New Natural Gas Technologies Firing Up Manufacturing
The natural gas boom is a "game-changer" sparking a "manufacturing renaissance."
Steve Stackhouse-Kaelble (Fall 2012)
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A fracking rig and operation stands among forests and fields in Bradford County, Pa.
The natural gas boom is certainly reflected in Area Development's 2012 Leading Locations analysis. Many of the U.S. locations revealed by data sources to be the most prosperous are feeling the impact of fracking - from North Dakota to Texas to parts of Louisiana. Indeed, the impact has been so powerful that many of these areas barely experienced the recession and, if anything, had a surplus of job openings. As David Jenkins, vice president at engineering consultant TRC Companies, points out, there's so much demand for workers that some sites have had to build worker "camps."
The question is how far does the halo expand beyond those areas where the gas is being extracted from the ground? "It depends on the nature of the industry and how important it is to have close proximity to gas," McCutcheon says. "One of the challenges is infrastructure and the ability to transport and store the gas."
Crackers, for example, tend to be in close proximity to the source. And as David Moss of Texas-based Armada Oil observes, end-users may tap right into their producers to trim overhead costs. "Locating manufacturing facilities near the producers is smart if you negotiate direct delivery from them and have or build a pipeline for delivery," he says.
On the other hand, the boom has pushed natural gas prices down across North America, so as McCutcheon points out, "the broader effect is not necessarily going to be as geographically specific." It's no surprise, then, that chemical and plastics developments on the American Chemistry Council's project list can be found all over the North American map, not just in the neighborhood of the shale reserves.
But here's where the story gets particularly positive for the U.S. economy compared with global competitors. "The market is still very inefficient," McCutcheon says, "and that inefficiency in the market creates a competitive advantage in the United States." Three cheers for inefficiency? In this case, yes. A more efficient natural gas market would allow more global pricing, as is the case with oil. But, "natural gas is still essentially regionally priced, so an abundance of natural gas in North America will benefit prices in North America," says McCutcheon.
The price advantage is significant. Natural gas may cost five times as much in some other parts of the world, even six or seven times higher in other places. That erases or at least mitigates a lot of the competitive advantages that have driven manufacturing overseas in recent years.
The swing of the pendulum is quite noticeable when one looks into the nation's liquefied natural gas (LNG) terminals. As the PwC report points out, companies in the past have built LNG import facilities in America, under the assumption that domestic natural gas supplies would be limited. Now that they seem practically unlimited "that trend has reversed, and there is more interest in conversion to LNG export terminals," the report states.
How long will the U.S. advantage last? And aren't there opportunities to frack in other countries? "There are certainly significant shale gas reserves outside the United States, but currently the U.S. has the strategic advantage in technology and the ability to extract the gas," McCutcheon says, adding that he expects the American advantage to last for some time.
And that's why the natural gas boom is potentially amazing news in a lot more sectors than just oil and gas development. "This is a big part of a bigger story," McCutcheon says. "It is a major contributing factor to a competitive environment that could lead to a resurgence of manufacturing."