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Orlando on the Economic Potential of Shale Development

Article by Nicholas Saliba December 10, 2013 //   4 minute read

The shale gas boom has provided the U.S. with an opportunity for cheap, clean, abundant energy. An October 2013 study authored by economist Michael J. Orlando on behalf of the Bush Institute finds that shale gas production rose to over 20% of total domestic gas production in the U.S. by 2010 from less than 1% in 2000. Furthermore, the U.S. drilled more than 10,000 shale gas wells in 2011, increasing expenditures by nearly 90% from 2010.

Due in large part to the shale boom, the U.S. is projected to have some of the lowest natural gas prices of any industrialized nation over the next 20 years. By contrast, in Europe and Asia the price of natural gas is three or four times more expensive than that it is in the U.S. Reduced costs for energy and raw materials derived from natural gas, such as ethane used to produce plastics, have allowed the U.S. to gain a competitive advantage in manufacturing.

Orlando concludes, “Shale gas holds the potential to increase U.S. energy security, as consumer demand shifts to this relatively abundant domestic supply.” In addition, shifting to natural gas utilization in areas such as transportation may help to reduce emissions associated with carbon-based energy consumption. According to the U.S. Environmental Protection Agency, “Compared to the average air emissions from coal-fired generation, natural gas produces half as much carbon dioxide, less than a third as much nitrogen oxides, and one percent as much sulfur oxides at the power plant.”

The U.S. contains a sufficient supply of shale gas to enjoy these benefits for years to come. However, in many states with shale gas resources, a number of legislative initiatives can inhibit gas development. Orlando’s research finds that, as of mid-year 2013, 38 states are debating new regulation of shale gas development activity. In total, 211 bills are currently under consideration at the state level. If passed, “each of these laws will require a state-level agency to promulgate one or more regulations to ensure implementation of new legislation.”

New York is one state where regulation particularly inhibits economic growth. In his study, Orlando calculates that if New York were to lift its current moratorium on shale gas development, the state could enjoy an increase in gross state product equal to $4.5 billion over three years and generate some 39,000 jobs. Over a decade, drilling and gas development in New York could generate $8 billion in economic activity and support 69,000 new jobs. These are serious estimates for a state that has an unemployment rate near 8%.

At a 2013 energy conference hosted by the Bush Institute in Dallas, experts and industry leaders called for regulation that is designed to foster, not hinder, investment in energy. For the economy to experience faster growth, it is crucial that America develops its abundant natural resources.

Michael Orlando’s study can be found here.