A new report warns that as the shale revolution pumps new life into American energy production, it also leaves states vulnerable to global energy price swings. Between 2010 and 2012, oil and gas industry jobs grew 10 times faster than overall American jobs. Fossil fuels’ share of America’s GDP has nearly tripled since 1999. But states replete with shale energy shouldn’t rely too heavily on oil and gas production, which will make them more vulnerable to global price fluctuations.
The brief, released this morning by the Council on Foreign Relations, observes that after an energy production peak in 1981 “most US energy-producing states diversified away from energy production and energy-intensive industries.” Now, for obvious reasons, these states, along with newcomers like North Dakota, are relying more and more on fossil fuels for jobs and GDP:
[B]etween 2006 and 2012, US employment declined 0.05 percent per year on average, while employment in North Dakota and Texas grew by 3.4 and 1.5 percent, respectively, the fastest growth in the country.
Any savvy investor knows the value of diversification, which is why many are wary of what comes after the shale boom. But as the authors of the CFR brief rightly note, energy producers and energy-intensive industries (and the states in which they reside) aren’t nearly as vulnerable to the ups and downs of the oil market as they once were. The world’s energy supply is becoming more diverse as new technologies like hydraulic fracturing and horizontal well drilling provide access to new oil and gas plays, and while America’s increased oil and gas production by no means makes it independent, it does add another node to an increasingly distributed supply network.
The upshot of all of this: when a source of supply is disrupted, the rest of the world can do more to pick up the slack and even out price spikes. That, combined with increases in energy efficiency (resulting in lower domestic energy demand), makes the prospect of a shale bust seem a lot less threatening.