Energy Delivers for Consumers and Workers

Mark Green
Posted May 3, 2016

Two more data sets underscore the positive economic impact of America’s energy revolution and the relevance of the U.S. model of concurrent energy and economic growth, consumer benefits and climate progress.

First the consumer benefits part. The U.S. Energy Information Administration (EIA) reports that Americans’ cost of living is lower since June 2014, thanks to reduced household energy costs because of decreases in crude oil and natural gas prices. (Right here we’ll add that increased U.S. oil and gas production is a key driver in these declines that are benefiting consumers.) EIA:

According to initial figures from the U.S. Bureau of Labor Statistics (BLS), the chained consumer price index for urban consumers (C-CPI-U) decreased by 1.2% from June 2014 to February 2016. Lower energy prices had a significant impact on this decrease in spite of increases in the food and shelter components of the overall index, which represent larger shares of household expenses. … The energy component of the C-CPI-U decreased by 35.3%, reflecting the influence of declining spot prices on household energy prices.

EIA says that in constant 2015 dollars, average annual household energy costs peaked at about $5,300 in 2008. Then, between 2008 and 2014, these expenditures declined by 14.1 percent, including a 17.7 percent decrease for gasoline, 25.1 percent for natural gas and 28.3 percent for fuel oil. Electricity expenditures declined by a more modest 0.7 percent. EIA’s chart:

Second, economic growth – specifically, a significant positive impact on manufacturing from increased use of domestic natural gas, found in a new IHS Economics study for the National Association of Manufacturers. The analysis found that abundant, affordable natural gas has strengthened manufacturing, encouraging growth and employment. Key findings:

• The combination of increased access to shale natural gas and the transmission lines that move gas to manufacturers across the country mean 1.9 million jobs in 2015 alone.
• Increase in real Gross Domestic Product of $190 billion from increased shale gas production.
• More than $150 billion in additional real disposable income in 2015 – an average of $1,337 per U.S. family – from shale gas production.
• New natural gas pipelines mean more than 347,000 jobs, including 60,000 in manufacturing.

IHS:

Manufacturers use natural gas for fuel, such as drying, melting, machine drive and space heating as well as a feedstock In refining, chemicals and primary metals sectors. Domestic natural gas has transformed the U.S. economy, made our companies more competitive, created jobs and put money back in the pockets of working Americans.

Here’s a chart from the report showing natural gas consumption by sector in 2014:

The report predicts demand for natural gas will increase 40 percent over the next decade – double the growth of the past 10 years – driven by manufacturing growth and electric power generation. It calls for major new investments in energy infrastructure, especially natural gas pipelines, to ensure manufacturers have a reliable energy supply. IHS:

Recent IHS analyses on the U.S. ‘manufacturing renaissance’ identified clear competitive advantages that have emerged for manufacturing in America as a result of the increased supply of competitively priced natural gas. For energy-intensive industries such as chemicals, metals, food, and refining, production costs have been reduced as a result of the increase in natural gas supply, and IHS expects these industries to outperform the U.S. economy as a whole through 2025. … The improved competitive positioning of industries in the manufacturing sector is shaping state and local economic development strategies across the country. Increased supplies of NG, especially at lower delivered prices, enhances the competitiveness of economies by making them more attractive to manufacturing activities that are large, and intensive users of NG such as chemicals, food, paper, and metals.

Putting all of the above together, you see how abundant energy supply is a driver of broad economic growth, with the manufacturing sector getting a targeted boost. Consumers also are benefiting – from lower energy costs and generally from a more competitive domestic manufacturing sector.

The critically important additional trend here is that the United States is lowering carbon emissions during this period of surging energy production and economic expansion – bucking the historic pattern of economic growth coupled with emissions increases. The U.S. is leading the world in reducing carbon emissions, in large part thanks to increases in natural gas use. It’s a model that’s working and one that can be replicated by other economies around the world.