Thursday, December 15, 2011

Cheap Abundant Shale Gas Could Help Spark a U.S. Manufacturing Renaissance, and Create 1m Jobs

PricewaterhouseCoopers -- "The abundance of shale gas resources may spark a U.S. manufacturing renaissance with economic benefits that include cost savings, greater investments to expand U.S. manufacturing facilities and increased levels of employment, according to a new report released today by PwC titled, “Shale Gas: A renaissance in US manufacturing?” To achieve these results, however, PwC says that manufacturers must help manage the environmental, regulatory and tax concerns created by shale gas resources.

“An underappreciated part of the shale gas story is the substantial cost benefits that could become available to manufacturers based upon estimates of future natural gas prices as more shale gas is recovered,” said Bob McCutcheon, U.S. industrial products leader, PwC. He continued, “In fact, the number of U.S. chemicals, metals and industrial manufacturing companies that disclosed shale gas potential and its impact so far in 2011 easily surpassed that of the last three years combined, indicating this is of growing importance in the outlook of U.S. manufacturers. The significant uptick in shale gas commentary among the manufacturing community reflects the positive influence that shale gas is having from investment, operational and demand standpoints.”

“Lower natural gas prices resulting from incremental shale gas production have the potential to add over one million manufacturing jobs in the U.S. by 2025. The expectation of the new shale gas resource providing a significant long-term boost to move the U.S. manufacturing employment needle shines a light across the nation amid the current labor market woes,” added McCutcheon."

MP: The chart above displays the monthly inflation-adjusted price of natural gas back to 1997, and shows that the real spot price of gas is currently selling at close to a ten-year low, and is 70-80% below the peaks in 2001, 2006 and 2009.  Additionally, gas prices over the last two years have been more stable than any two-year period since the late 1990s; so gas prices are not only close to historic lows adjusted for inflation, but are more stable than in more than a decade.  It's the fact that gas prices are now both low and stable that makes it such an attractive source of energy for American manufacturers.  

This is more evidence that the shale revolution in America is creating: a) thousands of direct jobs in the exploration, drilling, processing and delivery of natural gas, b) thousands of indirect jobs in the supply chain for drilling and exploration (fracking sand, pipes, drilling equipment, etc.), c) thousands of indirect jobs in other support industries (housing, retail, education, transportation, etc.), and d) and now maybe a million indirect manufacturing jobs as a result of lower energy costs.  

Drill, drill, drill.... you know the drill..... 

10 Comments:

At 12/15/2011 10:33 PM, Blogger Benjamin said...

Inflation! Oh no, inflation!!!!

Actually, not. Commodities follow global trends, and the US monetary policy no longer calls the tune for the entire planet.

So we see natural gas going down, and bubelah, it is going to stay down. Man will get better and better drilling for shale, and shale is global.

We may actually see fossil fuel gluts in five to 10 years. (Apologies--there are no gluts or shortages, only supply, demand and price. But I am using layman's lexicon).

 
At 12/16/2011 1:16 AM, Blogger truth or consequences said...

yep Benjamin, that prediction: "We may actually see fossil fuel gluts in five to 10 years" is one that's been nagging at me for a while now.

The Alberta oil sands need about 65-70 dollars a barrel to break even. Given the billions that are currently being invested in that giant construction boom up there (to double production in the next 5-8 years)....if oil drops to close to that it will be a major shock to the Canadian economy as a whole...not to mention lost tax/royalty revenue.

Another Alberta boom going bust? It has happened before...a few times even. Scary stuff but very much imagineable.

I think in another year it will be time to lighten up on focused oil sands producers...just in case. Exxon, Chevron and the like may just put their plants on care and maintenance for a few years and carry on....but the focused guys will get killed in that scenario.

 
At 12/16/2011 5:22 AM, Blogger rjs said...

iran just found the world's largest gas field just offshore in the caspian; maybe theyll have the renaissance first...

 
At 12/16/2011 11:29 AM, Blogger VangelV said...

It's the fact that gas prices are now both low and stable that makes it such an attractive source of energy for American manufacturers.

But low prices makes gas production unattractive to producers. You can't have sustainable supply by having producers chewing through capital.

 
At 12/16/2011 11:34 AM, Blogger VangelV said...

The Alberta oil sands need about 65-70 dollars a barrel to break even. Given the billions that are currently being invested in that giant construction boom up there (to double production in the next 5-8 years)....if oil drops to close to that it will be a major shock to the Canadian economy as a whole...not to mention lost tax/royalty revenue.

The Alberta increase is tiny. The global depletion rate is running at around 6%. Shale wells, which cost around $5 million a pop only produce around 90 bpd after two years. Do the math.

 
At 1/12/2012 6:16 PM, Blogger Robert said...

So, with the lowest prices for nat gas in a generation, when do we see our utility bills drop?

 
At 1/12/2012 6:16 PM, Blogger Robert said...

So, with the lowest prices for nat gas in a generation, when do we see our utility bills drop?

 
At 1/14/2012 12:04 PM, Blogger VangelV said...

So, with the lowest prices for nat gas in a generation, when do we see our utility bills drop?

The utilities have to subsidize alternatives and write down coal and nuclear assets. It is hard to lower costs when you have to pay for more expensive energy from uneconomic sources that are not as subsidized by shareholders and lenders as the shale gas producers.

 
At 1/14/2012 5:24 PM, Blogger Mark J. Perry said...

Consumers in many parts of the country are seeing lower natural gas prices, see CD post here.

 
At 1/15/2012 9:08 AM, Blogger VangelV said...

Consumers in many parts of the country are seeing lower natural gas prices, see CD post here.

Their costs for gas can come down. But what they pay for electricity, which is being generated by using natural gas, is unlikely to come down thanks to the mandates that utilities purchase higher priced power from 'alternative' sources.

 

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