Quantifying the United States' Energy Advantage

May 27, 2014 11:12 AM
By Harold E. Sharon

The global repercussions of the shale boom are enormous. 

One of the greatest technological achievements of our time is not a product of Silicon Valley, but the result of blood, sweat and tears on America’s oil fields. The engineering breakthrough in hydraulic fracturing and horizontal drilling is a "made-in-the-USA" phenomenon, and its impact on shale gas and oil production is adding economic value globally. (See "Breaking Bad Rocks: How the Shale Boom Has Fueled Growth.")

Today, energy supplies are increasing around the world as new sources are being discovered, but since 2010 the United States has been the world's largest contributor to those supplies. U.S. production of shale gas and oil is displacing more expensive energy sources like coal or imported oil and gas, and other fuels like coal are being dumped overseas, further lowering overseas oil prices. The net effect: Not only is the United States able to access cheaper domestically produced energy sources, but the prices of imported energy, like Saudi Arabian crude oil, have also fallen. 

According to a recent Merrill Lynch study, America’s energy cost advantage is running close to $1.2 billion per day as of January 2014. Considering the volatility of energy prices, we should look at the average energy cost advantage over the course of last year and that is roughly $880 million per day on average. This energy cost advantage equates to 1.9% of our annual gross domestic output, or roughly $1,100 of annual savings per person in the U.S. Any way you look at it, it is a massive tailwind for the economy. You could even say that without this huge benefit, the U.S. economy would clearly not be growing at the rate it is. American manufacturing has certainly benefitted, as my colleague Tom O’Halloran points out in his article on growth rivers, and so will certain international companies if a long-standing ban on energy exports from the United States is lifted. 

How sustainable is America’s energy cost advantage? Tell us what you think.  


Chart 1. The Shale Boom Has Meant Considerable Savings for the U.S. Economy
Energy Cost Savings, 1/1/2010-1/1/2014

Source: Bank of America/Merrill Lynch Research

Harold Sharon is Lord Abbett Partner, International Strategist

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