Economic Outlook n° 1187 | Special Report | The Reindustrialization of the United States
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As shown in Figures 20 and 21 below, the result is that natural gas production and storage have risen sharply while prices have plummeted. Regarding reserves, the Energy Information Agency now esti- mates that “…there are 2,214 trillion cubic feet (Tcf) of natural gas that is technically recoverable in the United States. Of the total, an estimated 273 Tcf are proven reserves, which includes 60 Tcf of shale gas. At the rate of U.S. natural gas consumption in 2010 of about 24 Tcf per year, 2,214 Tcf of natural gas is enough to last about 92 years*.
Furthermore, the substantial natural gas price diffe- rential the U.S. enjoys will add to its industrial com- petitiveness, specifically in manufacturing. In the U.S., one million BTU costs $4.01 (in Canada, $3.47). Comparatively, costs are twice as much in the UK ($9.03) and Europe ($10.61), and more than three times as much in Japan (LNG is at $14.73). UBS esti- mates that the boost to U.S. manufacturing could add 0.5% to GDP growth in each of the next five years.
▶ The potential for substitution. The greatly reduced price and greatly increased sup- ply could be strong contributors to the reindustriali- zation of the U.S. As shown below in Figure 22, U.S. dependence on foreign oil is largely due to the trans- portation sector. Thirty seven percent of all energy supplied to the U.S. comes from petroleum and most of that, seventy two percent, goes straight into trans- portation, mostly to gasoline for passenger cars, then diesel for trucks and trains, and finally to jet fuel.
Note that the industrial, commercial and residential and electrical power sectors each consume about one-third of the current natural gas supply. In the electric power sector, as older coal plants go offline, they are quite likely to be replaced with gas-fired plants. The industrial sector currently sources 44% of its energy from petroleum; natural gas could begin replacing that over time. Finally, in addition to being a source of energy, natural gas is used as a feedstock in the production of many chemicals, plastics, and fertilizers. As a result, these industries are likely to return some production from overseas back to the U.S., taking advantage of the low price of natural gas. The development of shale gas extraction has created a glut of natural gas and near record low prices. The discovery of vast new reserves, bringing the total up to around 100 years, is paving the way for the future reindustrialization of the U.S.▣
* Questions remain about the environmental damage fracking might cause, including the consumption of large amounts of water, disposal of wastewater, seismic tremors, and possible contamination of groundwater. These concerns have led to some temporary restrictions in exploration and production in the U.S., but in Europe fears over fracking could prove to be much bigger hurdles to its use in that region.
20. Natural Gas Production Bil. Cubic feet
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Total US Production Bill. Cubic Feet (left scale)
Natural Gas storage: United States (SA, end of Wk, Bil.Cu.Ft) (right scale)