Source: Ian Stewart, Deloitte’s Chief Economist in the UK
* Output of shale gas has gone from 4% of total US gas production to almost a quarter in the last seven years. Advances in hydraulic fracturing technology have expanded America’s reserves of exploitable natural gas from 12 years’ supply to more than a century’s.
* Fracking has delivered a massive supply shock to the US natural gas market leading to a collapse in gas prices, down roughly 80% from their 2008 peak. Today, US gas prices are about a quarter of European levels.
* Indeed, America now produces three billion more cubic feet of natural gas a day than it consumes. It has gone from being an importer to an exporter of gas in a few years. Plans are afoot to convert facilities designed for the import of liquefied natural gas to export US shale gas.
* Cheap and plentiful gas provides a stimulus which has contributed to the relative resilience of America’s economy. Crucially, in a world where industrialised economies are trying to export their way to growth, cheap gas gives the US a sizeable competitive advantage.
* The key to realising it will switching America’s power stations from burning coal, which currently generates 45% of US electricity, to gas. It costs half as much to generate electricity from natural gas than from coal. Changing to gas will mean cheaper and cleaner US electricity.
* This will give US industry a significant competitive advantage. The Peterson Institute estimates that lower energy prices could give US manufacturing plants a 60–80% cost advantage over competitors in east Asia and Europe.
* US consumers will also benefit from lower electricity prices. IHS Global Insight estimates that savings from lower gas prices will add an annual average of $926 per year to US household disposable incomes between 2012 and 2015.
* The gains would be greater were compressed gas to become widely available as a fuel for cars, although the costs of setting up a network of fuelling stations and converting cars may be prohibitive.
* Recently there has been growing talk of exploiting shale gas in Europe, including the UK’s Blackpool reserves. A number of factors suggest that Europe will struggle to replicate America’s gas revolution.
* Higher population density in Europe makes extraction of shale gas reserves more disruptive and politically contentious than in the US. France has banned fracking on environmental grounds. In the UK, and most other countries, the rights to oil and gas belong to the government, not the landowner. US landowners own the mineral rights and have an incentive to exploit gas reserves. And the US gas industry benefits from significant economies of scale and operates more intensively than its European counterparts.