The Brookings Institution has released a wide-ranging study showing that from 2007-2013 the advent of horizontal hydraulic fracturing (fracking) reduced natural gas prices by 47% compared to what they would have been without the shale boom, and provided billions of dollars in annual consumer benefits.
In the latest installment from a series of research focused on macroeconomics, researchers from the University of Michigan analyzed the sharp spike in supply over the seven year period, demand for natural gas and corresponding fall in prices. The steep drop, they found, benefited U.S. energy consumers to the tune of $74 billion per year.
"When you include the total benefit to consumers and producers [the authors] calculate that the average American is probably $150 per year better off as a result of the fracking revolution," said Justin Wolfers, co-editor of the Brooking Papers on Economic Activity.
While the authors acknowledge the possible environmental tolls of the shale gas boom, the strain on state and federal regulators and an increasing reliance on fossil fuels, they found that after a decade of essentially no growth in natural gas production, increasing supplies have benefited all types of energy consumers. From 2007-2013, U.S. natural gas production grew by more than 25% to 5.5 Tcf/year, according to the study, while gas prices dropped by $3.45/Mcf.
"On the scale of the economy as a whole, its noticeable but not large -- the change amounts to about one-third of 1% of [Gross Domestic Product], or around $150 per capita," the authors said of rising volumes and the $160 billion in retail gas spending that occurred in 2013.
But residential customers nationwide saved $17 billion per year; commercial customers $11 billion per year and electric power customers $25 billion per year for a total consumer benefit of $74 billion.
However, the study said, shale wells that were rarely idled over the research period in which volumes rose significantly as prices fell, cost producers $30 billion per year in revenue.
Arkansas, Louisiana, Oklahoma and Texas saw the most benefits from cheaper natural gas at $432 per person, followed by Illinois, Indiana, Michigan, Ohio and Wisconsin at $259 per person. The area to gain the least from the drop in prices was California, Oregon and Washington, but consumers in those states still benefited by $181 per year.