
Natural gas spo t price (USD/M M B tu, lhs)
GSCI index: co mmo dity prices (rhs)
14
900
12
800
10
700
8
600
6
500
4
400
2
Sources: Bloomberg
0
07
2 – The industrial
sector
08
09
10
11
300
12
The industrial sector now accounts for around 32% of demand for natural gas. As
the sector is extremely sensitive to energy price changes, the decrease in natural
gas prices and their volatility since the year 2000 have benefited to numerous
businesses, in particular, to the manufacturing sector.
The following industries with high energy intensity (where energy costs average
4.8% of annual operating cost) have enjoyed lower energy prices and a decrease in
volatility: petrochemicals, refining, glass, cement, steel, aluminum and agriculture.
Along with other positive factors (relatively lower labor costs with respect to other
developed nations, and also a structural weakening of the dollar), these
phenomenon helps to shore up the US industrial sector. Accordingly, it increases
the potential for reindustrialization in certain sectors.
The chemicals sector
The petrochemicals sector, which uses gas as a source of energy and also as an
input in its industrial processes, is one of the main beneficiaries from the increase in
cheap natural gas output.
For certain chemical products the industry requires the production of ethylene, a
hydrocarbon that may be obtained from ethane (a by-product of natural gas) or from
naphtha (an oil by-product). US producers generate 85% of ethylene from ethane,
whereas their European and Asian counterparts use 70% naphtha. Low natural gas
prices in the United States thus represent considerable competitive advantage for
its chemicals industry.
Flash 2012 –683 - 7
Greater price competitiveness in this sector enabled businesses to increase their
chemical exports by 28% between 2009 and 2010 (Chart 10).
Moreover, many producers (Dow Chemical, Chevron Phillips Chemical Co, Shell Oil
etc.) have announced new investment plans to internalize their production costs
(producing ethane directly) or to increase their production capacity (ethane’s
capacity utilization rate is approximately 95%, according to a report by the American
Chemistry Council).
The iron and steel
industry
Development of the shale gas has also led to the increase of the demand for the
industry suppliers. The production of metals has received a particular boost thanks
to demand for drilling equipment (Chart 11). Indeed, in response to increased
demand, many corporations (including US Steel and Vallourec) have invested in
new production capacities. Besides, as a sector with high level of energy intensity, it
equally benefited from lower costs of electricity and of natural gas prices (which can
also be directly employed in steel production processes).
Chart 10
Unite d State s : e xports of che m icals and natural
gas price s
Chart 11
United States: shale gas and the m etallurgy
sector
Expo rts o f chem icals exc. m edicinals, m illio ns o f USD , lhs
M etal pro ductio n, % Yo Y, lhs
0,8
P rice o f natural gas (H enry Hub), in USD , rhs
12000
200
Shale gas pro ductio n, cms, rhs
13
11
10000
9
8000
7
0,7
150
Sources: EIA, Fed
0,6
100
0,5
5
6000
3
50
0,4
Sources:
1
4000
06
07
08
09
3 – Demand in the
residential and
commercial sectors
Flash 2012 –683- 8
10
11
12
0,3
0
90
92
94
96
98
00
02
04
06
08
10
Residential and commercial demand for gas for heating, which accounts for 31% of
total demand for natural gas, is only slightly elastic to prices because energy
consumption is incompressible and depends mainly on climate conditions (Chart
12). Consequently, the lower domestic gas prices which followed the spot price
decrease allowed an average savings of 175$ on the annual residential
consumption by a typical household, and savings of 1,100$ on commercial
consumption, according to the American Gas Association. This has also given a
boost to consumer confidence, which shows a significant negative correlation with
energy prices (Chart 13).
Chart 12
Unite d State s : re s ide ntial gas cons um ption and
price of natural gas
Residential gas co nsum ptio n, Yo Y, lhs
Residential gas price, Yo Y, rhs
P rice o f gas (Henry Hub), Yo Y, lhs
40
150
30
100
20
10
50
0
-10
0
-20
-30
-50
Chart 13
Unite d State s : gas price s and cons um e r
confide nce (% YoY)
50
C o nsum er gas prices, lhs
-50
40
University o f M ichigan index, rhs inverted
-40
30
-30
20
-20
10
-10
0
0
-10
10
-20
20
-30
30
Sources: B LS, CB
So urces: Dep art ment o f Energ y, Tho mso n Reut ers, B LS
-40
-100
02
03
04
05
06
07
08
09
10
11
12
-40
40
02
03
04
05
06
07
08
09
10
11
12
Households owning land also benefit from the royalties charged for gas operations.
In the United States, underground resources belong to the owners of the land, and
any commercial gas extraction is a subject for a royalty. By way of example, the
royalty payment for land at the Marcellus site (north-west US) are between
2,000$ and 12,000$ per hectare.
The economic
repercussions
On the macroeconomic front, development of the natural gas industry could have a
number of largely positive effects, to the benefit of households (in terms of
purchasing power and jobs), certain businesses (in terms of lower production costs)
and also the state (increased revenues and savings on heating bills for public
buildings).
Impact on jobs
It should, however, be pointed out that the effect on jobs is difficult to gauge. As this
is a capital-intensive sector, direct job creations by non-conventional gas extraction
industry will likely be limited. Other sectors directly or indirectly involved may
possibly benefit from growth in the sector (sand, gravel industry, steel, transport and
engineering services, for example). The development of natural gas could
nevertheless penalize the US coal industry, and in macroeconomic terms this would
reduce the favorable effect on employment.
Potential demand
sectors:
In addition to economic areas that have directly benefited from recent development
of shale gas, other sectors could emerge as new sources of demand in the medium
to long term – there is a good potential for greater utilization of gas in the transport
sector and also the possibility of LNG exports.
1. The transport sector
At the present time, only 0.1% of natural gas production is used by the transport
sector, but lower prices for gas (2.50$/MBtu is equivalent to 15$ per barrel of oil)
encourage the substitution of oil. Number of gas-powered vehicles doubled between
2003 and 2009, though they still account for only a fraction of the total vehicles
park. However, even if changes in the sector remain at the embryonic stage,
especially due to the lack of infrastructure for this type of vehicles, some examples
of substitution have already been observed (in the public transport sector, for
instance). Thus, in the longer term horizon the process of the substitution of oil by
gas in the energy mix of the country can be reinforced by the transportation sector.
Flash 2012 –683 - 9
2. Natural gas exports
The specific physical properties of natural gas (highly volatile) create difficulties in
terms of transportation, which requires heavy initial investment. There are two main
techniques used to transport the resource: gas pipelines and liquefied natural gas
(LNG) tankers. Whereas pipeline transportation is usually restricted to neighboring
countries, there are no such restrictions on LNG.
With current natural gas prices, as shown in Chart 5 above, the US holds an
undeniable comparative advantage with respect to other countries, many of which
are gas consumers. Indeed, even if we factor in the costs associated with LNG
exports (cost of liquefying, transportation and regasification), estimated as 3-4 $ per
million Btu, according to the Brookings Institution, the price of US natural gas is still
lower compared to Europe (approximately 10 $/MM Btu) and Asia (18 $/MM Btu).
This represents an attractive opportunity for future exporters.
The US, however, has hardly any infrastructure to liquefy and export its natural gas.
In 2011, according to the EIA, 95% of US natural gas exports went through
pipelines to Canada (62%) and Mexico (32%). LNG exports, a tiny proportion (less
than 5%), were actually mostly re-exports.
Despite the high costs associated with construction of these infrastructures, a
number of projects of liquefaction facilities construction have been launched. The
most advanced of these (Cheniere’s Sabine Pass terminal), the cost of which is
approximately $5 Bn could be terminated in 2015, with a target capacity of 2.2 Bn
cubic feet per day. Eight more projects are awaiting approval by the Department of
Energy. If these are accepted, the total capacity of exports LNG terminals (including
Sabine Pass) would represent a daily capacity of 12.6 Bn cubic feet by 2020.
However, these projects, that require the approval by the Department of Energy
(DoE), have been blocked for the time being, since the Administration is concerned
by the possible impact of exports on domestic prices. The EIA, in fact, has
forecasted (in its baseline scenario) a 9% increase in the price of natural gas for 6
bcf exported per day (which is relatively coherent with other surveys). The
alternative scenario, consisting of a major increase in exports (12 bcf/day),
approximately corresponds to the export capacity that would be available if all the
projects submitted finally materialized (some 12.6 bcf/day). In this case the EIA
estimates that prices could rise by 14%-26% by 2025. However, in view of the
considerable power wielded by lawmakers to block ongoing projects and politicians’
reluctance to commit on the issue, the baseline scenario appears more likely.
Development of the sector could also encounter competition from other countries
with major shale gas resources (Table 1). With factors which are relatively more
favorable and a clear lead, the US still holds an advantage in the industry (Box 2).
Table 1 - Gas resources worldwide 2009 (trillion cubic feet, dry basis)
Mexico
Argentina
Australia
China
France
Poland
Production
Consumption
Imports*
1.8
1.5
1.7
2.9
0.03
0.2
2.2
1.5
1.1
3.1
1.7
0.6
18%
4%
52%
0%
98%
64%
Source: EIA
* Portion of imports in consumption
Flash 2012 –683- 10
Conventional
resources
12
13
110
107
0.2
6
Shale
resources
681
774
396
1,275
180
187
Box 2
Development of the shale gas sector worldwide
Mexico: in a context of stagnation of its conventional gas production, the
Mexican government is willing to develop the shale gas industry. The first
well was drilled in February 2011, and another 175 are planned by the year
2015. Development of the sector, however, could be limited by a lack of
water and an insufficient pipeline network.
Argentina ranks third worldwide in terms of shale gas reserves, and has
already announced its intention to become a major player in this market. The
Gas Plus Program (tax breaks and price deregulation) has already attracted
a number of American corporations.
With conventional gas resources particularly costly to extract (since they are
located offshore) Australia is now developing shale gas sector with the main
objective to export the resource (as demonstrated by ongoing LNG terminals
construction projects). According to estimates, however, the market is still in
its infancy and will perhaps need approximately 10 years before Australia
achieves any significant levels of production. Price increases will also be
necessary to make shale gas extraction economically viable.
China, which has recently become the world’s largest energy consumer, has
the largest shale gas reserves. The government has already employed
subsidies and tax breaks to attract producers, but China shale gas industry
faces two obstacles: scarcity of water and the less favorable geological
conditions that make the extraction process more costly than in the US.
Although a number of projects are already running, it might need another
decade to develop the production on a scale large enough to have a
significant impact on China’s natural gas market.
France has some significant reserves, and is extremely dependent on gas
imports. Its gas basins, however, are located in areas with high population
density, and public opinion opposes the projects. Last year the government
placed a ban on fracking, and it seems unlikely that shale gas extraction will
be developed any further in the medium to long term.
In an attempt to secure energy independence with regard to Russia, Poland
is particularly proactive on the shale gas front, even though its resources,
formerly reckoned to be Europe’s largest, have now been reviewed
considerably downwards. In addition, as some already running projects have
revealed, the country’s geological conditions appear to less advantageous,
reducing the potential margins on subsoil operations.
Flash 2012 –683 - 11
Prospects for natural
gas prices
Many factors define the future path of natural gas prices. In terms of demand, the
main determinants are economic growth, climate conditions, oil prices and
development of other energy sources. On the supply side, one should consider the
variations in the production of natural gas, volumes of net exports and volumes of
gas available in storage facilities.
Some of these factors cannot be easily predicted (temperature changes, for
instance), others are cyclical (underground storage levels). Nevertheless, we can
make assumptions regarding broad price trends. First of all, the gradual
strengthening of the US economic growth expected in the medium term will
obviously be a factor for higher demand (in particular, from energy-intensive
companies, sensitive to the cycle). The deformation of the primary energy
consumption structure in favor of gas also should enhance this trend, while oil
prices look set to stabilize around relatively high levels. In terms of supply, with
numerous projects taking place, volumes of production are likely to remain
considerable in the years to come. Meanwhile, despite some uncertainty linked to
the administrative factor, net exports will probably increase in the long term.
Overall, these factors suggest that pressures on prices will likely to become upward,
as the market absorbs the excess supply accumulated in the recent years while the
demand for gas should rise even faster in the coming years. Yet, this trend should
be moderated by rather large production volumes. According to EIA estimates,
prices for natural gas are expected to fluctuate within the range of 4-7 $ per
MBtu over the next 20 years.
Deformation of the
primary energy
consumption structure
With all the factors supporting the development of the natural gas sector, the share
of this resource within the primary energy consumption has already increased and
now averages 26% in 2011 (as against 24% in 2000) and the EIA expects its
stabilization in the coming years. This trend has emerged mainly due the
contraction of the coal share (via the electricity sector) but also of oil, although the
latter should still keep the lion’s share, accounting for approximately 35% of the
consumption of primary energy (Chart 14).
Chart 14
United States: consum ption of prim ary energy
by sources (%)
Oil
Nuclear
100
90
80
70
60
50
40
30
20
10
0
Natural gas
Hydraulic po wer
Co al
Other renewables
Sources: EIA
09 11 13 15 17 19 21 23 25 27 29 31 33 35
Flash 2012 –683- 12
100
90
80
70
60
50
40
30
20
10
0
Apart from the direct industry effects, the non conventional gas development
coupled to the structural changes in the energy mix (with higher weigh of natural
gas), offers a potential to reduce the United States energy dependence.
Toward a lower energy
dependence
According to the dependency ratio, defined as the net portion of energy needs that
is imported, the country is in a relatively comfortable position due to its substantial
reserves of natural resources. The ratio, in fact, fell from its peak of 31% in 2005 to
20% in 2011, slightly below its long-term average of the last 20 years (24%).
Besides, it remains significantly lower than the 53% dependency ratio of the EU (as
for 2009).
Although the energy dependence of the US is mostly concentrated in oil products
(accounting for 95% of net energy imports), the main energy resource consumed in
the US (Chart 2), the trend presented above looks set to continue in the coming
years. According to EIA forecasts, in fact, the dependence ratio could reach 13% by
2035 (Chart 15), driven downward by a number of positive factors:
 An increase in the production of liquefied gas and the presumable increase
in LNG exports (thanks to shale gas).
 An increase in the production of shale oil (Chart 16).
 Substitution of oil products by natural gas and biofuels.
 An increase in coal exports.
 Lower demand for oil due to a shift in the consumer behavior as
households drive less and purchase more fuel-efficient cars (Chart 17).
Chart 15
United States: net energy im ports
Chart 16
United States: energy production by fuels
(quadrillions of Btu)
Energy pro ductio n (quadrillio ns o f B tu)
110
13%
100
30
100
25
90
90
20%
80
70
Sources : EIA
60
80
85
90
95
05
10
15
20
25
30
25
20
15
Forecasts
10
10
5
5
0
0
60
00
30
Sources :
15
80
Forecasts
Natural gas
Nuclear
Renewables
20
Net imports
70
Oil
Co al
Hydraulic po wer
110
Energy co nsumptio n (quadrillio ns o f B tu)
80
35
85
90
95
00
05
10
15
20
25
30
35
Chart 17
Unite d State s : ave rage fue l cons um ption of
ne w ve hicle s and dis tance trave le d
30
A verage sales-weighted fuel eco no m y o f purchased new
vehicles (m iles per gallo n, lhs)
D istance traveled (m illio ns o f m iles, rhs)
3.05
29
28
3.00
27
26
2.95
25
Sources: Dat ast ream, Universit y of M ichigan
24
10/07
10/08
10/09
10/10
10/11
2.90
10/12
Flash 2012 –683 - 13
Greater energy security
As shown recent oil price hikes, the US economy remains sensitive to supply
shocks that reduce the households’ purchasing power through higher consumer
prices. Therefore, the structural changes that the country is undergoing at the
moment with the decrease in the oil dependence, the US economy might become
more resilient to adverse supply shocks linked to the energy prices (such as surge
in oil prices). The volatility of the economic cycle could thus decrease.
A reduction in the
tarde balance deficit
Lower energy dependence could also exert a favorable influence on the US current
account balance, which is running a structural deficit. Recently, the energy trade
balance has already shown a sharp reduction in net imports in volume (Chart 18),
mostly driven by the decrease in oil imports and, to a lesser extent, gas imports.
Even though that decline was largely attributable to the crisis and the drop in
economic activity (therefore oil needs), the trend recently observed should continue
in the medium to long run (Chart 19).
Chart 18
Unite d State s : e ne rgy trade balance
(Quadrillion Btu)
To tal
Co al
5
N atural gas
Oil
Chart 19
Unite d State s : curre nt balance
(quarte rly data in % of GDP)
5
0
0
-5
-5
-10
-10
-15
-15
-20
-20
-25
-25
-30
-30
Sources: EIA
-35
-35
49 53 57 61 65 69 73 77 81 85 89 93 97 01 05 09 13
Summary
Forecasts
2
0
0
-2
-2
-4
-4
-6
-6
So urces: B EA , Nat ixis
-8
-8
80
83
86
89
92
95
98
01
04
07
10
13
Inconceivable 10 years ago, the development of shale gas industry has led to
considerable changes in the US economy. In addition to hydraulic fracturing
and horizontal drilling techniques, a significant rise in unconventional gas
production has been possible due to a number of factors: advantageous
geological conditions, large gas reserves, an infrastructure network already in
place, and a favorable regulatory framework.
Consequently, even though oil still holds the lion’s share of the country’s
energy consumption structure, natural gas has begun to play an increasingly
important role in the economy. The cheap gas supply has largely benefited
the electricity production and the industrial sector (in particular,
petrochemicals, iron and steel industries), but also the residential sector that
enjoyed the decline in energy prices. In the medium term perspective it has a
potential to support the gas-powered transportation and the LNG exports.
Moreover, the process of substitution of certain oil products by natural gas,
coupled to increased shale oil production, should put the country on the path
to lower energy dependence.
This source of cheaper energy should keep contributing to the
reindustrialization potential of the country in the coming years, the trend that
should finally lead to a decline in the chronic US trade deficit
Flash 2012 –683- 14
2
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Flash 2012 –683 - 15