Mar 24, 2015 - 1:00pm

Americans Have $48 Billion More in Their Pockets Each Year Thanks to the Shale Boom

Senior Editor, Digital Content


Dollar bills
Photo credit: Scott Eells/Bloomberg.

The New Republic is no fan of hydraulic fracturing. However, they published a piece by staff writer Danny Vinik making the case that the energy production technology is “good for American consumers.”

Vinick writes about a Brookings Institution paper by economists Catherine Hausman and Ryan Kellogg that found the shale boom drove natural gas prices down 47%. This had led to significant increases in consumer welfare:

They found that “the shale gas revolution led to an increase in welfare for natural gas consumers and producers of $48 billion per year.” That’s equal to about one-third of 1 percent of GDP, or $150 per capita. “If that doesn’t convince you [that it’s a lot],” said one participant made anonymous under Chatham House rules, “use Washington accounting and call it half a trillion dollars over 10 years.”

For instance, Hausman and Kellogg found that “residential consumer gas bills have dropped $13 billion per year” because of hydraulic fracturing.

The Hausman and Kellogg determined what parts of the country have benefited the most:

Looking specifically at regional effects, one would expect colder states that use natural gas for space heating to be the area to benefit most from shale gas. Yet the authors find that the area to reap the most gain is West South Central (Arkansas, Louisiana, Oklahoma and Texas) at $432 per person in consumer benefits, followed by East North Central (Illinois, Indiana, Michigan, Ohio, and Wisconsin) with $259 per person in benefits. The area to gain the least is the Pacific (California, Oregon and Washington), but consumers there still benefited to the tune of $181 per year.

They also find that American manufacturing has been helped:

[T]hey find that gas-intensive manufacturing has indeed experienced an expansion of activity as a result of the shale boom, with the most pronounced effect in fertilizer manufacturing – the most gas-intensive sector of all.

Investors Business Daily takes its analysis of the Brookings paper a step further by linking it to other related research:

Another study by John Harpole of Mercator Energy in Colorado finds that because the poor spend far more on utility bills than do the rich as a share of their incomes, "the poor benefit far more than the rich from the shale oil and gas boom."

Harpole finds in his study that the fall in natural gas prices from 2007-12 translated to gains to poor households multiple times larger than the value of the $1 billion a year the feds throw at the Low Income Home Energy Assistance Program. In other words, the best way to keep the less fortunate warm in the winter is by allowing shale oil and gas drilling.

Both these analyses put the Interior Department’s newly proposed hydraulic fracturing regulations on federal lands into context. As Mark Green from Energy Tomorrow writes:

The reality is that state regulatory regimes and the officials who oversee energy development in the respective states are doing a good job – as was noted by former EPA Administrator Lisa Jackson when she was still in the administration. These regimes are tailored for each state’s geology, hydrology and other physical characteristics. Overlaying them with a federal rule could mean duplicative regulatory hoops for operators to hop through, unnecessarily delaying operations and driving up costs.  

The result of these redundant rules will be an unnecessary slowdown of the shale boom which Americans will notice with their emptier wallets.

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About the Author

About the Author

Sean Hackbarth
Senior Editor, Digital Content

Sean writes about public policies affecting businesses including energy, health care, and regulations. When not battling those making it harder for free enterprise to succeed, he raves about all things Wisconsin (his home state) and religiously follows the Green Bay Packers.