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Could Fracking Spur a Manufacturing Renaissance?

Could Fracking Spur a Manufacturing Renaissance?

August 31, 2012

Hydraulic fracturing, or fracking, a technique for extracting gas from shale developed in the 1990s, has led to greatly increased natural gas production over the last 10 years. Fracking utilizes a horizontal drilling technique, along with the flushing of water, sand and chemicals into drilled tunnels, to release gas from previously unreachable shale plays.

Fracking has created new opportunities for companies active in or touching the oil and gas industry in the U.S., a country with the second-largest shale reserves in the world according to the U.S. Energy Information Administration.

According to the EIA and the U.S. Geological Survey, only 3 percent of potential shale gas reserves in the U.S. have been tapped. By 2040, shale gas production in the U.S. is expected to quadruple, accounting for 50 percent of U.S. natural gas production by 2030, according to a report from the James A. Baker III Institute for Public Policy.

Many distributors, like GHX Industrial, have benefited from a surge in U.S. and Canadian oil and gas shale production over the past five years. (Learn more about how GHX and other distributors have capitalized on this growing industry in the MDM article The Ongoing Shale Gas Opportunity.)

Despite a recent slowdown in production due to a drop in prices, shale gas extraction will likely continue to drive growth in manufacturing. For example, some industries are using natural gas in lieu of oil-based chemicals to make propane, butane and other ingredients in manufactured products. As a result, companies are investing billions of dollars to upgrade or build facilities to take advantage of the proximity to natural gas, according to this article from Knowledge@Wharton. That's sure to mean opportunity for distributors.

According a PWC report, Shale Gas: A renaissance in U.S. manufacturing?, continued lower feedstock and energy costs from shale gas could also be a boon to U.S. manufacturers in the following ways:

  • Energy affordability .Lower costs could help manufacturers reduce natural gas expenses by as much as $11.6 billion each year through 2025.
  • Demand growth. In 2011, 17 chemical, metal and industrial manufacturers commented in Securities and Exchange Commissionfilings that shale gas developments drove demand for their products.
  • More jobs. U.S. manufacturing companies could employ approximately 1 million more workers by 2025 due to benefits from affordable energy and demand for products used to extract the gas, according to the report.

While many companies have already increased their natural gas usage, it remains to be seen whether continued shale gas extraction en masse could truly realize these predictions.

Read more about trends in this market in this recent piece from Knowledge@Wharton: The Once and Future Shale Gas Revolution

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