If you have read this blog before you probably have realized that it tends to be somewhat negative sometimes because it reflects what is going on in the wider world. So after reading a fascinating article over www.foreignpolicy.com entitled The End of the Asian Miracle I wanted to share some of the author’s insight on some very positive things happening right now for the US economy. The article is fairly long but does go in-depth about how China is beginning to lose some of its competitive advantage versus the US and is worth reading but for the sake of time I’m only going to address what is actually happening in the US instead of the rest of the world.
Perhaps the biggest new development happening in the US is the discovery and extraction of shale gas that is allowing the US access to large quantities of domestically produced cheap energy for the first time since probably the 1960’s. Yes, we have had the Alaskan oil discoveries since then but this has the potential to be much bigger and because of this its impact will be much more beneficial. The effects of this are already being felt in manufacturing with some US companies returning production back to the US from overseas because of the cheap energy, but also foreign companies moving their operations from their home countries to also access this energy. According to the article the US now is supplying gas to domestic customers at about $2-2.50 per 1 million BTU. Compare this with China which imports gas at a price of about $13-17 per 1 million BTU. As you can see that is quite the advantage for us. I’m sure you are wondering about how this relates to oil? The article states that the $2-2.50 price is equivalent to an oil price of about $12-15 per barrel. But the size of the deposits discovered in America mean that this will be an enduring advantage, one so great that this gas will not only power energy intensive manufacturing plants but also provide electricity and perhaps even fuel cars and trucks. Obviously fueling are personal vehicles is some way off because of the lack of infrastructure (the technology to convert our vehicles already exists and is relatively cheap) but it certainly is not unreasonable to see fleet vehicles that operate out of a terminal being able to take advantage of this much sooner than cars. Cheaper transportation costs mean cheaper goods at the store, we all win. In fact the reserves of gas are so large that the idea of the US once again being energy independent may become a reality, now that really is something positive to move forward with.