American Oil and Gas Reporter - April 2015 - 61

Developing Oil And Gas Shale
Boosting U.S. GDP, CBO Says
WASHINGTON-The innovations of
hydraulic fracturing and horizontal drilling,
which are responsible for opening domestic
shale deposits, also are increasing U.S.
gross domestic product by helping improve
U.S. oil and gas extraction productivity,
the Congressional Budget Office says.
Exporting liquefied natural gas would
only increase those gains, it adds.
CBO predicts inflation-adjusted U.S.
GDP will be 0.66 percent higher in 2020
and 1.0 percent higher in 2040 than it
would have been without developing shale
resources. The jump in GDP resulting
from shale development increases federal
tax revenues, CBO points out, adding it
expects that increase will be slightly larger
than the GDP jump in percentage terms.
The forecast estimates federal tax revenues
will be 0.75 percent higher, or about $35
billion, in 2020 and 1.0 percent higher in
2040 because of shale development.
The agency adds the actual effect on
GDP could be higher or lower than its
estimate, depending on the abundance of
shale resources, the fraction of those resources that are recoverable and the costs
of developing that fraction, as well as
other considerations.
Greater spending on developing shale
wells likely has increased GDP, CBO
says, with investments in the oil and gas
industry between 2004 and 2012 increasing
from 0.4 percent of GDP to 0.9 percent.
However, the agency points out that increase includes investments in conventional oil production that probably would
have occurred even without shale development because of the sharp increase in
oil prices over those years.
Shale production also adds to federal
receipts through payments producers of
federally owned resources make to the
government, but CBO points out that
those contributions have been modest,
and will continue to be so because most
shale resources being developed are not
on federal lands. It estimates federal royalties from shale, minus the funds that
Washington transfers to the states, will
be $300 million annually by 2020.
According to the study, labor and capital
used in shale development by supporting
industries or by companies using products
derived from natural gas or oil, are becoming
more productive than they otherwise would
be, and that heightened productivity continues to increase the GDP.
Because of fracturing and horizontal
drilling, tight oil and shale gas costs have

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become competitive with hydrocarbons
extracted from nonshale sources, CBO
says. Shale resources produce 3.5 million
barrels of oil a day and 9.5 trillion cubic
feet of gas each year, and the agency
notes that production will grow over the
next 10 years by 30 percent and 60 percent,
respectively, according to U.S. Energy
Information Administration predictions.

Congressional Impacts
Congress can affect shale development
and thus oil and gas markets, economic
output and the federal budget, the study
observes. Options such as easing or repealing the ban on exporting crude oil,
or changing the government's criteria for
judging applications to export liquefied
natural gas likely would increase domestic
production, but would have little effect
on prices, it asserts. Any production boost
probably would make GDP and federal
revenues slightly higher than they would
be under existing export policies, it says.
One approach would be for legislators
to alter the criteria the Department of Energy uses for approving exports to countries
with which the United States does not
have free trade agreements (FTAs), CBO
says, such as requiring the agency to automatically assume exports to those countries are in the public interest, like it does
for applications to FTA countries.
The EIA export forecast that CBO uses
in its base-line scenario has the United
States exporting 2.0 Tcf of LNG a year
by 2020 and 3.5 Tcf by 2040. CBO says it
estimates exporting 3.5 Tcf a year would
raise domestic natural gas prices in 2040
by 10 percent or less, relative to the prices
that would exist with no exports.
"To the extent that market conditions
supported LNG exports, making capacity
available to allow those exports would
raise GDP-in part because more domestic
gas would be produced, but also because
the gas would be sold overseas at higher
prices than at home," CBO asserts.
In its examination of environmental
standards, CBO says there is a stronger rationale for state or local oversight rather
than federal regulations. For example, the
report says costs of addressing water quality
concerns associated with hydraulic fracturing
vary among localities, depending in part
on whether local geology allows producers
to use injection wells for disposing of
waste fluids. A federal decision to require
that disposal method might be overly costly
in some areas, it points out.
Ì

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APRIL 2015 61

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American Oil and Gas Reporter - April 2015

Table of Contents for the Digital Edition of American Oil and Gas Reporter - April 2015