By John Graves The nation is witnessing a revolution. Neither political nor social, this revolution is in energy production. George Mitchell completed the hard field work by 1998: fracing, horizontal drilling, and advanced seismic reporting. As a result, US shale gas production has increased twelvefold in the past decade. Thousands of new wells are extracting massive quantities of unconventional shale gas and oil from the deep rock of Texas, North Dakota, Pennsylvania, Oklahoma, Arkansas, and Louisiana. Oil and gas flow through new pipelines that are just beginning to link many of the nation’s newest wells to their end users. Utility firms in the US use, or are quickly converting to, the burning of natural gas in their new combined cycle turbines. Petrochemical plants are converting to natural gas liquids from petroleum for agricultural and industrial feedstock applications. US oil imports from outside North America have plummeted 40%, reducing our dependence on foreign oil and reducing the massive capital flows to sickening regimes. The impact of this energy revolution on the economy is just beginning. Consumer prices for retail energy are dropping. Oil prices are stable since 2007, while oil imports have declined. Gas prices are declining at the pump during a summer of drought and hurricane. These declines can be attributed to three causes: The Great Recession, CAFÉ (Corporate America Fuel Economy) standards and auto stock replenishment, and shale gas and oil. The first is, hopefully, a short duration effect. Demand typically increases as an economy recovers. This increase is less than robust at the industrial, manufacturing, or consumer levels. Companies have massive amounts of cash on hand as they wait to determine demand for products and services. Nearly $1.8 trillion sit on the sidelines at the corporate level nationally. Lending is stalled despite historically low capital borrowing costs as a direct result of this massive cash on balance sheets. Firms continue to strengthen financial balance sheets by paying off debt or replacing higher cost debt with new, lower premium paper – often of higher quality. Consumers remain tight with their money, either paying down short term debt or increasing savings. The consumer unsecured debt pile has shrunk dramatically since 2008 – by more than 20%, according to the Federal Reserve’s Flows Report. Consumer credit card debt has fallen each year since 2008, in line with corporate debt reduction. Spending has barely kept pace with the recovery under way. We are far more cautious about dining out, making that major purchase of a boat, second car (or home), or vacation. We have increased our contributions to our 401k and 403-b retirement plans at work, paid down debt, and increased savings. These actions do not contribute to an increase in demand for energy generation or use. The CAFE standards for vehicles are undergoing a rapid transformation. At the same time, the national fleet is constantly replacing itself. Natural attrition, vehicular exchanges, and the federal Cash for Clunkers program have each contributed to newer cars in many garages. These cars use less fuel: they are more fuel efficient, they weigh less and their electronics are designed for better mileage. At the time of this writing, September 2012, gasoline prices have declined by more than 12%. This rarely happens during the summer driving season. Quite simply, the demand for auto, truck, and airplane fuel has dropped. We are unsure of the future. We are spending less and driving less. Sixteen percent of us are unemployed. If we have a job, we look over our shoulder each day. Seventy-four million of us will leave the workforce over the next 16 years. Retirees tend to use less gasoline and electricity as we progress through our golden years. Shale gas now provides the nation with more than 32% of its power generation needs. As sourcing from coal plummets, natural gas has taken up the slack. The decline in coal, a direct result of federal intervention, has occurred despite price declines for the abundant US resource. The EPA has essentially outlawed its use for power generation. Irrespective of your opinion on this political decision, the effect has been hugely positive for natural gas and the fracing industry. Natural gas – methane – is now producing more electrical power than coal in the national power grid. A resource that we were planning to import just five years ago is now powering our homes, heating our buildings, and cooking our summer BBQs. As an added benefit, shale gas burns far more cleanly than coal in terms of GGEs, greenhouse gas emissions. The 40% reduction is GGEs has shown up in a recent report from the Energy Information Administration (EIA). On May 25, the EIA announced the US had reduced its GGEs by an astounding 500 million tons between 2007 and 2012. At this rate, by the end of the year the nation will have exceeded the Kyoto Protocols for America – without ever having accepted the treaty. The invisible hand of the marketplace works far better than central planning edicts. Say what you will about alternative fuels, they have tripled their power generation – to 4.6% of national demand. Wind and solar, intermittent sources at best, are entirely dependent upon (coal and) gas-fired utility plants for backup generation. Florida Power and Light recently unveiled its star attraction: a 75 megawatt combined cycle plant. It is a solar facility tied to a natural gas plant for subsidiarity. FPL prides itself on their clean energy function, with 63% of the generation from gas, 20% from nuclear, and .06% from solar. Oil has disappeared from the radar as a source of electricity, with about 1% nationwide. Coal is in more rapid decline than anyone had suspected possible, down to 32% in 2012 and dropping. Natural gas has become the 800-pound gorilla in the energy room. It is growing larger each day – and is an asset to the nation. The bulk of this is shale gas, the unconventional gas resource. Its application expands as you read. Despite local temper tantrums, it is moving the country toward energy independence goals, potentially low inflation, and lowered GGE goals. Not bad for a five year old! John Graves is the author of The 7% Solution: You Can Afford A Comfortable Retirement and editor of The Retirement Journal. His next book Fracing: America’s Alternative Energy Source will be released in early 2013.