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Natural Gas Boom Means U.S. Manufacturing Prospers
“This natural gas revolution is driving economic growth across the country, lowering energy prices, and creating jobs,” said Dept. of Energy secretary, Ernest Moniz, in a press release.
Photo courtesy ThinkStock.
The inexpensive and plentiful supply of natural gas here in the United States is translating to cost savings and long-term employment gains in U.S. manufacturing.
According to a recent PriceWaterhouseCoopers (PwC) report, “Shale Gas: Still a boon to US manufacturing?” PwC estimates that the continued “shale effect” on U.S. manufacturing could bring an annual cost savings of $22.3 billion by 2030, assuming a high natural gas recovery and low price scenario. In terms of job creation, PwC estimates that continued shale gas activity will create 930,000 shale gas driven manufacturing jobs by 2030 and 1.41 million by 2040.
“There’s no doubt that the shale gas boom in the U.S. helped trigger a resurgence in manufacturing,” said Robert McCutcheon, U.S. industrial products leader at PwC, in a press release. “Reducing costs, creating jobs, and supporting investments and innovations are among the many impacts this game-changing resource has brought to the U.S. manufacturing space. Assuming shale continues to serve as a catalyst for the manufacturing sector, we revised our cost savings and longer term employment estimates significantly upward, and could see those numbers go even higher as more businesses and global interests look to exploit shale opportunities.”
Among the industries continuing to benefit are energy intensive manufacturing sectors such as metals, chemicals, and petrochemicals, which all use natural gas as feedstock. According to the report, growing prospects for building pipelines for the infrastructure that’s needed to support natural gas demands in the U.S. could also bring additional benefits to U.S. manufacturers who support those build-outs.
The survey also uncovered a continued rise in the number of companies commenting to the investment community on how shale gas activity affects their business. In 2013, 40 U.S. manufacturing companies included shale gas impacts in their public filings, up from 29 in 2011. “More companies are publicly disclosing a link between natural gas production as a material advantage for their business and a source for growth in demand for their products,” McCutcheon said in the release.
The impact of the resulting drop in natural gas prices has reverberated with great benefit to factories across America, said Drew Greenblatt, owner of Baltimore-based Marlin Steel Wire Products LLC, which specializes in the creation of custom metal forms.
“Global clients are looking at where is the cheapest place to make things. And if our costs are lower than everybody else with the natural gas, then that makes it beneficial to move a facility to America rather than running the factory overseas,” Greenblatt said in a recent phone interview.
Cheap natural gas means American manufacturers are able to produce more for less, which will create well-paying jobs, he said. Marlin Steel has benefited from the recent natural gas boon through lower costs and increased business prospects. The price Greenblatt is paying for natural gas to heat his plant is down 50 percent from the peak a few years ago. The energy boost, he said, is contributing to his company’s cost savings on purchases of steel from Indiana and Pennsylvania.
The White House’s “Economic Report of the President,” released in February, showed that domestic production of natural gas is creating jobs, driving down the U.S. trade deficit, improving the GDP, and reducing greenhouse gas emissions.
“This natural gas revolution is driving economic growth across the country, lowering energy prices, and creating jobs,” said Department of Energy Secretary, Ernest Moniz, in a press release.
Highlights of the White House’s Economic Report
- Driving U.S. GDP & Job Growth: The U.S. energy revolution has contributed to economic growth, both in terms of net economic output as measured by GDP and overall employment.
- Shale Driving Down U.S. Trade Deficit: One ongoing trade trend that accelerated in late 2014 is the continuing decline in U.S. energy imports. A major part of the decline is due to an expansion in U.S. production of unconventional oil and natural gas.
- Cutting Greenhouse Gas Emissions: The energy revolution lays the groundwork for reducing domestic greenhouse gas emissions. From 2005 through 2012, the United States cut its total carbon dioxide (CO2) pollution by 12 percent, partly reflecting a domestic shift toward cleaner natural gas.
- Reversing Energy Production Declines: Recent changes in the energy sector, and their consequences for economic growth and combating climate change, have been remarkable. Breakthroughs in unconventional oil and natural gas extraction technology have reversed the decades-long decline in their production.
- Natural Gas Cuts CO2 Emissions: Natural gas is already playing a central role in the transition to a clean energy future. Nearly one-half of the CO2 emissions reductions from 2005 through 2013 stem from fuel switching, primarily switching to the use of natural gas, wind, and solar for the purpose of generating electricity.
- Cheap Shale Gas Creates “Widespread Benefits”: Since 2006, natural gas prices have fallen well below crude oil prices on an energy-equivalent basis, providing a cheaper source of energy to consumers and businesses in the United States. This price decrease has created widespread benefits and opportunities for the U.S. economy.
- Boosts America’s Global Standing: Lower natural gas prices around the world have a positive geopolitical impact for the United States. Increased U.S. supply builds liquidity in the global natural gas market and reduces European dependence on the current primary suppliers, Russia and Iran.
Source: The White House’s “Economic Report of the President,” February 2015
Cheap Natural Gas Fuels GDP
The economic impact of U.S. shale ranges from about $500 to $700 billion annually, and it has contributed 3.5 percent to the U.S. gross domestic product (GDP), according to economists.
Natural gas resources in the U.S. may provide a 100 to 150-year supply of natural gas in the country if it can be converted to reserves, said energy macroeconomics professor at Texas Christian University, Thomas Bates, in a press release highlighting a recent BoyarMiller Energy Forum.
“So all of this gas is available to us at a cost that is 75 percent below the price of imported crude oil,” he said in the release. “In 2035, gas and electricity in the U.S. will cost half of what they cost in Europe or Asia. There is a long-term, structural competitive advantage that accrues to our economy because of natural gas.”
Hydraulic fracturing saved the U.S. industrial sector, said David Pursell, managing director of Tudor, Pickering, Holt & Co., during the BoyarMiller Energy Forum. “Without fracturing, we would not have the natural gas that benefits a number of industries. Remember that cheap natural gas makes electricity prices low and that electricity powers so many industries, like steel, paper, and manufacturing.”
About $136 billion is projected to be invested in refineries to process natural gas during the next ten years, resulting in hundreds of thousands of workers building the refineries and then about 50,000 workers hired to run them, according to the Reshoring Initiative’s Harry Moser.
“You can call that reshoring because it’s happening because the U.S. is so competitive in natural gas, and if it hadn’t been for us being so competitive, the jobs would have gone to the Middle East and other places where natural gas is cheap,’ Moser said in a phone interview.
There are some industries, like steel mills and foundries, where natural gas is a huge percentage of their manufacturing costs because there is so much processed heat,” Moser explained. “In those cases, natural gas has saved them a ton of money and so, therefore, I’m sure they’re more price competitive and cost competitive, and therefore they reshore some work.”
Moser added that lower natural gas prices likely help to encourage companies to set up factories in the U.S. “It’s a clear plus on everybody’s analysis on where to put a factory.
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