With all of the problems plaguing the US, the ongoing boom in shale oil and gas production is one of the few bright spots. In the article referenced above about the Niobrara play, the author noted that gas drillers were switching to oil as the prices of natural gas in the US continue to decline, while the prices of oil remain high. Cheniere Energy, realized that although natural gas in the US was becoming so cheap as to squeeze profit margins of producers, it was rising in price in east Asia. As related in the link above, Cheniere is converting a terminal that was constructed to facilitate LNG imports, built when US natural gas production was declining, into an export facility. The implications for the troubled US economy are enormous. While most commentators worry about creating jobs, they fail to distinguish between productive versus unproductive jobs. Afterall, as the most delusional of Keynesians remind us, any government can achieve full employment with any number of “shovel ready” infrastructure projects. However, although there is always a need for infrastructure improvements, these projects will be chosen for political purposes and not by the market. Thus, much of the resulting infrastructure will represent wasted spending and malinvestments. In contrast, as Matt Ridley reminds us, the shale oil and gas projects are largely privately funded. Thus the market has decided that these projects are worthy of scarce capital and will tend to result in productive employment, the type of employment that the US desperately needs.
What is even more fortuitous for the beleaguered economies of the world, is the fact that shale gas is abundant in many parts of the world. What is interesting about the chart accompanying the article is that most of the earth’s surface plus the oceans were outside of the scope of the report. So current estimates of shale gas reserves are sure to be overly conservative. As more of the world begins to produce shale gas and oil, this could be just what is needed to cushion the continuing economic blow of the trillions of dollars of worldwide malinvestments that are being liquidated as the multidecade debt supercycle comes to an end.