The debate on the likely impact of energy prices on economicgrowth has once again received some limelight recently.  Unlike prior episodes, however, thedivergence between the price of gasoline and the price of natural gas addsadditional wrinkles to the complex determination of the net effect on the US economy.  Broadly, our casual analysis implies that thebulk of the negative imprint from higher gasoline prices, all else equal, mightbe offset by the subdued price of natural gasat this juncture.

In general, a simple breakdown of the different sources ofUS energy consumption (based on BTU) indicates that petroleum products stilldominate natural gas as of 2010.  Interms of overall energy consumption shares (% of total BTU), the former hasfallen to slightly less than 37% in 2010 from just over 40% in 2005, while thelatter has increased to roughly 25% from slightly more than 22% in 2006.  Indeed, the dominance of petroleum productsover natural gas has dwindled almost to the slimmest level on record (since1949, the narrowest difference between petroleum products and natural gasshares was 11.4%-point).

The foregoing shift in energy consumption shares in recentyears implies that the likely impact of natural gas prices on the macroeconomy, while generally less than the effect of gasoline prices at thisjuncture, 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 fromhigher 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 economydue to the dissimilar change in energy prices, all else equal, might bemarginal at this time, perhaps shaving off a tenth of one percent from GDPgrowth at most.