Brookings Institution Report Finds Shale Benefits in the Billions

Researchers from the University of Michigan recently released a report through the Brookings Institution that evaluates the economic impacts of shale development on consumers, producers and the manufacturing industry.

The authors found that the lower commodity price over recent years, thanks to fracking, has benefited consumers in many ways, such as creating lower electricity costs. Total savings are in the billions of dollars, with the average consumer saving around $150 a year. The following excerpt breaks these figures down further:

“… the change in benefits accruing to consumers as a result of the price decline and quantity expansion from 2007 to 2013, totals almost $75 billion per year… The electric power sector, which in 2013 consumed the largest amount of natural gas, experienced the greatest benefit from the price decline, with an increase in consumer surplus of around $25 billion. Consumer surplus in the industrial sector increased by around $22 billion, residential by $17 billion, and commercial by $11 billion per year. ..The total increase in consumer surplus ranges from a low of $45 billion per year to a high of $93 billion.” (page 16, emphasis added)

To go one step further, the report also looks at the overall impacts of natural gas on producers and found that despite a decline in commodity price, there is still a surplus overall seen by operators, shareholders, and other stakeholders who develop these wells.

“Combining our consumer and producer surplus estimates, we estimate that the shale boom has increased total U.S. consumer plus producer surplus by $48 billion annually.” (page 41)

It’s no surprise that shale development has had tremendous economic impacts for consumers, and will continue to do so as new pipeline projects come online to help move the surplus of natural gas we are currently seeing across the country.  What was a bit surprising, though, was the way in which the authors downplayed the shale manufacturing renaissance:

 “Overall, while it is difficult to pinpoint a precise causal effect, the balance of the evidence suggests that manufacturing has experienced an expansion of activity as a result of the shale boom.” (page 32)

One would have to be under a rock to not have heard of the many manufacturing sectors that are experiencing resurgence thanks to lower natural gas prices. EID has covered this topic multiple times over the past few years, including when the White House released a 2012 report on the manufacturing sector. Here’s an excerpt from that report:

“A boom in natural gas production has supported manufacturing: The surge in domestic natural gas production can lower energy costs, reduce pollution and drive investment in the industries that supply equipment the natural gas sector and those that use natural gas as an input to production, like the chemical industry. Recent data from the Energy Information Administration indicate that by the end of 2011 natural gas extraction increased by over 24% since 2006.”

A report released last year PricewaterhouseCoopers (PwC) found the development of natural gas from shale could add more than one million U.S. manufacturing jobs by 2025.  A new report prepared for the American Chemistry Council (ACC) found that, thanks to low prices from shale development,U.S. chemical companies have begun or are planning 223 shale-related projects to date, representing a cumulative investment of $137 billion.

Still doubtful? Check out this video:

After relating positive economic findings, the Brookings report goes on to claim that there isn’t enough research to determine the environmental impacts, which simply doesn’t line up with the facts:

“It is therefore impossible to know, at present, the extent to which environmental externalities offset the net welfare gains to natural gas consumers and producers. Improvements in data collection would be immensely valuable both for quantifying potential environmental impacts from fracking and for enabling cost-effective regulation.” (page 41)

Considering the authors cite a previously debunked study by discredited anti-fracking researchers from Cornell University and another on infant health that has yet to be peer-reviewed and is still a “working paper” to arrive to these conclusions, one has to wonder if the research is truly lacking or just not showing what they hoped to find.  Meanwhile studies by environmental and health regulators in several states have shown that hydraulic fracturing does not harm air quality. Just to name a few:

  • Pennsylvania (Pa. DEP 2013 Unconventional Gas Emissions Inventory, slide 7, emphasis added):  “Emissions from point sources have decreased since the last complete emissions inventory was developed for 2008. The following table shows the emissions from all point sources has decreased since 2008. The SOx emissions have decreased as a result of the installation of control equipment on the electric generating units as well as the conversion to natural gas.”

    nicole DEP

  • Texas (2012 Ambient Air Quality Evaluation, page 11, emphasis added): “Based on the results of the assessment, a limited number of VOCs and carbonyls were detected above method detection limits in the ambient air at the proposed pad site. None of the VOCs or carbonyls identified exceeded the available AMCV criteria (or other TCEQ comparison criteria). The observed concentrations appear to be consistent with background ambient air concentrations observed in similar urban environments and will serve as a good baseline to allow future evaluation of air quality in the general area the samples were collected.”

Despite  these few shortcomings, overall, this latest Brookings Institution report shows the Shale Renaissance is having a positive impact on the welfare of consumers — and that’s good news for everyone.

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