Although the firm recognises that an unusually mild winter resulted in lower demand, the price drop is attributable more generally in terms of an “unprecedented surge in supply following extraordinary innovations in the field of gas extraction,” it says.

This gas market “revolution” comprises hydraulic fracturing - fracking - a new technique involving horizontal drilling to produce natural gas from shale formations. With “vast natural resources”, the US is now able to produce a “very high quantity” of low-cost unconventional gas.

Investment, economic and employment implications 

In terms of investment, natural gas is “a poor idea”, the note says, citing how the Obama administration is introducing bills to inhibit the export of US natural gas to “protect consumers and businesses from rising prices”. Upward pressures on prices are therefore “unlikely anytime soon”.

On the other hand, from an economic perspective, lower natural gas prices have both short- and long-term benefits. For example, although the price of gasoline has increased by 24 per cent since January 2010, the effect on overall consumer price index has been “partly offset by the 12 per cent decline in piped gas prices”, with annualised overall inflation of just 2.3 per cent.

With regards to employment, this new gas market structure has presented itself as an additional source of job creation, in light of the numerous projects entailed. 

However, the firm predicts that the demand for natural gas will “increase dramatically” in the future, as while natural gas is currently used primarily for electricity generation, it will eventually replace, oil, coal and nuclear energy.

Gas - 25 per cent of global energy demand by 2035 

In fact, the International Energy Agency anticipates that gas will overtake coal before 2030 and meet one quarter of global energy demand by 2035. This sector is also projected to grow by 2 per cent annually, compared with 1.2 per cent for total energy.

More specifically, the US will be the second largest producer of unconventional gas in 2030, ahead of Russia. This will reduce the need to import energy and ultimately achieve “complete autonomy” , the IEA explained.

Today, petroleum accounts for approximately 40 per cent of the -4.9 per cent US trade deficit, but as demand for gas grows, the relative size of petroleum consumption will simultaneously decrease.

“Combined with higher domestic oil production, and given the massive energy weight in the current account deficit, the gap will gradually close. Although it will take years before the US current account turns into surplus, the trend is firmly in place and will be of great help to a country struggling to reduce deficits and debt levels,” the note says. “Along with a stronger currency, it will give the US a clear strategic and political advantage.”