Cheap Abundant Natural Gas is a Game Changer, Says the IMF

By:  Bob Adelmann
03/22/2013
       
Cheap Abundant Natural Gas is a Game Changer, Says the IMF

A researcher at the International Monetary Fund expressed surprise at the greatly increased production of natural gas due to fracking and the law of supply and demand in a market economy. Those increases are reducing transportation costs and bringing lower prices to American consumers.

Expressing surprise at the enormous increase in U.S. production of oil and natural gas by unconventional means, Thomas Helbling, a division chief in the IMF’s (International Monetary Fund) Research Department, was forced to admit that it was free enterprise that was responsible for it after all. In his March 2013 article he wrote:

A strong rebound in gas and then oil production in the United States over the past few years has taken markets and policymakers by surprise. As a result, natural gas prices in the United States are at a 20-year low.…

It’s all because of fracking and free enterprise, which have “fundamentally changed the outlook for natural gas as a source of energy,” he added. This illustrates the phenomenon known in Economics 101 as "the law of supply and demand." In other words, “the cure for high prices is high prices.” Helbling concluded:

The sudden takeoff in the production of oil and gas from unconventional sources in recent years is another case in which high prices and new technologies combined to turn a previously uneconomical resource into an economically viable one.

The jump in oil prices in late 1973, for example, made the development of new oil resources in the Arctic (Alaska) and the North Sea economical and eventually contributed to declines in oil prices that persisted well into the 1980s.

More generally, the development of new sources of supply is a normal response to a commodity price boom and has historically been one of the forces behind price declines after a boom.

The increase in the production of natural gas in the United States over the past several years has indeed been impressive, with output rising 30 percent between 2008 and 2012, with no end in sight. 

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