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In graphs: eight signs fracking is revolutionising the US

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by David Campbell on Nov 23, 2012 at 00:01

The International Energy Association (IEA) predicted last week that the US would become a dominant energy superpower by 2035

The International Energy Association (IEA) predicted last week that the US would become a dominant energy superpower by 2035. More interesting than its relative standing will be the impact on the US economy, however, an impact that is already being felt. The chart above shows the IEA's predicted energy import costs, with the US approaching self-sufficiency.

The reason for the IEA’s prediction was shale-derived petroleum. The potential change to the oil extraction dynamic is hard to overstate – US government estimates endorsed by the oil industry put the potential reserves at more than all the world’s conventional reserves combined.

While the US Energy Information Administration factors in something less than the full suggested potential of these reserves ever being exploited, its projections are still dramatic. Oil imports to the US are expected to fall to a 20-year low next year and continue falling in the years thereafter.

For a glimpse into the near future, the spread between the US Henry Hub natural gas index and equivalent European pricing provides some insight. After hitting a peak together in 2008, the two have dramatically diverged and essentially broken a historical correlation due to US shale gas.

The lead indicators are already apparent. While the difference between the Brent and WTI indices apparent over the last two years has colloquially become known as the WTF spread due to its lack of immediately obvious causes, the most frequently cited factor is the emergence of domestic oil.

This is corroborated by US crude oil inventories, which have consistently run much higher than the 10-year seasonal average over 2012. Part of this is technical as pipeline infrastructure has shut down – but by nowhere near enough to explain the sustained margin of difference.

A lack of refinery capacity has kept this from becoming a consumer bonanza at the pump, with refined petroleum stores actually below the seasonal average. Petroleum’s relative portability is likely to keep the spread between US and European pricing tighter than is the case for gas.

The macro level is where the difference will be felt – and here it has the potential to be huge. Even a rough back-of-a-fag-packet calculation shows the impact on the US trade deficit, with the headline figure on the above graph, and the trade deficit with oil import prices stripped out.

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