The Effects of Cheap Natural Gas on the U.S. Economy

 

Over the last couple of years the price of oil has recovered from its 2009 low, while the price of natural gas has continued to decline. As a result, natural gas is quite cheap relative to oil. In terms of energy content, natural gas is about one-fourth the cost of oil. Roger Ihne and Sampat Prakash, from the Deloitte Center for Energy Solutions, met with John Butler and I in Houston last month to discuss the causes of, and implications from, the relatively cheap natural gas that we are currently enjoying in the United States.  

The cause of the relatively cheap natural gas is clearly the shale gas revolution that has enabled U.S. firms to produce an abundance of natural gas at prices that are considerably lower than were originally anticipated. And the implications of these low prices are clearly favorable for the U.S. economy. In addition to eliminating the need to import natural gas, it is likely that we will soon be a net exporter of gas. Moreover, the cheaper natural gas is making our petrochemical industry, as well as our refining industry more competitive, further improving our international balance of trade. 

The complete transcript of our discussion is available as an Energy Brief

Disclaimer

The views expressed are those of the author and not necessarily The University of Texas at Austin.

About The Author

Sheridan Titman

Walter W. McAllister Centennial Chair in Financial Services, McCombs School of Business

Sheridan Titman is a professor of finance at The University of Texas at Austin and a research associate of the National Bureau of Economic...

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