Monday, November 4, 2013

The Shale Gas and Tight Oil Boom: U.S. States’ Economic Gains and Vulnerabilities

Council on Foreign Relations: The "shale revolution" has stimulated tremendous production of oil and natural gas in the United States. The revolution is the product of advances in oil and natural gas production technology—notably, a new combination of horizontal drilling and hydraulic fracturing. These technological advances combined with high oil and gas prices have enabled increased production of the abundant oil and natural gas resources in the United States...

Given that oil is priced on an international market, increased domestic oil production will not do much to lower prices for U.S. consumers, as any gains in U.S. production will be spread across the international market. Greater reliance on domestic oil resources in substitution for imports will reduce the vulnerability of the economy to oil supply disruptions, although not by much.

Reduced energy use has lessened the vulnerability of the U.S. economy to oil price shocks. A similar phenomenon is seen at the state level, with many state economies having diversified away from energy-using industries. At the same time, the growing prominence of energy production can make states with small, undiversified economies more susceptible to an economic downturn during an energy price decline.

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