There’s a rule of thumb that says a $10 rise in the price of a barrel of oil reduces gross domestic product growth by anywhere from 0.2 to 0.5 percentage points. Applied over the past six months, when crude prices rose by about $30 from early October to the end of March, that means dearer oil might’ve chewed as much as 1.5 percent out of GDP growth during the last two quarters. Not a trivial amount considering GDP increased 3 percent in the fourth quarter of 2011. Economists surveyed by Bloomberg tend to think the economy grew just 2.2 percent in the first three months of 2012, when the price of gas really took off.
Oil is our economy’s most important raw material. The price of it (and therefore, gasoline) impacts the price of just about everything we buy, from groceries to clothes to appliances. The more expensive oil is, the more expensive a whole lot of other stuff becomes. But what about that other gas, the kind that we’re practically swimming in these days? Natural gas is now 80 percent cheaper than it was four years ago. How much has that price decline counteracted our recent pain at the pump?
Unfortunately, not much. On the consumer side, at best you’ve seen a small reduction in your electricity bill. Natural gas has certainly played a part in slowing the pace of rising residential electricity prices, from an average annual increase of 5 percent between 2003 and 2008, to 0.8 percent from 2009 through 2013. Rates are actually forecast to fall 1.4 percent next year. According to the consumer price index, the cost of utility gas service for heating declined 9.1 percent over the past year. But that’s a relatively tiny portion of what we spend our money on—less than 1 percent. Motor fuels, on the other hand, carry a relative importance of 5.8 percent and have increased 9 percent in price over the past 12 months. So whatever you might’ve saved on your electric or home heating bill, you probably plowed right back into your gas tank.
Cities with public buses that run on compressed or liquefied natural gas have benefited from lower fuel costs. And if you happen to be one of the handful of people in the U.S. who drive a natural gas car, you’re probably coming out ahead on your fuel bill every month—especially in California, which has the bulk of the country’s 400 public natural gas fueling stations, and where regular gasoline prices are among the highest.
Manufacturers have certainly benefited from lower natural gas prices. The fuel is a particularly critical input for the petrochemical and refining industry, giving U.S. firms a big cost advantage over international competitors—as much as 70 percent over manufacturers in South Korea and Europe. Whether cheap natural gas is propelling any of the strong job growth in the manufacturing sector over the past couple years is debatable. It’s certainly making a lot of manufacturers more profitable. On the flip side, it’s been bad for producers. As prices have plummeted it’s become uneconomical to keep drilling for gas. There’s a good chance that if you were working on a natural gas drill rig a year ago, you’re not anymore.
Big picture as of today, cheap natural gas hasn’t done much to counteract the run-up in oil prices. “So far it’s been a pretty small positive,” says Mark Zandi, chief economist at Moody’s. That doesn’t mean that in the future it won’t pay big dividends for the U.S.—particularly, as Zandi points out, if we’re able to get more natural gas into our transportation network. T. Boone Pickens wants to retrofit our long-haul trucking fleet to run off natural gas. There’s evidence that’s starting to happen. If done on a large enough scale, that could take a big bite out of the impact high oil prices play in driving up the costs of goods.
We’re also severely limited in our capacity to export natural gas right now. The U.S. has just one export facility, in Alaska. A recently approved LNG export terminal in Louisiana will bring that to a grand total of two once completed in 2015. Regulators aren’t likely to approve any more LNG export projects in the coming year, though they probably will in the future. Depending on domestic demand, abundant natural gas could significantly reduce the U.S. trade deficit and perhaps turn us into a net exporter.
Although we have massive amounts of natural gas—an estimated 2,214 trillion cubic feet, enough to last 100 years by some measures—we still don’t use that much of it. Case in point: We’re drilling so much and using so little, it’s conceivable that we’ll max out our 4.3 trillion cubic feet of storage capacity at some point this year. Americans burn about 22 trillion cubic feet of natural gas every year, enough to fill up about 595,000 Empire State Buildings. But we could use a whole lot more, and certainly will soon. Until we do, the U.S. economy won’t see that big of an upside from cheap prices.