NCPA - National Center for Policy Analysis

Shale Revolution Boosts Income around $150 a Year

May 18, 2015

The fracking revolution has happened incredibly quickly, with natural gas output in the United States increasing by 25 percent in just six years.

From 2007 to 2013, production grew by 25 percent and Henry Hub prices fell by over 50 percent. The supply boom lowered prices by almost 50 percent.

Between the price fall and the expansion of quantity consumed, in 2013 fracking made buyers of natural gas $74 billion better off. However, producers have, on net, lost because of fracking (a $26 billion loss in 2013) - for them, the price decline has outweighed the quantity expansion. Overall, the private gains to consumers and producers from shale gas totaled $48 billion in 2013. This is about one-third of 1 percent of Gross Domestic Product, around $150 per capita.

One reason the price fall has been so dramatic is that the North American natural gas market is not fully integrated with overseas markets. Natural gas must be transformed into liquefied natural gas before transport overseas. This is expensive and there are policy barriers on top of the transportation costs. As a result, some policymakers have hoped the decline in U.S. manufacturing would be reversed, spurred on by low domestic energy prices that are not mirrored in international markets.

Manufacturing employment appears to have risen because of fracking, although the total employment effect depends on how these changes impact non-manufacturing employment.

Source: Catherine Hausman, Ryan Kellogg, "Economic and environmental impacts of fracked shale gas," VOX, May 15, 2015.


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