L&C Hails Shale As Saviour Of US Economy

Sally Ling

18 March 2013

The emergence of shale oil as a viable energy source could have a considerable impact on the US dollar and on the global economy as a whole. According to Ashok Shah, investment director at wealth manager London & Capital, exploitation of this resource could improve growth prospects, reduce inflation and diminish the current account deficit, with significant ramifications for long-term investors.

Shah foresees the US deriving considerable economic benefit from what he calls the "shale revolution". Initially a “weighty” capital spending cycle will be required to exploit the resource; this will boost employment and growth. As an energy importer, Shah believes US growth will later benefit from lower oil (and gas) prices and sees the shale oil revolution moving the US closer to becoming energy self-sufficient.

Non-tradable shale gas, Shah believes, will be particularly beneficial for US manufacturing productivity and growth. Relative to its overseas counterparts, US manufacturing will enjoy lower energy costs, providing a significant competitive advantage for exporters. In the longer term it may even result in the relocation of production to the US from emerging markets such as Taiwan, Indonesia and China.

A recent report from PricewaterhouseCoopers suggests that by 2035 shale oil could account for as much as 12 per cent of the world’s total oil supply, and reduce oil prices by between 25 per cent and 40 per cent. The US is estimated to have sufficient shale resources to be energy independent by 2035.