Shale gas leading to domestic manufacturing resurgence

Fuel Fix:

The Boston Consulting Group (BCG) has just released a report, “Behind the American Export Surge,” which explores the recent resurgence in US manufacturing. While BCG goes into some detail in explaining the reversal in the decline of domestic manufacturing, it has been driven by two basic causes, a more attractive investment climate and the widespread availability of low cost energy as a result of booming domestic shale gas production and natural gas development. But perhaps the single most important conclusion drawn from the study is this: there is enough domestic shale gas to fuel an American manufacturing resurgence and to export abroad.

High-volume hydraulic fracturing natural gas development has made increased production of shale gas and oil economically attractive. With increased production of natural gas, the price according to BCG has declined 51% since 2005. And, technology is projected to result in further lowering production costs. This is a big advantage over our competitors that have natural gas prices that are 2.6 to 3.8 times greater than our domestic prices in America.

Lower natural gas prices mean that industries such as chemicals and plastics are able to increase profit margins as natural gas is a major cost in the manufacture of synthetic textiles, paper, and primary metals. Gas fired power plants are becoming an important source of electricity and this will, according to BCG help to keep power costs lower in the US.

The positive manufacturing and trade picture painted by the Boston Consulting Group is a bright light in an otherwise dismal economic outlook. However, making that projection a reality requires that we avoid economic rent-seeking by certain industries. That is especially true in energy where there already is a movement by such rent-seekers, like Dow Chemical, to restrict the export of liquefied natural gas (LNG). These companies are lobbying for restrictions so that they can use the low price caused by over supply to increase their own profits.

Such a policy perspective is not only short-sighted but is the equivalent of an economic circular firing squad. It would deny the benefits made clear by numerous studies from Brookings, Deloitte, and even the Department of Energy-commissioned NERA Economic Consulting study which found increasing exports could add nearly $75 billion to annual economic growth. And, it would invite some form of retaliation by our trading partners.
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The policies of Democrats and the anti energy left have held back domestic manufacturing for decades.  If they had their way, we still would not be experiencing the current boom.  It could be even better if Democrats would get out of the way of domestic production of energy on federal sites.