Harvard Study: Shale the “Single Largest Opportunity to Improve Trajectory of U.S. Economy”

A new Harvard Business School and Boston Consulting Group  report, titled America’s Unconventional Energy Opportunity, examines the “unprecedented, once-in-a-generation opportunity” that the U.S. energy revolution is delivering to all Americans.

According to the Harvard experts’ analysis, in 2014 American energy development contributed $430 billion to U.S. GDP; supported 2.7 million jobs; saved of the average household $800 through lower energy costs; and improved our geopolitical positioning by reducing America’s trade deficit all while improving energy security.

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Key study takeaways from BCG’s release:

Unconventional gas and oil resources are perhaps the single largest opportunity to improve the trajectory of the U.S. economy.

America’s new energy abundance can not only help restore U.S. competitiveness but can also create geopolitical advantages for America.

America’s abundant and low-cost unconventional gas and oil resources are a once-in-a-generation opportunity to change the nation’s economic and energy trajectory.

With proper policies and actions by the industry and other stakeholders, this economic opportunity can further spread into downstream industries, such as petrochemicals and energy-intensive industries, and more broadly throughout the economy.

And here are the report’s key findings:

  • Driving Down Costly Imports: U.S. production of natural gas has increased by 35% since 2005, eliminating the need for gas imports.
  • More Stable Energy Costs: In the U.S., wholesale gas prices average about one-third of those in most other industrial countries. Low gas costs are also driving advantages in electricity costs, where U.S. industrial electricity prices are 30-50% lower than those of other major exporters.
  • Consumer Savings: The average U.S. residential household has enjoyed nearly $800 in annual savings from the availability of low-priced unconventional natural gas. That includes direct savings on household utility bills for electricity and heating, as well as savings from lower-cost goods and transport.
  • Cascading Local Benefits: Energy growth has spread to support industries, real estate, local services, and community needs such as schools.
  • Strengthening America’s Geopolitical Standing: Unconventionals are reshaping America’s geopolitical position, reducing the trade deficit, improving energy security and our exposure to unstable regions, and opening up new avenues for trade and diplomacy abroad. … Our energy resources have given the U.S. important new diplomatic tools that can aid allies and counteract the ability of unfriendly countries to use oil and gas access to achieve political aims.
  • Driving a U.S. Manufacturing Rebirth: Low-cost natural gas feedstocks have made the U.S. competitive in petrochemicals, plastics, and inorganic chemicals, where $138 billion in new U.S.-based investments has been announced. In energy-intensive industries, lower cost electricity and lower natural gas fuel costs are beginning to drive investments such as new iron and steel plants and plastics processing. … The estimated average manufacturing cost structure for the U.S. in 2015 is within 5% of China’s and 10-20% lower than major European economies’.
  • Clean-Burning, Affordable Fuel Source: Lower prices have catalyzed a renewed interest in the use of natural gas in transportation such as CNG vehicles, fleets, and trucks, which significantly lowers costs, improves emissions, and reduces dependence on oil.
  • Driving American Economic Growth, Job Creation: The development of unconventionals contributed $430 billion to U.S. GDP in 2014, equating to roughly $1,400 for every American. This contribution can grow to about $590 billion by 2030. … Unconventionals production and supply supported about 2.7 million jobs in 2014, with the potential to grow to 3.8 million jobs by 2030. Moreover, the average unconventionals production job pays nearly twice the national average salary and offers a significant opportunity for middle-skilled workers.
  • Symbiotic Relationship with Renewable Energy: While many stakeholders still believe that unconventional energy development and America’s energy transition are antithetical, they are actually complementary. Natural gas is the only fuel that can cost-effectively deliver large-scale carbon emissions reductions over the next 20 years.
  • Boosting Federal, State Revenues: New government revenues in the U.S. from unconventionals development, excluding downstream industries, totaled approximately $110 billion in 2014, split between the federal- and state-level governments. That number could reach $160 billion by 2030. To put it in perspective, the absence of the federal portion of these revenues would have added approximately 13% to the total 2014 federal budget deficit.
  • Improving our Global Trade Balance: Unconventionals also create major trade and geopolitical benefits for the U.S. The balance of trade has improved substantially, with oil imports down 28% between 2005 and 2014, representing $103 billion at 2014 prices.

And here’s what else they’re saying about shale’s “game changing” benefits:

  • “The Largest Single Opportunity to Change America’s Competitiveness”: “Our energy resources have given the U.S. important new diplomatic tools that can aid allies and counteract the ability of unfriendly countries to use oil and gas access to achieve political aims,” according to the research authored by three Harvard Business School professors in conjunction with BGC. The rise of fracking technology…has helped lift U.S. production of natural gas by 35 percent since 2005. … The Harvard paper said fracking now contributes about $430 billion to annual U.S. GDP and supports more than 2.7 million jobs. It called the industry “perhaps the largest single opportunity to change America’s competitiveness.. (Reuters, 6/10/15)
  • U.S. Energy Revival a “Rare Opportunity to Improve the Economic Health of the Country”: Michael E. Porter, a Harvard Business School professor and guru on what makes countries and companies competitive. … He says the energy boom is “perhaps the single largest opportunity to improve the trajectory of the U.S. economy.” But, he warns, Americans could fritter away this competitive advantage if they are not careful. … Inexpensive natural gas, along with oil, can give a much-needed competitive boost to the U.S. economy, at a time when partisan gridlock and a decline in workers’ skills have sapped its strength. … Fracking can help the U.S. economy and boost its competitiveness, they say … The energy revival in the U.S. is a rare opportunity to improve the economic health of the country, as well as its environmental health, Mr. Porter and his co-authors contend. But if we argue about it long enough, they say, it is an opportunity that will go away. (Wall Street Journal, 6/11/15)
  • Harvard Economist: Shale is “a Game Changer”: Looking not just at drilling jobs but all related jobs — truck drivers, truck manufacturers, petrochemical engineers and more — Porter says the rise of fracking has added 2.7 million jobs to the economy, most of them with good wages. Porter also says cheaper natural gas is helping businesses and people all around the country save money. “The average household is saving about $800 a year,” he says, much of it in passed-on savings from lower-priced consumer products. And his research suggests that figure may keep rising in the next 15 years. (NPR, 6/11/15)

For more reports on responsible shale development, please visit the MSC’s online Library.