Readers of this blog will not be surprised to learn that shale gas will save consumers $926 in 2012 in lower natural gas and electricity bills, according to a report issued yesterday by IHS Global Insight and funded by the America's Natural Gas Alliance. See http://is.gd/JJYe2e. Also see the Andy Maykuth story about the report at www.philly.com/philly/news/homepage/20111206_Industry_study_touts_large_economic_impact_of_shale-gas_drilling.html. My rule of thumb has been the enormous shale gas production has saved households $900 to $1,000 by cutting natural gas prices approximately by $5 per thousand cubic feet and electricity prices in competitive markets by about 5 cents per kilowatt-hour.
It is good to see IHS Global Insight confirm my rough total saving calculations, and $926 in savings is a huge deal for families with median pre-tax incomes (approximately $49,000) and below, as well as the overall economy that would have fallen into recession again in 2011 without the stimulus of lower gas costs.
Yet, the long-term natural gas price projection in the IHS paper is surprising, even shocking. IHS projects that natural gas will average $4.79 per mcf through 2035. If that is right, it would be a stunning number. My own view is that the long-term gas price would be around $6, and that is still a bargain. Gas prices averaged $6.73 from 2000-2008, according to the report, but reached daily peaks of $16 following the Gulf hurricanes in 2005 and $13 in July 2008, prior to the implosion of the US economy in September 2008.
Even the possibility of long-term prices in the IHS range drives home the enormous opportunity to use much more gas right now to displace considerable additional quantities of coal and oil. The single biggest missed opportunity and problem facing the gas industry is not on the production-side but is on the demand-side of the market, where massive market failures are blocking using more gas and less coal and oil.
IHS also found that shale gas has created nationally about 150,000 direct jobs and 190,000 indirect jobs that support the industry. Induced jobs created by the multiplier effect of additional income spent in the economy was put at about 260,000 nationally.
The job creation and consumer savings numbers in the IHS report are not surprising, but that long-term price projection for gas is. It is signaling a big missed opportunity if correct.