Economists: The Shale Gas Revolution is Revitalizing America’s Manufacturing Economy

At a summit hosted by the Federal Reserve Bank of Cleveland this week, leading economists discussed the future of the manufacturing economy in the United States, including the indicators that are required to sustain growth for years to come. At the top of the list? Energy, specifically, the emergence of clean, cheap and abundant supplies of natural gas from shale formations and the impact this new-found bounty of energy will have on revitalizing our economy.

Robert McCutcheon, an economist with MSC member company PwC, explained the situation this way: “By 2025, the manufacturing sector alone could save $11.5 billion in energy costs” as a result of natural gas development form shale formations. That’s $11.5 billion, with a “B,” that companies can then reinvest elsewhere in the economy – creating more jobs and more economic opportunity, all as a result of responsible energy development.

In addition, Cleveland Federal Reserve President Sandra Pianalto was also bullish on manufacturing growth thanks to lower energy costs. As highlighted by the Cleveland Plain Dealer:

“Pianalto said one steel producer told her recently that energy costs in North America are one-third the cost of European steel plants. Those costs, coupled with weak demand, has ArcelorMittal expanding in Ohio while it cuts production in Europe. Several other steel plants in the region have also increased production to sell pipeline tubes and other parts to oil and gas companies.”

There’s no shortage of positive stories when it comes to the steel industry and natural gas development. Companies are expanding and opening new facilities to meet the natural gas industry’s demand for their product while investing hundreds of millions of dollars and creating a significant number of jobs in the process. These investments would have been unheard of just a few short years ago, but thanks to technological advancements and American ingenuity, they’re happening across the nation and in a relatively short period of time.

The chemical manufacturing sector is also reaping tremendous benefits from natural gas production. Like the steel industry, this sector is expanding plants, relocating facilities back to the United States, and even considering building new facilities to take advantage of this abundant energy resource.

And to top it all off, this energy and manufacturing renaissance is just beginning. As described in the Plain Dealer today by Marianne Kah, chief economist for ConocoPhillips, the shale gas revolution is the “most significant change in the energy industry since the 1940s” with more good news to come as companies scale development and develop new technologies and find new efficiencies. According to that story:

“Kah said over the past five years, energy companies have learned that most of their early predictions on shale gas were wrong. The companies knew that there were huge reserves of oil and gas trapped within hard rocks that needed to be hydraulically fractured to release that energy, but they vastly overestimated the costs of doing that.

“Production in Texas and Pennsylvania has produced far more gas, far more cheaply than the industry expected, and gas prices are now near historic lows. Low gas costs have drawn huge interest from chemical companies that convert natural gas into plastics and other materials.

“‘And these are the very early days. We’re likely to learn a lot more about how to optimize this process’ and lower production costs in the future, she added.

From a competitive standpoint, she said shale is already making the United States a more attractive place to do business. Natural gas prices are lower here than in China, Germany or Great Britain.

And it’s not just the manufacturing sector that’s benefiting. Every consumer and user of energy and electricity is realizing a savings as a result of domestic natural gas production. Again, according to the Plain Dealer:

 “William Strauss, senior economist for the Federal Reserve Bank of Chicago, said the boom has meant U.S. electricity prices are the lowest of any industrial nation in the world. Those low energy prices could help the country lure back work sent to Asia over the years where low-cost labor has been the draw. Strauss said labor is still cheaper overseas, but the total production costs can be higher after figuring in energy and the cost to ship goods across the Pacific Ocean.”

The full Plain Dealer story is certainly worth a read.