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Natural gas is a game changer for the U.S. economy according to PIMCO’s Mark Kiesel (via Josh Brown). The report says:”The energy sector is growing more quickly than the overall economy in numerous areas around the globe due to supportive long-term demand fundamentals from the emerging markets and emerging global supply sources. In the U.S., the use of new drilling technologies for onshore natural gas and oil production is a potential “game changer” for U.S. energy security and an improved economy.”
But how exactly is natural gas a game changer?
First, it’s lowering costs. Onshore shale natural gas production has surged in areas like Marcellus, Haynesville, Fayetteville and Barnett formations. Natural gas output has increased to 22.7 trillion cubic feet (tcf) in October 2011, from 20.2 tcf in December 2007. This has helped push down nat gas prices, and is expected to lower heating costs in the future.
Moreover, this will also make the U.S. less energy reliant. Nat gas imports have fallen to 1.7 tcf today, from 4 tcf in 2008. U.S. nat gas prices are also cheaper relative to international prices.
Second, U.S. annual upstream (exploration, recovery and production) and infrastructure capital expenditure on shale gas is projected to grow to $48.7 billion in 2015, from $33.3 billion in 2010,.
This is expected to increase “direct, indirect and induced” employment in shale gas to 869,684 employees in 2015, from 601,348 employees in 2010. Moreover, employment and private sector business investment in industries like fertiliser, chemicals, manufacturing, etc., is expected to increase. Kiesel says investment by chemical companies in the Gulf Coast is recovering and manufacturing plants are returning to the Midwest to take advantage of low natural gas prices.
The upshot seems to be that the U.S. could overtake Russia to become the world’s biggest energy producer in the next 10 years if it continues to boost natural gas and oil production. For now though, oil represents a greater portion of the U.S. economy’s energy demand, than gas.
Now here are two charts from PIMCO that show natural gas production picking up and imports declining:
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