Why US Shale Gas Will Drive an Economic Boom

Every US president since Richard Nixon has pledged allegiance to the goal of energy independence.

A frenzy of drilling in shale gas fields across the country over the past decade has put the US within arm’s reach of finally achieving that goal.

The US has transitioned itself to low cost gas for power generation. Gas prices are at record lows, and electricity prices are falling.

Cheap energy is really driving lower costs for all businesses in the US, in contrast to Australia and our ballooning energy costs.

The US economy is booming right now. Factory and service sector activities are hitting 13 and 12 year highs respectively.

There are a record number of 6.2 million job openings in the US.

Probably one of the best indicators that the US economy is picking up is that orders for 18-wheelers are strong. That means new semis are needed to maintain delivery rates.

Unemployment is at 16 year lows, and US property prices continue to rise.

This is the reason why US benchmark indices have been rising all year.

One of the main drivers for the boom conditions in the US is cheap energy provided by the shale gas drilling boom.

But the ramifications go far wider than the US.

It’s created a gas glut far larger than domestic demand could possibly consume.

The US has long been a LNG importer, but has now positioned itself as an LNG exporter.

Gas in liquefied form shipped from Texas and Louisiana is descending on global markets.

And it may shape geopolitical events and the global economy for decades to come. 

For one thing it’s weakening Russia’s dominance in Europe.

Many European countries have had near total dependence on Russian imports of gas. Moscow has used that power to limit energy supplies to Baltic neighbours like Poland if there were any disputes on price, or if they failed to toe the political line coming from Moscow.

Now Poland is welcoming US tankers loaded full of LNG gas, giving the country newfound energy independence.

Not only is it diminishing Russia’s influence in the region, it will have enormous impact on Russia economically.

Russia has already been forced to lower its gas prices to Europe, and energy revenues account for nearly half of the Kremlin’s budget.

This is just one effect the US shale boom is having on the world.

The transition of the US to one of the world’s largest gas exporters is also having significant environmental effects.

Demand for gas, the cleanest of fossil fuels, is surging at the expense of coal.

China, which burns half the world’s coal to power its power plants and factories, has said that it’s looking at gas to ease the air pollution that is choking its major cities.

The recent numbers seem to back up the rhetoric. Bloomberg reports Chinese demand for gas is rising faster than expected. In April, consumption was 22% higher than the same month in 2016, and the total for the first four months of the year is up more than 12%.

China is expected to become the biggest natural gas consumer over the next couple of decades, and US gas exporters are aiming to grab that lucrative, growing market.

Cheaper LNG from the US could also offset China’s future dependence on piped Russian gas, and force Russian companies to lower prices to stay competitive.

What’s happening with US LNG gas exports is a big deal.

Cheaper energy has had a big impact on the US economy.

Cheaper energy is part of the reason why the US market has continued to make new highs. In stark contrast to the sideways market here and the problems we’re having with our own rising energy costs.

The US isn’t just exporting gas. It is also exporting America’s low energy prices worldwide.

Here’s one more reason why land prices can go higher. Lower energy costs will continue to drive profitability. Those gains must ultimately feed into land price.

This is one more reason why this might be the biggest real estate cycle of all time. If you want to find out how to profit and time it all to your advantage, then go here to find out more.


Terence Duffy,
Lead Researcher, Cycles, Trends & Forecasts

Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come.

Money Morning Australia