The U.S. onshore natural gas industry is helping to fuel recent gains in domestic manufacturing, the White House said in a report Wednesday.
In “Investing in America,” the Obama administration acknowledged that U.S. manufacturing had improved its cost competitiveness compared to other countries, in part because of domestic gas production.
“The surge in domestic natural gas production can lower energy costs, reduce pollution and drive investment in the industries that supply equipment to the natural gas sector and those that use natural gas as an input to production, like the chemical industry,” the report noted. It cited recent data compiled by the Energy Information Administration, which indicated that between 2006 and the end of 2011, gas extraction had increased by more than 24%.
In the 16-page report, the authors noted that only a few years ago “fears of a looming natural gas shortage led to significant investments” to rapidly construct liquefied natural gas import facilities to ensure there would be enough domestic supply.
However, the discovery of new gas reserves from basins including the “Marcellus Shale, and the development of hydraulic fracturing techniques to extract natural gas from these reserves has led to rapidly growing domestic production and relatively low domestic prices for households and downstream industrial users.”
The White House noted that “appropriate care” would have to be undertaken to ensure the resources were extracted safely and in an environmentally responsible manner. “Provided these precautions are taken, the potential benefits to the U.S. economy are substantial.”
Said the report, “Of the major fossil fuels, natural gas is the cleanest and least carbon-intensive for electric power generation. By keeping domestic energy costs relatively low, this resource also supports energy-intensive manufacturing in the United States.
“In fact, companies like Dow Chemical and Westlake Chemical have announced intentions to make major investments in new facilities over the next several years. In addition, firms that provide equipment for shale gas production have announced major investments in the U.S., including Vallourec’s $650 million plant for steel pipes in Ohio” (see Shale Daily, Jan. 12).
The correlation between changes in Lower 48 natural gas production and changes in the number of manufacturing jobs has been growing steadily over the last ten years. From 2001 to the third quarter of 2011, changes in Lower 48 gas production explained 51.3% of the movement in U.S. manufacturing jobs, according to Bureau of Labor Statistics data and NGI’s Shale Daily calculations. That correlation has jumped to 73.5% since the third quarter of 2005, which is when Lower 48 gas production began showing positive sequential quarterly growth. The relationship has been even stronger more recently, posting a robust 84.5% correlation since manufacturing job growth turned positive in the first quarter of 2010.
An abundant local supply of gas translates “into relatively low costs for the industries that use natural gas as an input,” said the authors. “Expansion in these industries, including industrial chemicals and fertilizers, will boost investment and exports in the coming years, generating new jobs. In the longer run, the scale of America’s natural gas endowment appears to be sufficiently large that exports of natural gas to other major markets could be economically viable.”
The White House report sees overall costs in the United States improving with productivity growth.
“U.S. manufacturing productivity — which has always been strong — continues to improve, rising nearly 13% since the first quarter of 2009.” With labor costs increasing in other countries, the relative lower cost in the U.S. has led industry to bring home some functions which had been outsourced to other countries.
The report also noted that the manufacturing sector has recovered faster than the rest of the U.S. economy, adding 334,000 jobs over the last two years, and said “a new, promising trend of ‘insourcing’ is beginning to take shape. While ‘insourcing’ is often used to describe a company bringing activities back in-house, we use the term to refer to bringing activities and jobs back to the U.S. or choosing to invest in the U.S. instead of overseas.”
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