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DISMUKES: Thank Natural Gas For What Growth There Is In Manufacturing

DISMUKES: Thank Natural Gas For What Growth There Is In Manufacturing
January 17
09:26 2013

Over the past several years, the U.S. has seen considerable unconventional natural gas resource development that is nothing short of revolutionary.

Unconventional natural gas has played, and will continue to play, a significant role in North American and even global energy markets. While some federal and state policy makers are starting to recognize the considerable economic benefits created by “upstream” unconventional drilling and production activities, few recognize the impact that affordable, stable, and abundant natural gas supplies are having on recent “downstream” manufacturing investment announcements throughout the country.

In Louisiana alone, over $60 billion in new manufacturing investments have been announced over the past 24 months: the justification of which are all tied to abundant U.S. unconventional natural gas supplies. These are not “flash in the pan” investment announcements since many, amounting to several billion, are already underway and many more are likely to commence construction, and reach commercial operation, within the next two to seven years. These natural gas-supported investments have the ability, in a very short amount of time, to erase almost three decades worth of national frustration with the “offshoring” of manufacturing jobs that previously served as the economic backbone supporting the modern American economy and middle class.

Where are these new manufacturing investments likely to be found? Clearly the early and most visible opportunities are emerging in those industries with large and sophisticated energy uses like chemical and petrochemical manufacturing, steel and automotive manufacturing, and ammonia and fertilizer production. These industries employ natural gas in a variety of processes that include the on-site production of heat, steam, and power generation: these industries also use natural gas as a primary feedstock to make other intermediate inputs and final goods.

Industries with intensive natural gas feedstock use are the ones most impacted by new unconventional natural gas supplies since these industries use natural gas much like a baker uses a basic “feedstock,” flour, to produce a variety of outputs like cookies, pies, baguettes and beignets. Modern chemical manufacturing “reforms” natural gas in technologically-innovative ways to make chemicals used in food additives, pharmaceuticals, lubricants, paints, tires, toys, carpets, and adhesives, to name a few. Thus, the availability of stable and abundant natural gas supplies is not a concern limited to industries’ “energy costs” alone, but one that cuts to the core of their overall cost structure defining what they make —and more importantly, where they make —a variety of products and goods sold across increasingly competitive global markets.

What makes this turn of events even more impressive is the fact that just a few short years ago, most policy makers, as well as many in these industries themselves, were writing off U.S. manufacturing growth opportunities as a thing of the past. As recently as the last decade, most U.S. ammonia and methanol facilities had moved abroad and away from their last regional production stronghold: the U.S. Gulf Coast. Today, there are billions of dollars in new ammonia and methanol facility announcements that are not just being sited on the Gulf Coast, but are, in many instances, facilities being explicitly moved from other parts of the world back to the U.S.

Equally exciting is the fact that many of these announcements are not limited to plant expansions, or a return of industries from a bygone era, but represent entirely
new industries and manufacturing opportunities. The use of natural gas as a transportation fuel potentially leverages opportunities for automotive manufacturing in the types of vehicles that, to date, have been largely restricted to Europe and other countries. More fascinating are the recent announcements by companies like Sasol and Shell, exploring opportunities to develop multi-billion dollar chemical plants that will convert clean-burning natural gas into other clean-burning liquid fuels like low-emissions diesel, heating oil, and jet fuel.

As we grapple with finding ways to move an otherwise challenging economic recovery forward, policy makers need to recognize that the economic benefits associated with unconventional natural gas development are not limited to just upstream drilling and production jobs. Unconventional natural gas is also leading to a manufacturing investment renaissance not seen since the decades of the 1950s and 1960s. Upstream policy and regulatory stability will be critical determinants in maximizing the probabilities that all of these downstream manufacturing investments materialize.

David E. Dismukes is a Professor and Director of Policy Analysis at LSU’s Center for Energy Studies. Dr. Dismukes’ research interests are related to the analysis of economic, statistical and public policy issues in energy and regulated industries. This piece originally appeared at The Hill.

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2 Comments

  1. Kermit Hoffpauir
    Kermit Hoffpauir January 17, 15:35

    It's not just that it's natural gas, but much of the gas coming from some unconventional wells is "Wet" meaning that it contains NGL's which is great feedstock. Additionally, the conversion process to basic petrochemicals (include those used to make plastics) utilize natural gas as fuel for their reforming furnaces which are quite large (the size of a hospital building). Copious amounts of available gas (after NGL's are extracted) at a low price is key to the economic viability of such manufacturing.

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