High Gas Prices Will Not Stop State Growth

By Published On: March 31, 2006

High natural gas prices on a sustained basis would trim economic growth in California – but not by much. According to a study presented to the California Energy Commission March 29, a doubling of gas prices has little effect because the state has largely adjusted to higher gas prices. However, to the extent that more costly gas does affect the economy, Southern California will feel the impact more than the northern part of the state. That’s because the south has more gas-powered manufacturing industries. “The natural gas-intensive industries in California already have responded to high natural gas prices,” said Phil Hopkins, Global Insight managing director of regional services. “We don’t think the structure of the California economy is going to be fundamentally affected by high natural gas prices.” The study found that gas prices of $10/MMBtu by 2016 would result in 163,000 fewer jobs than expected with natural gas pegged at $5/MMBtu. Today there are 14.9 million jobs in California. But the state projects that the number of California jobs will grow to more than 17 million by 2016. Gross state product would be about 1.3 percent lower under high-priced gas – at $2.297 trillion a year, compared to $2.328 trillion annually under $5/MMBtu gas. The economic changes would occur gradually under a high-gas-price regime, the report suggests. It estimates that manufacturing will continue to shrink in California regardless of gas prices because of economic globalization. Global Insight also noted that because California uses gas more than other fuels in the power generation and manufacturing industries, its economy is more sensitive to natural gas price changes than the nation as a whole. Global Insight prepared the study at the request of the California Natural Gas Study Advisory Committee. The panel consists of Southern California Gas, San Diego Gas & Electric, Southern California Edison, Pacific Gas & Electric, and the CEC.

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