>US: A Quick Take on Energy Prices (OSK GROUP)

■ The debate on the likely impact of energy prices on economic growth has once again received some limelight recently. Unlike prior episodes, however, the divergence between the price of gasoline and the price of natural gas adds additional wrinkles to the complex determination of the net effect on the US economy. Broadly, our casual analysis implies that the bulk of the negative imprint from higher gasoline prices, all else equal, might be offset by the subdued price of natural gas at this juncture.


■ In general, a simple breakdown of the different sources of US energy consumption (based on BTU) indicates that petroleum products still dominate natural gas as of 2010. In terms of overall energy consumption shares (% of total BTU), the former has fallen to slightly less than 37% in 2010 from just over 40% in 2005, while the latter has increased to roughly 25% from slightly more than 22% in 2006. Indeed, the dominance of petroleum products over natural gas has dwindled almost to the slimmest level on record (since 1949, the narrowest difference between petroleum products and natural gas shares was 11.4%-point).


■ The foregoing shift in energy consumption shares in recent years implies that the likely impact of natural gas prices on the macro economy, while generally less than the effect of gasoline prices at this juncture, must be taken into account and analyzed more closely. For example, simple rule-of-thumb estimates (without incorporating the effects of price volatility and price asymmetries) suggest that a tax on households of roughly $30bn to $40bn annual rate from higher gasoline prices recently might be offset by a lift of around $15bn to $30bn annual rate from much lower natural gas prices of late. Therefore, the net effect on the US economy due to the dissimilar change in energy prices, all else equal, might be marginal at this time, perhaps shaving off a tenth of one percent from GDP growth at most.

RISH TRADER