Energy and the Macroeconomy: the role of natural gas and the U.S. energy boom Presentation by Prakash Loungani Advisor, Research Department, IMF Head of Commodities Team The views expressed are those of the presenter and should not be attributed to the IMF.
Outline Takeaways A. Oil & the Macroeconomy: New Developments since Blanchard-Gali B. Measuring Diversification C. Impact of U.S. Energy Boom A. No longer about just oil: Diversification in sources (natural gas; US energy boom) B. Depend, but Diversify C. Don t Get Carried Away by the Shale Gale
A. Oil & the Macroeconomy: Some New Developments Diversification from increasing role of natural gas Boom in unconventional energy
Oil & the Macroeconomy: A Slippery Relationship The macroeconomic impacts of oil shocks are ignored [in the book]; this neglect is sensible given the wide varieties of prevailing views and the uncertainties about which results, if any, are valid. -- Richard L. Gordon (in a book review in The Energy Journal)
Two dominant views Exogenous oil price shocks have played a key role in nearly every post-wwii U.S. recession and remain an important force even today The importance of oil price shocks in causing the 1970s stagflation has been overstated. Oil price increases today are driven by demand increases in emerging markets and are different from the oil shocks of the 1970s
A two-handed approach Oil price shocks did play an important role in the stagflation of the 1970s But there have been changes since: Our luck may have changed for the better Real wages are less rigid Monetary policy response is better Share of oil in production & consumption is lower Net result: oil price shocks have smaller effects on output and inflation in the 2000s than in the 1970s (Blanchard & Gali, 2009; Blanchard and Riggi, 2010)
Some new developments Adding two elements to Blanchard-Gali view More sources of energy Role of natural gas More sources of supply Unconventional energy boom Not discussed in this presentation but always lurking: short-run effects including through uncertainty channel from large supply disruptions
U.S. Energy Boom
B. Measuring Diversification Takeaway Message: Depend, but Diversify (meant to remind old-timers of Trust, but Verify ) Based on Cohen, Joutz and Loungani, Energy Policy, 2011 (with some updates)
Calls for energy independence See Loungani (2009), The Elusive Quest for Energy Independence, International Finance, for a review of these books
Indices of diversification in net imports CSI i 2 NPIi ( ) *100 C NPI max{0, M X } i ij ij
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Global Oil Diversification 7.0 6.0 Oil Supply DI 5.0 4.0 3.0 2.0 1.0 -
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Global Gas Diversification 17.0 Natural Gas Supply DI 15.0 13.0 11.0 9.0 7.0 5.0
Diversification index for oil 25.00 20.00 15.00 10.00 5.00 0.00 United States France New Zealand Spain Portugal Italy Netherlands Germany Korea Austria Denmark Canada Australia United Kingdom Ireland Japan Sweden Belgium Turkey Greece Switzerland Czech Republic Finland Poland Hungary Slovak Republic
Diversification index for natural gas 25.00 20.00 15.00 10.00 5.00 0.00 Denmark Netherlands United States United Kingdom France Belgium Italy Poland Germany Spain Switzerland Hungary Austria Sweden Czech Republic Greece Ireland Portugal Japan Finland Slovakia
Diversification: the bottom-line Natural Gas - 1 to 6 7 to 13 14 to 19 Ranking Vulnerability Low Medium High Low France, US, UK Spain, Portugal 1 to 8 Crude Oil Medium Italy Austria, Germany, Japan, Ireland Sweden 9 to 18 High Belgium, Poland Switzerland, Hungary Source: Cohen, Joutz and Loungani, Energy Policy. Czech Republic, Finland, Greece, Slovak Republic 19 to 26
C. Impact of U.S. Energy Boom Takeaway Message: Don t Get Carried Away by the Shale Gale -- Loungani and Matsumoto (forthcoming), Decoupling of Oil and Natural Gas Prices: Long Separation or Permanent Split? -- Celasun, Oya, Gabriel di Bella, Tim Mahedy, and Chris Papageorgiou (2014), The US Manufacturing Recovery: Uptick or Renaissance?, IMF Working Paper 14/28. -- U.S. 2012 Article IV consultation (July 2013), http://www.imf.org/external/pubs/ft/scr/2013/cr13237.pdf
Co-movement of Oil & Gas Prices (index; 2005 = 100, January 1993 to December 2005) 160 140 120 100 1a. United States: Gas, Oil 80 60 40 20 Gas Oil 160 140 120 100 1b. Germany: Gas, Oil 80 60 40 20 Gas Oil 0 93 94 95 96 97 98 99 00 01 02 03 04 05 0 93 94 95 96 97 98 99 00 01 02 03 04 05 160 140 120 100 1c. Gas: United States, Germany 80 60 40 20 United States Germany 160 140 120 100 1d. Oil: United States, Germany 80 60 40 20 United States Germany 0 93 94 95 96 97 98 99 00 01 02 03 04 05 Source: Loungani and Matsumoto, 2014 0 93 94 95 96 97 98 99 00 01 02 03 04 05
but a decoupling since 2005 (index; 2005 = 100, January 2006 to February 2013) 300 250 2a. United States: Gas, Oil Gas Oil 300 250 2b. Germany: Gas, Oil Gas Oil 200 150 200 150 100 50 100 50 0 06 07 08 09 10 11 12 13 0 06 07 08 09 10 11 12 13 300 250 2c. Gas: United States, Germany United States Germany 300 250 2d. Oil: United States, Germany United States Germany 200 150 100 200 150 100 50 50 0 06 07 08 09 10 11 12 13 0 06 07 08 09 10 11 12 13 Sources: U.S. Bureau of Labor Statistics; Federal Statistic Office (Germany).
The U.S. Manufacturing Rebound
is not due solely to lower U.S. natural gas prices Two other factors: The US real effective exchange rate has depreciated over the last decade, in particular against emerging-market currencies. Unit labor costs in the US have decreased relative to emerging markets.
Medium-Term Impact of U.S. Energy Boom on the U.S. Global Economic Model (GEM) simulations: increase in U.S. energy production over the next 12 years by 1.8% of GDP, cumulatively Impact on the United States (percent) Source: IMF staff calculations. Medium-term impact refers to impact after 13 years. 23
Medium-Term Impact of U.S. Energy Boom on Others Global Economic Model (GEM) simulations: increase in U.S. energy production over the next 12 years by 1.8% of GDP, cumulatively Impact on the Rest-of-World GDP (percent) Source: IMF staff calculations. Medium-term impact refers to impact after 13 years. 24
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