With the recent boom in domestic oil production, many have been wondering: will the United States ever suffer from another oil shock like the one we experienced in the 1970s?
That’s exactly the question raised this month by the Council on Foreign Relations (CFR), which released a brief addressing the issue:
U.S. policymakers have been concerned about the country’s dependence on imported energy since World War II. Those concerns were highlighted in the 1970s when episodes of sharply rising oil prices led to recessions, economic stagnation, and high inflation. However, recent gains in U.S. oil and natural gas production are changing the dialogue about U.S. energy strengths and vulnerabilities.
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.
Greater availability of domestic energy resources benefits the United States by reducing dependence on imported energy and diversifying the economy. But the boom also brings new vulnerabilities (p. 1).
So, what does this mean in terms of economic impacts?
CFR looked directly at job growth in states with shale oil production, noting that the states with the highest rates of employment growth are also the states with the highest degrees of oil and gas employment. It also notes that, between 2006 and 2012, even as U.S. employment declined, employment in North Dakota and Texas grew by 3.4 and 1.5 percent respectively – the fastest growth rates in the country. CFR goes on to explain that these eight states would create around one hundred thousand jobs. Not too shabby!
As with any major economic growth, there would be some downsides, including the fact that some states would not see nearly the same amount of benefits as others. But the upshot, as CFR concludes, is clearly a win for the United States and energy security:
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.
CFR does suggest that domestic oil production will not do much to lower prices for American families, but that doesn’t mean there’s no positive impact. Indeed, as the New York Times pointed out last week, even in the wake of significant unrest this year in Egypt, Syria and Libya:
“…one thing is overwhelmingly clear: the development of America’s shale resources is providing a level of supply security and price regularity for the global oil market, which means it’s also preventing the types of price spikes that ultimately harm American consumers.”
And as Daniel Yergin points out in the Wall Street Journal, “several million barrels of oil [are] now missing from the oil market” due to sanctions on Iranian oil and unrest in Libya, South Sudan, Nigeria and Yemen. Luckily, adds Yergin, U.S. shale development has continued in earnest:
“[T]he growth in U.S. oil output has been crucial in compensating for the missing barrels. Without it, the world would be looking at higher oil prices, there would be talk of a possible new oil crisis, and no doubt Americans would once again start seeing images of those gas lines and angry motorists from 1973.”
Let’s also not forget that, according to the International Energy Agency (IEA), North American oil production is slashing imports from OPEC and sending “shock waves” throughout global markets.
In just a few decades, we’ve gone from suffering from oil shocks to sending shock waves of our own – all thanks to the responsible development of U.S. shale resources.