Latest posts by Isaac Orr (see all)
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- Making Electricity Markets Competitive Again - March 5, 2018
A new study from the Institute of Sustainable Development and International Relations (its French acronym is IDDRI) goes to amazing lengths to downplay the tremendous positive impact oil and natural gas production, made possible by hydraulic fracturing, has had on the U.S. economy. And the report still comes up short.
The study makes a wide variety of claims that seem reasonable on the surface, but upon further examination become borderline deceitful. Although those are strong words, the document grossly and seemingly purposefully understates the role unconventional oil and gas production has played in lowering natural gas and electricity prices, stimulating the manufacturing sector, and redressing the U.S. trade imbalance.
Hydraulic fracturing has increased U.S. natural gas supplies nearly 34 percent since 2005, causing prices to fall dramatically. According to IDDRI, however, “Gas prices for residential consumers have fallen somewhat from a peak pre-2008, while industrial and power sector gas prices fell by about 50% from 2008 peaks.”
The word “somewhat” is a deceptive way of characterizing the average savings for residential consumers: a 39 percent reduction in natural gas prices for regional residential use between 2009 and 2012. This “somewhat” saved the average consumer more than $2,000 compared to burning fuel oil. It is hard to believe the average American family would consider a savings of 39 percent on its heating bill only “somewhat” important.
Lower natural gas costs have helped keep electricity prices in check, yet the IDDRI document presents a red-herring argument citing a rise in electricity prices (U.S. prices have risen 3 percent since 2008) as evidence natural gas has had no effect on electricity generation costs. That is particularly outrageous given the fact the key reason electricity prices are rising is renewable energy mandates (REMs).
REMs increase the cost of electricity by forcing utility companies to generate a specific percentage of their electricity from renewable sources (wind, solar, hydroelectric). Generating electricity from wind energy and providing it in a usable form to customers costs 2 to 3 times more than conventional sources, and states that have enacted REMs have seen their electricity costs increase far faster than the national average. For example, since passing REMs, Ohio and Colorado have seen energy price increases of 9 percent since 2008 and 27.5 percent since 2007, respectively.
In reality, affordable natural gas has provided consumers some relief from the price hikes caused by state governments forcing utilities to purchase expensive electricity from renewable sources.
The IDDRI study also tries to discredit the notion abundant, affordable natural gas has sparked a manufacturing renaissance in the United States, instead pretending U.S. manufacturing growth is confined to gas-consuming sectors that make up a relatively small portion of the industry and account for only 1.2 percent of national GDP. Although net exports of gas-intensive sectors have increased from $10.5 billion in 2006 to $27.2 billion in 2012 (a nearly 300 percent increase), the study emphasizes the U.S. trade deficit has still grown from $662.2 billion to $779.4 billion during that time.
All these claims have problems. Lower natural gas prices have encouraged domestic manufacturing growth across the board, as General Electric, Apple, Caterpillar, and countless other companies plan to expand their U.S. operations. Additionally, manufacturing as a whole accounts for 11 to 12 percent of U.S. GDP, making the 1.2 percent of GDP derived from gas-intensive industries at least 10 percent of total manufacturing output. That’s hardly “relatively small.”
Finally, when adjusted for inflation, the trade deficit grew by only about $25 billion, or just 3.3 percent (approximately), and attempting to measure the economic impact of an industry by considering whether the entire nation’s trade deficit grew is akin to complaining exercise does not help you lose weight while eating an extra meal each day.
There are numerous other flaws and deceptions in the report. This Swiss-cheese study goes to great lengths to hide the real and increasing economic benefits of shale oil and gas production—and it still fails. That indicates just how special the economic boon of hydraulic fracturing truly is.
Isaac Orr (firstname.lastname@example.org) is a research fellow for energy and environmental policy at The Heartland Institute.