Domestic energy supplies boost U.S. economy

ByABC News
July 11, 2012, 9:44 PM

— -- The economic benefits of far-reaching new finds of domestic oil and natural gas are fast approaching $1 billion a day and may be keeping the U.S. out of another recession, according to a new study by Bank of America Merrill Lynch.

The biggest part of the benefit is lower utility costs because natural gas is so much cheaper in the U.S. than the world average. That has saved U.S. companies and consumers an average of $566 million a day for the last year, chief of commodities research Francisco Blanch said.

The U.S., long an energy importer, is now exporting $67.9 million per day of finished petroleum products such as diesel fuel and $32.3 million worth of coal, which is being replaced by natural gas in many domestic electric plants. While oil imports remain near 9 million barrels a day, new domestic sources and a shift to cheaper imports from Canada rather than the Middle East and West Africa are saving another $56.2 million per day, Merrill says.

Economists have assumed the new energy finds are helping the economy, but there has not been an easy measure to quantify how much new supplies of gas and oil from shale rock are adding to output. The gross benefits work out to 2.2% of gross domestic product, Blanch said. Since Merrill projects the economy will slow to a 1% growth pace in the second half from 1.9% in the first quarter, cheap energy is increasingly essential, he added.

"Energy is beginning to carry America," Blanch said.

The net benefit to gross domestic product is smaller because the new, cheaper gas is replacing other domestic supplies, Merrill senior U.S. economist Michael Hanson said. Gas has gotten as cheap as it has because the soft economy has restricted demand, he said. U.S. natural gas prices are down nearly 90% since 2003.

Still, the raw gains surged to $900 million a day in April, the latest month for which there's government data, from $70 million in January 2010, Blanch said. They will reach $1 billion a day by year's end, he added.

The biggest reason is that new natural gas finds in 20 states have pushed the U.S. price of gas to just more than a fourth of the average global price and about one-sixth of the price paid by trading partners such as Japan. New oil from Canada has cut the average price the U.S. pays for imported crude to $6 a barrel less than world averages, and much U.S. crude is even cheaper than benchmark prices, Blanch said.