The shale revolution and the global economy
The shale revolution is changing the global energy landscape. That revolution has had two
related dimensions: one in gas and one in oil. US production of shale gas has increased
dramatically (Exhibit 1), with the increase since 2006 among the largest production increases
ever seen globally. US production of shale oil (liquid-rich shales) has been more recent, but has
been the main upside surprise to global oil production in the last 2-3 years. Our Energy teams
around the world have documented this transformation through their ‘Top 360’ research initiative,
which monitors the largest shale projects on a bottom-up basis1. Their projections point to an
impressive increase in US oil production from less than 7mn bbl/d in 2008 to over 12mn bbl/d by
2017 (including Natural Gas Liquids).
The micro impact of the shale revolutions on the US economy is already visible, with booms in the
regional economies around major fields and a fillip to gas-using US manufacturers. But the global
macro implications, our focus here, are also becoming clearer. As we discussed in the release of
our global outlook for 2013 (see Global Economics Weekly 12/39: ‘Moving over the hump’), the
most dramatic issue is that shifts in production are gradually loosening the oil price constraint that
has been a persistent feature of the global economy. If global demand growth can recover, the
risks that it will be choked off by rising oil prices are receding. The persistent pressures on
headline inflation from steadily climbing oil prices over the last decade are unlikely to be repeated
in the next.
We show here that the shifts are also likely to contribute to some underlying improvement in the
US current account position and support a somewhat stronger US Dollar than we would otherwise
have seen. But it is important not to exaggerate the size of those impacts and, in both cases, they
may be offset by other forces. The reason that shale can have big effects on the global energy
picture, but smaller effects on the US is simple: the sheer size of the US economy. US production
increases are very large relative to other major oil discoveries but much smaller as a proportion of
the local economy than in other cases. This is much more of a ‘first word’ on the subject than the
last. Our views on the energy production outlook are still evolving. The impact on the economic
picture is also complex. Here we provide a simple framework for translating some key issues into
an economic framework that we hope will be helpful as we dig deeper.