Economic Outlook n° 1187 | Special Report | The Reindustrialization of the United States
Euler Hermes
Reason #2 The gas bonanza
The (positive) double price effect in the short-run
▶ As shown below in Figure 18, net U.S. imports of foreign oil have been falling as domestic production has been increasing over the past several years. As a result, imported oil, as a percentage of all oil produ- ced and imported, has dropped from a high of over 68% in 2005 to 58% in 2012, in part because the price of crude oil doubled over that same period. This dra- matic shift will reduce America’s significant depen- dence risk on foreign oil. It may also lead to lower costs and increased reindustrialization since, as shown in Figure 19, a glut of West Texas Intermediate (WTI) oil in the U.S. led to prices significantly below that of the global price of Brent crude.
▶ In addition, prices for natural gas have plumme- ted due to rapid developments in drilling technolo- gies including horizontal drilling and hydraulic frac- turing, or “fracking.” Fracking is a technique in which water, sand and chemicals are injected thousands of feet below the surface under very high pressure to break up rock formations, thereby releasing trapped natural gas. These techniques have revealed dra- matic amounts of new reserves over the past few years, particularly in the Marcellus shale which extends from New York through Pennsylvania and into West Virginia, and the Bakken shale in North Dakota and Montana.
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The energy factor has been particularly favorable to the reindustrialization of the U.S. and this trend should be confirmed in the short run for two main factors. First, in spite of global oil price increases, and the subsequent stabilization at historical highs (expected to linger), U.S. domestic oil prices have been $15-$20 below the global price for almost two years. This has boosted the relative performance of U.S. companies, just as it hit the operating profitability of foreign manufacturing and drove shipping costs up. Second, an abundance of shale gas on the American market, resulting from more intensive production has triggered downward pressure on domestic gas prices and provided American companies with access to a cheap energy supply. The main risks to this positive contribution are: > the effective potential of the shale gas reserves both in terms of volume and usage for different sectors of the economy; and > should prices continue to decrease, incentives for the extractors (and their profitability) would fall, causing instability in the value chain.
18. U.S. Crude Oil Production and Net Imports, 000 bbl/mo 350000