The panelists were Tek Kaminski, vice president in global market strategies at the Carlyle Group; John Larson, the global industry leader for public-sector industry in IHS Global Insight's Public Sector Services Group; Bruce McKay, managing director of federal affairs for Dominion; and Peter Molinaro, vice president of North America government affairs for The Dow Chemical Company. Joel Kurtzman, Milken Institute senior fellow at the Milken Institute and executive director of its Center for Accelerating Energy Solutions, moderated the panel.
The panelists agreed that recent breakthroughs in natural gas extraction technology, formally termed "hydraulic fracturing," but more commonly called "fracking," have the potential to provide a significant competitive boost to the U.S. economy by providing an abundant supply of cheap energy. Some of these economic benefits have indeed already had a noteworthy impact on the economy, especially during a period of sluggish growth. The panelists also discussed various policies that could further the positive impact of fracking while also minimizing potential downside risks.
• Revolution in Energy. The panelists agreed that the discovery of large natural gas reserves in the United States and the development of the fracking technology needed to extract this gas has had and will continue to have a dramatic impact on the U.S. economy, with one panelist describing this as a "once-in-a-lifetime" economic opportunity. Another panelist noted that extractable reserves have doubled since 2005, to 2,800 trillion cubic feet of natural gas, giving the U.S. more than 100 years of natural gas supply at current demand and exceeding the total crude oil reserves in Saudi Arabia. This has led to natural gas prices of around $3 per thousand cubic feet, around a quarter of the price in China.
• Economic Impact. The panelists agreed that the natural gas boom already has had a significant positive impact on the economy. One panelist cited a recent study that concluded that absent the abundant supply of cheap natural gas the United States has enjoyed over the past few years, 1.1% of GDP growth would have been lost and 1.1 million jobs would not have been created during the recession. Low natural gas prices cascade throughout the economy by reducing production costs of many goods, including automobiles, plastics, and chemicals, which is expected to save the average American family $1,000 per year by 2015. This reduction in energy costs is expected to further the manufacturing renaissance currently occurring in the country, as large manufacturers relocate operations to enjoy the benefits of cheaper energy. One panelist warned that the United States should seek to monetize its natural gas reserves as quickly as possible because other countries will likely find similar natural gas reserves and soon master the necessary extraction technology.
• Diversification. Despite optimism about the economic benefits of cheap natural gas, the panelists agreed that it would be prudent for the country to diversify its energy supply to avoid over-reliance on just one strategy -- one that could be interrupted by an unexpected shock. This diversification, a few panelists agreed, should include more investment in both nuclear and renewable energy.
• Environmental and Local Regulation. The panelists agreed that regulation would be necessary to mitigate downside risks to fracking, which include potential environmental damage and community dislocation. With respect to the former, one panelist suggested creating federal disclosure requirements about the chemicals used in fracking in order to increase transparency. With respect to the latter, another panelist stated that taxation of the industry could be used to offset dislocation costs as people are forced to leave their communities due to environmental concerns or increased costs of living in areas experiencing an economic boom due to natural gas mining activities. Finally, most of the panelists agreed that the federal government should regulate fracking by creating general standards and best practices for the industry, while letting states regulate local environmental effects.
• Retrofitting Infrastructure. The panelists noted that absent explicit government subsidies, the private sector is already retrofitting infrastructure, including long-haul trucks, to be able to take advantage of cheap natural gas. A subsidy, according to another participant, would accelerate the conversion process while remaining net budget-neutral. One panelist added that if the 8 million long-haul trucks in the United States were converted to natural gas, the nation would no longer have to import foreign oil. But another panelist cautioned that government subsidies could have the detrimental effect of artificially driving up natural gas prices, which could decrease the attractiveness to manufacturers of investing in natural gas-powered plants and factories.