Natural Gas and U.S. Economic Activity

Abstract

Previous empirical work has shown that real natural gas prices have a small to negligible impact on total U.S. industrial production and most of its sub-indices. We first show that these results still hold with a sample that runs through mid-2012 and uses a different natural gas price. Concerns about the joint determination of the real natural gas price and U.S. economic activity lead us to reassess these results using a multivariate framework. Our model shows that natural gas does affect U.S. economic activity, but primarily through changes in natural gas production. We also show that natural gas supply, inventory demand, and responses to events in the oil market have been the most important contributors to the real natural gas price since 2000. In terms of approximate point estimates, our results indicate that increases in natural gas supply can raise total U.S. industrial production by 0.1 to 0.5 percent under plausible scenarios.JEL Classification: E37, F47, Q43.

Employment Impacts of Upstream Oil and Gas Investment in the United States

“…To address this ambiguity, we model the interaction between real oil price shocks, upstream investment, industrial production, and employment. Specifically, we examine three Structural Vector Autoregression (SVAR) models similar to those estimated by Arora and Lieskovsky (2014).…”

“…Finally, Arora and Lieskovsky (2014) examine national economic impacts of the natural gas boom using a Structural Vector Autoregression (SVAR) framework. They find evidence that lower real natural gas prices due to increased supply positively impact industrial production.…”

U.S. natural gas exports and their global impacts

“…However, the results in Kliesen [11] and Arora et al [12] suggest that the impact may not be large, even in energy-intensive industries. Additionally, the analysis in Arora and Lieskovsky [13] indicates that the response of natural gas production to exports will have the largest influence on subsequent U.S. economic activity. 5 Other sensitivities that include changing how natural gas exports are implemented in the model and varying the degree of substitutability of natural gas in trade between regions (Armington elasticities) have also been performed.…”

“…Similarly, the electricity, iron and steel, and mining industries all see significant growth. 13 U.S. income rises in the early years because of increased investment supporting natural gas production and related industries along the supply chain. Higher natural gas production itself also boosts national income early in the projection period.…”

“…3. Production and export responses for select countries in high/rapid case under different assumptions regarding the price elasticity of natural gas supply with exogenous exports 13 Simulation results are available upon request. 2014-2035 for the U.S., Japan, the EU25, and Mexico under the high/rapid DOE scenario with endogenous export levels.…”