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Fracking Keeps the Gas Pedal on U.S. Economy

What we have witnessed in the past decade is the complete integration of America’s domestic energy sector into the U.S. and global economies.

What we have witnessed in the past decade is the complete integration of America’s domestic energy sector into the U.S. and global economies.

This June will mark 10 years of unabated growth for the world’s largest economy. Many factors are attributed to what is soon-to-be America’s longest economic expansion. Rising employment, below average interest rates, and central bank stimulus each get lots of headlines. Forgotten in much of this analysis, however, is the critical contribution from America’s fracking revolution.

It is worth remembering that every major economic downturn in the U.S. for the past five decades was triggered by a significant and prolonged rise in energy prices. The OPEC embargoes of 1973 quadrupled the price of a barrel of oil and a recession followed. The Iranian Revolution of 1979 tripled oil’s price and economic output declined. The Iraqi invasion of Kuwait in 1990 once again tripled energy costs and another recession occurred. And, starting in 2005, oil prices regularly reached new record highs until their apex of $144 per barrel in July 2008. This rise in oil prices was well underway before the meltdown on Wall Street went into hyper-drive and the Great Recession began.

In a consumer-driven economy, the importance of oil prices to the average American household and business cannot be understated. Surging energy costs over an extended period of time rip through the economy—causing widespread havoc and damage. The longer it lasts, the deeper the pain. More spent on energy forces consumers to hold off on buying things for their home or that new car. Businesses pull back on capital investment and new hiring.

While the past decade has seen spikes in oil prices—$113 per barrel in April 2011; $109 in September 2013; and, $107 in July 2014—each of these was followed by a precipitous decline in prices almost immediately thereafter.

Five months after oil hit $113 per barrel in April 2011, it had fallen back to $77. By January 2014, oil’s price had fallen to $44—after being at $109 only 120 days earlier. And, more recently, after reaching $107 in July 2014, oil has hovered around $60 ever since.

What we have witnessed in the past decade is the complete integration of America’s domestic energy sector into the U.S. and global economies. Led by capitalists, risk takers, and entrepreneurs, America’s energy sector has increased production by an incredible 140% over the past decade. Just last month, U.S. output exceeded more than 12 million barrels of oil per day: something no other nation, including Saudi Arabia or Russia, has ever done. Moreover, American producers can go even higher if they so wish.

The era of government- controlled energy cartels is ending. And, it is quickly being replaced by the American way of doing business. Market factors such as innovation, data analysis, capital flows, and workforce development are shaping the present and future of energy much more than the geopolitical forces of the past. America is now the most influential producer of energy in the world. What happens in the fields of West Texas, the Appalachian Basin, and North Dakota is increasingly more important to global energy prices than almost any other single factor.

The ability of U.S. producers to respond to changing market conditions in real-time has inexorably altered the pricing of energy. It has made the energy sector much more efficient than in the past. This doesn’t mean that everything is smooth sailing ahead and no major crises will occur. Instead, this new era signifies that energy prices will become much more stable for longer periods of time. Price stability underpins greater predictability, which permits us to set more realistic expectations in what we do. This benefits consumers and businesses immensely. As we celebrate the nation’s longest uninterrupted period of economic growth, let’s remember the vital contributions made by America’s frackers to our rising prosperity.

Andrew R. Thomas, Ph.D., is associate professor of Marketing and International Business at the University of Akron; and, a member of the Core Faculty at the International School of Management in Paris. He is a bestselling business author/editor, whose 23 books include, most recently, American Shale Energy and the Global Economy: Business and Geopolitical Implications of the Fracking Revolution, The Customer Trap: How to Avoid the Biggest Mistake in Business, Global Supply Chain Security, The Final Journey of the Saturn V, and Soft Landing: Airline Industry Strategy, Service and Safety.

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