Economic analysis of US shale gas and implications for the European Union

Press release [14.02.14]

The unconventional gas ‘revolution’ is not a panacea for economic growth, employment and manufacturing competitiveness in the US. It is also clear that shale gas exploration in the European Union would not fundamentally change the European energy situation: energy efficiency, renewable energy sources, and a better integrated European energy market are still the main priorities for a competitive, secure and sustainable energy supply. These are the two main conclusions of the study launched yesterday at the European Parliament by the Institute for Sustainable Development and International Relations (IDDRI), entitled ‘Unconventional wisdom: an economic analysis of US shale gas and implications for the European Union’.

According to this study, the economic benefits of shale gas exploitation in the United States (US) are much smaller than often suggested and do not explain the economic recovery in the US. As explained by Mathilde Mathieu, one of the authors of the study, ‘when looking closely at the data, we cannot conclude that there is a manufacturing renaissance driven by shale gas by any means’. Shale gas will have an impact only on a handful of gas intensive sectors, like petrochemicals production and fertilisers. The impact of lower gas prices in the US remains local and sector-specific. Mathilde Mathieu continues : ‘these sectors only represent 1.2% of US GDP. They may have increased their exports, but they are an order of magnitude smaller than the overall US manufacturing trade deficit, which is still increasing’.

Regarding the economy as a whole, Oliver Sartor, economist at IDDRI, estimates that ‘the long-term economy-wide impact from reduced oil imports and lower gas prices is in the order of 0.84% of GDP as a one-off gain. This is small compared to a US economy growing at about 1.4% per year in the long term.’

With regards to the emissions impacts, Oliver Sartor underlines that: ‘Coal fired generation has increased from 32.5% to 40% of the US power mix between mid 2012 and 2013 even with low natural gas prices. Without additional policies, coal-fired generation will remain a large share of the US power mix for decades to come, despite shale gas.’

What are the implications for the European Union? It is clear for Thomas Spencer, Director of the Climate Program, that ‘shale gas exploration in the European Union would not fundamentally change the European energy situation. Even under the most optimistic scenarios for shale gas exploitation, the European Union would remain a significant importer of gas and oil and European Union prices would continue to depend on high international prices.’ The European Union is indeed at the very start of the exploration phase, the oil and gas industry is much less developed; issues of land access and public acceptance would be more complex.

Shale gas by itself will therefore be no means solve the European Union’s energy and emissions problems. The European Union needs a comprehensive policy of energy efficiency, innovation, and a shared, stronger European market for energy. It also needs more domestic low-carbon sources of energy like renewables.

 

>> The policy brief is available on IDDRI's website

The full study will be available online very soon.

Contact :  Thomas Spencer, director of the Climate programme

Press contact : Delphine Donger, Communications and Media Officer