Will This Industry Lead American Economic Growth for the Next Decade?
The U.S. is still recovering from the Great Recession, which has substantially lowered America’s economic growth levels. This lack of economic growth is preventing job creation and leading to a persistent and sustained elevated level of unemployment. In spite of the current weak economy and the ineptitude of politicians to take concrete actions in building a solid economic foundation, I believe that one of the main drivers for economic growth over the next several decades will be a derivative of oil prices.
Let me explain. While politicians bicker on both sides, American ingenuity has led the world in technological innovation when it comes to energy extraction; so much so, that the International Energy Agency (IEA) has just come out with a report stating that by 2017, the United States will be the top oil producer in the world, replacing Saudi Arabia. In that same report, by 2015, the U.S. will be the top gas producer in the world. When people around the world think about gas and oil prices, they will look to America as the world leader in technological innovation that is driving this commodity sector. (Source: “U.S. to overtake Saudi as top oil producer—IEA,” Reuters, November 12, 2012.)
Economic growth is spurred by many factors. Two of the most important factors are the competitive advantage worldwide and technological advancements. The increase in oil prices we’ve seen over the past couple of decades has led American firms to develop world-leading, technologically sophisticated methods of extracting both oil and natural gas from beneath the ground. This has resulted in massive increases of both oil and natural gas production in America.
The results have led to a huge discrepancy in both gas and oil prices between America and the rest of the world. Currently, American natural gas trades at approximately 60%–80% lower than natural gas from Europe or Asia, while oil prices are approximately 15%–20% cheaper in America than many parts of the world. What this means is that for industries that use natural gas and oil, this lowered cost for a crucial input is a huge competitive advantage that will certainly help to drive economic growth over the next several decades.
However, economic growth is not just based on the lowered cost of inputs. The technological know-how will also be a strong export. With gas and oil prices around the world expected to remain high for decades, many international firms will be looking to hire companies with expertise in advanced extraction techniques and technologies. This is where America leads the world, which will also help drive economic growth in the future. High gas and oil prices will pave the way for firms to be hired by international companies looking to extract commodities in their nations. They have the locked oil and natural gas on their land, but they lack the technical skills that American companies have developed. America is not the only nation with shale reserves; however, we do lead the world in technologically extracting what’s available.
Obviously, the greater we can increase supply in America, the lower we can reduce gas and oil prices here versus the international markets. This offers a huge advantage to our domestic companies, while also attracting foreign firms to set up facilities within the U.S., all of which helps economic growth.
The competitive advantage in terms of gas and oil prices and the exporting of our technological knowledge and expertise internationally are strong positives for economic growth in America over the next several decades. Of course, politicians can always enact policies that will create hurdles and disincentives that will hurt economic growth. While one would think that the most important part of a politician’s job is to create an environment that encourages businesses to grow and create jobs, this is not always the case. I truly hope this latest recession has made politicians from all sides aware that America is now competing with numerous countries. We do have many advantages, but we must encourage their use and not stifle American creativity.