Monday, March 26, 2012

Cheap Nat Gas Brings Manufacturing Back to U.S.

U.S. has cheapest nat. gas in the world, making us a low-cost location for energy-intensive manufacturing.

From the WSJ article "Steel Finds Sweet Spot in the Shale":

"Low natural-gas prices represent a competitive advantage across the U.S. manufacturing base. The price of natural gas is $11.35 per million BTUs in northwest Europe and $15.9 in Japan, according to researcher Platts, compared with U.S. levels of $2.27 (see chart above).

"Companies that had left the U.S. in sectors like chemicals and fertilizers are talking about coming back to take advantage of the low cost of gas," said Don Norman, an economist for the Manufacturers Alliance for Productivity and Innovation.

In January, Methanex Corp. of Vancouver said it would relocate a plant to manufacture methanol, used in making plastics and other materials, to Louisiana from Chile. At the time, Bruce Aitken, the company's chief executive, cited "the outlook for low North American natural-gas prices" as key reason for the move.  And low natural-gas costs were a factor in the decision by Brazil's Santana Textiles LLC to build a $180 million denim plant now under construction in Edinburg, Texas, rather than Mexico."

MP: Drill, drill, drill = manufacturing, manufacturing, manufacturing = jobs, jobs, jobs.

Note: The data in the chart above for international natural gas futures prices are from the chart in the WSJ article, original source is Platts.  U.S. gas prices are 80% lower than Europe and 85% cheaper than Japan. 

HT: Robert J. Kuehl

30 Comments:

At 3/26/2012 11:01 PM, Blogger Unknown said...

Hey Mark, if you're really interested in this topic I'd recommend keeping tabs on this thread in the Urban Ohio forum. One of the guys there ("KJP") has a job to track all the activity going on there so his employer can anticipate future demand.
Marcellus/Utica nat-gas and fracking

A couple comments to give one an idea of the scope of things being planned there:
KJP sez
"I'm doing some work for the Western Reserve Port Authority, recommending some small-scale rail projects for them. So that means gathering information on all the new and pending nat-gas and other projects that could generate new rail traffic. The information coming in from railroads, shippers, commercial realtors, chambers and others is mind blowing. This region is going to be totally different in the next 3-6 years, and the rail traffic growth is going to be more long-term than in the Marcellus region because the gas is dry and can be moved by pipeline. Utica's gas is wet and its separated products have to be moved by vehicles. Considering the volumes involved, this means a lot of rail activity. It also means you may see long-abandoned rail lines reactivated like what is already happening in Pennsylvania but on a potentially larger scale. In fact, a former W&LE rail line south of Cadiz is already being reactivated to serve an industrial park where a $900 million nat-gas processing plant will be built."

KJP sez earlier
"Full Disclosure, Part II: I'm also doing some work for this industry, researching areas in which I have expertise (I'm sure you can guess what track I'm on). There's stuff coming soon that many may not believe -- collector/distributor pipelines, transmission pipelines, transload facilities, rail lines, water treatment plants, cracker plants, plastics plants, refineries, etc. etc. This is going to be a 10-year spurt of growth activity before it settles into distribution, maintenance, servicing and operations-type activities. That part may last for decades, depending on the price of gas, consumption rates, and public policies addressing the energy industry."

If you browse through the thread you'll notice that companies are plucking down billions of dollars on various projects like it was nothing.

 
At 3/26/2012 11:02 PM, Blogger PeakTrader said...

Natural gas is the second largest U.S. energy source:

U.S. Energy Consumption by Source - 2009

Petroleum 37%
Natural Gas 25%
Coal 21%
Nuclear Electric Power 9%
Renewable Energy 8%

(Renewable Energy: Hydropower - 35%, Wood - 24%, Biofuels - 20%, Wind - 9%, Biomass Waste - 6%, Geothermal - 5%, Solar - 1%)

******

China Energy Consumption by Source - 2006:

Coal 70%
Petroleum 20%
Hydroelectric 6%
Natural Gas 3%
Nuclear 1%
Other Renewables 0.5%

 
At 3/27/2012 5:16 AM, Blogger Ian Random said...

Need a Benji quote here. Something like that doesn't include external costs of pollution or is it the 3E6 employees of the DOD???

I think it is great that manufacturing is coming back here and there. This will probably swell the heads of local governments who think that downtime redevelopment and densifying the urban core did it.

 
At 3/27/2012 5:16 AM, Blogger seekingtraceevidence said...

Over the next 5yrs we should expect shale oil and gas to be discovered across the globe now that the technology has been tested and proven in the US. This will prove to be the implementation of technology at its best.

 
At 3/27/2012 5:50 AM, Blogger Larry G said...

If you are an investor - looking at 10, 20, 30 years of money in manufacturing.....

how confident should you be that Nat Gas will be an available low cost fuel that will give your plant a competitive advantage over foreign plants?

I would think the kind of manufacturing that would be most suited would be the kind that does not require heavy investments in equipment and machinery.

I would also think that ANY plant that requires large amounts of fuel to produce would be vulnerable in general to longer term trends.

 
At 3/27/2012 7:06 AM, Blogger VangelV said...

how confident should you be that Nat Gas will be an available low cost fuel that will give your plant a competitive advantage over foreign plants?

Unless you are a clueless idiot or a naive optimist like Mark you could not be confident at all. After all, the 'cheap' gas is killing off the very shale producers that are supposed to supply it in the future. If you actually look at the numbers rather than drown in the sea of hype that people like Mark are pushing you will find that shale players cannot finance their own activities out of their operations. That means that shale gas producers are destroying capital, not creating wealth. And that means that shale gas investment is a huge bubble that so-called experts like Mark failed to see coming.

 
At 3/27/2012 8:03 AM, Blogger Hydra said...

So it is not government regulation and the unions that drove manufacturing away?

 
At 3/27/2012 8:11 AM, Blogger juandos said...

Hmmm, good news maybe...

There might be a fly in the ointment though...

If the WaPo has its facts straight the commie clown might throw a turd in the punch bowl...

EPA to impose first greenhouse gas limits on power plants

(skip)

President Obama does not mention coal as a key component of the nation’s energy supply in speeches about his commitment to exploiting oil and gas reserves and renewable sources.

The proposal does not cover existing plants, although utility companies have announced that they plan to shut down more than 300 boilers, representing more than 42 gigawatts of electricity generation — nearly 13 percent of the nation’s coal-fired electricity — rather than upgrade them with pollution-control technology.

Michael Brune, executive director of the Sierra Club, said the new rule “captures the end of an era” during which coal provided most of the nation’s electricity. It currently generates about 40 percent of U.S. electricity...

Nice, eh?

Let's not forget there are still loons out there trying to stop the fracking...

 
At 3/27/2012 8:15 AM, Blogger Hydra said...

"This will probably swell the heads of local governments who think that downtime redevelopment and densifying the urban core did it."

I am surprised there is less discussion of this topic.

It seems to me that this is THE premier example of social engineering AND it is based on numerous false or at least dubious premises. It is a massive wealth transfer and it enhances the prospects for the least effective and most expensive government entities.

It is partially based on the false promises of saving energy and reducing congestion. It is turning the countryside into tax protected enclaves for the wealthy, who are making much of their money off the densification projects.

Since the environmental footprint of urban areas is many times the size of the city, the claim that densification is preventing sprawl and saving open space is also false. That open space turns out to be a necessary rural support system for the urban areas.

 
At 3/27/2012 8:17 AM, Blogger Hydra said...

"....you will find that shale players cannot finance their own activities out of their operations."

================================

OK, but neither could Amazon for a long time. Lots of start up busineses have this problem.

 
At 3/27/2012 8:19 AM, Blogger juandos said...

"So it is not government regulation and the unions that drove manufacturing away?"...

Really hydra, we're suppose to take that question seriously?!?!

Does it ever occur to you to do some 'real' homework before you float a question like that? Its not like this question hasn't been answered before...

Ten Thousand Commandments
An Annual Snapshot of the Federal Regulatory State

 
At 3/27/2012 8:51 AM, Blogger Larry G said...

gee.. I thought Mark posted info that coal has decreased and nat gas has increased.

I would have thought the electricity producers would be glad to get rid of the older, less efficient plants and adapt to Nat Gas.

no?

re: "the turd"

wasn't that turd already in the bowl years ago when Bush was also in support of closing the older polluting coal plants?

 
At 3/27/2012 8:56 AM, Blogger Hydra said...

Really hydra, we're suppose to take that question seriously?!?!

================================

I don't think you take anything seriously: your mind is made up.

I'm reminded of William Buckley's story about a planned boat trip which his wife thought was dangerous. After patiently and logically describing why sailboats don't fall over, and all the precautions put in place, and all the realities and physics involved, she said:

"Why do boats sink then?"


You can ignore the question, but the fact remains.

 
At 3/27/2012 9:00 AM, Blogger Hydra said...

Let's not forget that the federal regulatory state got that way both because of bad behavior on the part of enterprises, and at the behest of enterprises.

If you actually revoked those ten thousand commandments, half of them would be back in place in a year.

 
At 3/27/2012 9:07 AM, Blogger Hydra said...

"Let's not forget there are still loons out there trying to stop the fracking..."

=================================

Yep, there are still loons out there who believe we can have a pollution free perpetual motion machine at no cost.

There are also still loons out there who think pollution has no cost, the environment is free, and growth has no bounds.

Everything has trade-offs: we can either understand them or deny them.

 
At 3/27/2012 9:08 AM, Blogger morganovich said...

why use the futures price to represent nat gas prices?

that's predominantly an export price, and a sub 5% part of the market annually. nat gas is not predominantly bought and sold using futures.

why pay the contango?

you'd be better off using city gate prices.

 
At 3/27/2012 9:28 AM, Blogger PeakTrader said...

Natural Gas Spot Price: 2.19 for Mar 20 2012

"Henry Hub Natural Gas Spot Price is at a current level of 2.19...down from 3.99 one year ago...This is a change of -44.87% from one year ago."

Chart:

http://ycharts.com/indicators/natural_gas_spot_price

 
At 3/27/2012 12:11 PM, Blogger juandos said...

"You can ignore the question, but the fact remains"...

There was no fact at all hydra...

"Let's not forget that the federal regulatory state got that way both because of bad behavior on the part of enterprises, and at the behest of enterprises"...

You of course have something credible to back that statement, right hydra?

 
At 3/27/2012 12:23 PM, Blogger juandos said...

"wasn't that turd already in the bowl years ago when Bush was also in support of closing the older polluting coal plants?"...

Google it larry g and come back with something credible (that aint wikipedia!) to answer your own question...

It might be interesting...

BTW larry g George W being the good liberal he was built himself a seriously green home on his ranch...

George Bush’s policies on just about everything to do with the environment are wrong headed and destructive, but you cannot say the same for his ranch in Crawford Texas...

 
At 3/27/2012 1:05 PM, Blogger juandos said...

"Yep, there are still loons out there who believe we can have a pollution free perpetual motion machine at no cost.

There are also still loons out there who think pollution has no cost, the environment is free, and growth has no bound
"...

hydra you and your fellow loons have been proven to be either fools or liars so far...

Do you think that repeating the unsubstantiated rants & whines of luddites will somehow make your fervent desires morph into fact?

 
At 3/27/2012 1:16 PM, Blogger Larry G said...

Juandos - Wiki does not "source" info - it references the sources.

It even references right wing sources like Heritage and Cato!

It's a compendium of verifiable sources.

GOOGLE is a search that includes every right wing blatherbutt that chooses to "share" their personal idiocies with the world.

How about this. Give me the sources that are considered credible from both left and right political perspectives.

got any?

 
At 3/27/2012 1:41 PM, Blogger Ron H. said...

"re: "the turd"

wasn't that turd already in the bowl years ago when Bush was also in support of closing the older polluting coal plants?
"

Translation:

How dare you speak ill of my boyfiend!

 
At 3/27/2012 1:53 PM, Blogger Ron H. said...

"So it is not government regulation and the unions that drove manufacturing away?"

Well of course it was, as they were an ever increasing part of total costs. Cheaper energy costs could help offset that aggravation.

Businesses will go wherever the total pain is lowest. It doesn't much matter what's causing the pain.

 
At 3/27/2012 1:56 PM, Blogger Larry G said...

boyfriend? ha ha ha!

remember... Bush invented Turd Blossoms....

:-)

 
At 3/27/2012 3:24 PM, Blogger VangelV said...

OK, but neither could Amazon for a long time. Lots of start up busineses have this problem.

It has been nearly seven years and Chesapeake still can't self finance shale gas operations even though it is working in the sweet spot of the best formations. As the company is forced to go to lower quality operations the returns will get worse, not better.

That is the problem. You can't buy into the hype and have to see beyond the reporting of resources as you look into the reserve question. What people like Mark have not made clear is that most of the reported resources are not economic and can never be developed. That makes the whole shale gas scam a very dangerous game for those who are ignorant of the reality and have no clue what is really going on.

I believe that we will see something break very soon. And after it does there will be a huge backlash towards the Obama efforts to kill off the US coal industry. If you want to take a risk and buy something look towards the cash rich coal or tar sands companies, not the shale gas and oil sector.

 
At 3/27/2012 3:37 PM, Blogger juandos said...

"How about this. Give me the sources that are considered credible from both left and right political perspectives.

got any?
"...

Nice try goofy...

larry g there is NO such thing as a factual liberal or facts being spewed from any liberal's pie hole...

Once a person actually starts dealing in real world facts the mental disease of liberalism tends to get mitigated...

 
At 3/27/2012 3:46 PM, Blogger Larry G said...

got any credible sources?

I bet not.

surely not Heritage or Cato.

eh?

so name some sources you like.

 
At 3/27/2012 8:16 PM, Blogger VangelV said...

Once a person actually starts dealing in real world facts the mental disease of liberalism tends to get mitigated...

You seem to be under the impression that so-called conservatives are better, more consistent, or more rational. I see no objective evidence of that. Both are two sides of the same totalitarian coin and both are harmful to mindful individuals who care about liberty.

 
At 3/27/2012 10:26 PM, Blogger juandos said...

"got any credible sources?

I bet not.
"...

Why yes larry g I do, he goes by the name of Thomas Sowell...

 
At 3/27/2012 10:29 PM, Blogger juandos said...

"You seem to be under the impression that so-called conservatives are better, more consistent, or more rational. I see no objective evidence of that"...

Ahhh, the yelping of a liberal, vangeIV?

Where did I use the word, 'conservative'?

 

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