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Effect on consumers unclear as US oil, gas production rise

The increased domestic production of natural gas has led to lower home-heating and electricity prices.

Ralph Wilson/Associated Press/File 2010

The increased domestic production of natural gas has led to lower home-heating and electricity prices.

For decades, Americans have had to shell out hundreds of billions of dollars each year to foreign oil and natural-gas suppliers, all the while enduring price swings, sudden supply shocks, increased trade deficits, and geopolitical entanglements over control of energy sources.

But consumers and businesses across the nation and Massachusetts are in the early stages of witnessing what the International Energy Agency calls a “dramatic reversal” of America’s energy fortunes: The United States is expected to become the world’s largest producer of natural gas by 2015, the world’s leading producer of oil by 2017, and nearly energy independent by 2035, according to recent IEA projections, thanks largely to the unlocking of huge domestic reserves of oil and gas found in shale rock.

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Consumers are benefiting from increased natural gas production. Over the past five years, retail home-heating prices or those using natural gas have fallen 21 percent in the Northeast, according to the US Energy Department. Retail electricity prices across the Northeast have declined by about 2 percent over the past five years because of lower costs for natural gas, which is used to generate electricity.

The economic benefits of increased domestic oil production, however, haven’t yet been seen at gas pumps or on home-heating oil bills, largely because oil is a high-demand global product and its prices are set by world markets. As a result, most economists and energy specialists don’t expect dramatic declines in oil and gasoline products any time soon, if ever.

But increased domestic oil production, expected to rise by nearly 30 percent to 7.5 million barrels per day by 2019, could lead to more stable prices and fewer supply disruptions for American consumers and businesses, economists said.

Above all, increased US oil production will almost inevitably lead to a reduction in the more than $400 billion the country now spends each year to import foreign oil, cutting the nation’s annual trade deficit, which stood at more than $500 billion last year, and keeping more money flowing through the domestic economy, analysts said.

“This is one of the five best story lines of the 21st century for America,” US Representative Edward Markey of Malden, the ranking Democrat on the House Natural Resources Committee and a senior member of the House Energy and Commerce Committee, said of America’s newfound energy prowess.

For example, US manufacturers using a lot of electricity may see production costs stabilize or decline in coming years, making their products more competitive on global markets. That’s especially significant for Massachusetts companies, which have long struggled with high electricity and heating costs that have put them at a disadvantage.

“Lower or more stable [energy] prices are very good thing for our manufacturers,” said Andre Mayer, research director at the Associated Industries of Massachusetts.

But Jonathan Haughton, an economics professor at Suffolk University, cautioned that any significant drop in the nation’s trade deficit — caused by decreased imports of fuels and increased exports of US products — could strengthen the US dollar on currency markets. An appreciating dollar would make American and Massachusetts products, from sophisticated medical instruments to pharmaceuticals, more expensive in foreign markets and eventually hurt manufacturing exports, he said.

Such a phenomenon is called “Dutch disease,” a reference to the discovery of large reserves of underground gas in the Netherlands in the late 1950s. That gas find was an energy boon, but it also drove up the value of the country’s currency, making its products more expensive to export and leading to a decline in manufacturing, said Haughton.

There are also pluses and minuses for the environment. Although a fossil fuel producing carbon dioxide that contributes to global climate change, natural gas still emits less carbon dioxide than oil and coal, which were once the main fuel sources for US electric power plants. The increased use of natural gas by power plants partially explains the 10 percent decline in carbon emissions in the United States in recent years, according to Energy Department data cited by Markey.

But the lower cost of natural gas will make it harder for emerging renewable sources, such as wind and solar, to compete. In addition, as natural gas replaces coal, it could lead to the loss of thousands of jobs in the coal industry, economists said. “It will cause disruptions and some redistribution of resources,” said Haughton of the rising use of natural gas.

As for the recent low prices of natural gas, Markey said he’s worried that attempts to export domestic supplies could lead to higher prices for American consumers. Markey is pressing the Energy Department to more closely review the impact of increased natural-gas exports on domestic gas prices.

But Mark Zandi, chief economist at Moody’s Analytics, a forecasting firm in West Chester, Pa., said he doesn’t see how the government could significantly limit exports of natural gas in an increasingly global economy. But even with exports of domestic oil and natural gas, Zandi said, the nation stands to be a big net winner as a result of its increasing energy production.

“It means more income stays here or flows back to here,” said Zandi. “It’s nothing but a big plus. It’s just a question of how big of a plus it’s going to be.”

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