Manufacturing Sees Widespread Benefits from Shale Gas Boom

Decreased materials and energy costs due to the low cost of gas may draw manufacturers back to the U.S.
Angela

Wholesale natural gas prices fell 31 percent in 2012, according to the U.S. Energy Information Administration, as improved drilling techniques have enabled the U.S. to capitalize on what the EIA says is the second-largest shale reserve in the world.

Despite a recent slowdown, production increases over the past 10 years have created new opportunities for companies active in the oil and gas industry. Manufacturers touching the industry are also benefiting from increased demand for the chemical, metal, industrial and other products needed to extract and move the product.

But even manufacturers without connections to the industry are benefiting not only from reduced energy costs but also decreased materials costs. Some industries are now using natural gas in lieu of oil-based chemicals to make propane, butane and other ingredients in manufactured products.

According to an article in a recent MIT Technology Review report on the Next Wave in Manufacturing, the $148 billion market for ethylene is seeing the greatest impact. The article's author writes that ethylene is the foundation for many other industries: "It’s used to make bottles, toys, clothes, windows, pipes, carpet, tires and many other products," so gas manufacturers aren't the only potential beneficiaries of reduced materials costs.

According to MIT, decreasing materials and energy costs from cheap natural gas is luring key industries (back) to the U.S. In 2011, natural gas prices in the U.K. were twice those in the U.S., and prices in Japan were nearly four times as high. Largely because of this, it now costs only $300 to make a ton of ethylene in the U.S. according to PricewaterhouseCoopers. It costs $1,717 to manufacture the same amount in Asia, where higher-priced oil is used instead to make it.

MIT reports that these low prices are sparking the construction of new chemical plants; Dow Chemical, for example, plans to spend $4 billion to expand its U.S. production.

Because of its role in bringing manufacturing facilities back to the U.S., the shale gas boom has the potential to bolster the U.S. economy and make the country an innovator and better global competitor, according to Harvard Business School professors Gary Pisano and Willy Shih in Producing Prosperity: Why America Needs a Manufacturing Renaissance. Shih spoke to MDM on the link between domestic production and innovation and manufacturing's importance to the U.S. economy. Access the article Wanted – A U.S. Manufacturing Renaissance for the full interview.

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