Unconventional Oil & Gas Leading to Manufacturing Renaissance · 2014-12-18  · Shale Gas as a...

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Unconventional Oil & Gas Leading to Manufacturing Renaissance NCSL Forum 11 December 2014 Dr. T.K. Swift Chief Economist & Managing Director Economics & Statistics

Transcript of Unconventional Oil & Gas Leading to Manufacturing Renaissance · 2014-12-18  · Shale Gas as a...

Page 1: Unconventional Oil & Gas Leading to Manufacturing Renaissance · 2014-12-18  · Shale Gas as a Manufacturing Game Changer • Shale gas could also help revive American manufacturing

Unconventional Oil & Gas

Leading to Manufacturing

Renaissance

NCSL Forum

11 December 2014

Dr. T.K. Swift

Chief Economist & Managing Director

Economics & Statistics

Page 2: Unconventional Oil & Gas Leading to Manufacturing Renaissance · 2014-12-18  · Shale Gas as a Manufacturing Game Changer • Shale gas could also help revive American manufacturing

Surging US Oil & Gas Production

Million Barrels per Day (BPD) Billion Cubic Feet (BCF) per Day

Source: EIA Short-Term Energy Outlook (November 2014)

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95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Crude Oil Production (left) Natural Gas Production (right)

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Shale Gas as a Manufacturing Game Changer

• Shale gas could also help revive American manufacturing and create hundreds of thousands of jobs, including some areas hardest hit by the recession, while strengthening national energy security.

• The new economics of shale gas create a competitive advantage for US manufacturers, which will lead to greater investment, job creation and industry (and economic) growth.

• Shale gas growth is helping to reduce natural gas and oil prices and create a more stable supply for fuel and power – this will allow US manufacturers to become more competitive than producers in the rest of the world.

• It is also reducing electricity costs.

• Should oil prices remain high, affordable natural gas will continue to provide US manufacturers with a competitive advantage over global competitors that use more expensive, oil-based feedstock and energy supplies.

• This oil and gas boom represents a positive shock to the US economy (much like the Internet), which should be able to capitalize on these developments. Long-term economic growth potential could be boosted by 0.3 to 0.8% per annum.

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$0

$20

$40

$60

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$100

$120

Brent Oil ($bbl) WTI Oil ($bbl)

2005-13: US Energy Prices Falling in Either Absolute / Relative Terms

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Natural Gas - Henry Hub ($/000 CF)

WTI now at a

discount to Brent

Source: EIA

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Leads to Falling US Feedstock Costs

Source: Chemical Week

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Western European Naphtha ($/metric ton)

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05 06 07 08 09 10 11 12 13

US Ethane ($/gallon)

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…and Lower US Manufacturing Costs: Case of High Density Polyethylene (HDPE)

US Gulf Coast (2005)

US Gulf Coast (2013)

Northwest Europe (2005)

Northwest Europe (2013)

Middle East

(2005)

Middle East

(2013)

Northeast Asia

(2005)

Northeast Asia

(2013)

Raw Materials Utilities Direct Costs Other Costs

$ per Metric Ton

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…and Lower US Manufacturing Costs: Case of High Density Polyethylene (HDPE)

US Gulf Coast (2005)

US Gulf Coast (2013)

Northwest Europe (2005)

Northwest Europe (2013)

Middle East

(2005)

Middle East

(2013)

Northeast Asia

(2005)

Northeast Asia

(2013)

Raw Materials Utilities Direct Costs Other Costs

$ per Metric Ton

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Oil-to-Gas Ratio: A Proxy for US Energy Competitiveness

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Divide Brent oil price ($ per barrel) by Henry Hub natural gas price ($ per 1,000 cubic feet).

When the ratio is above 7, US competitiveness vis-à-vis other major producing regions is

enhanced. The current ratio is very favorable for US competitiveness and exports of

petrochemicals, plastics and other derivatives.

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US Industry Benefitting from the Energy Revolution • Revolution in unconventional gas is supporting the rebirth of US petrochemical and fertilizer production as well as steel, tires, and plastic products

• North American ethylene producers have shifted to natural gas (ethane) from oil (naphtha) and dramatically reduced costs

• North America’s chemical sector is second lowest-cost ethylene producer after the Middle East with a 50-60% cost advantage over Western Europe and Asia

• With Middle Eastern producers using blends of heavier liquids, the United States will be even more competitive

• Limited ethane supplies in the Middle East suggest that new projects starting-up at the end of the decade will crack naphtha (and have little cost advantage)

• Low natural gas prices encouraging large chemical multinationals to move operations to the United States

• “The Wave” of new investment…60% of which is FDI

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US Chemical Industry Capital Investment: Incremental Due to Shale Gas

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10 11 12 13 14 15 16 17 18 19 20 21 22 23

Billions of 2013 Dollars • More projects to be

announced

• Potentially >$150 billion

total investment spread over

12+ years

• Peak year for investment

outlays –2017

Source: ACC analysis

This is in addition

to the $30 billion

per year that the

industry normally

invests…

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Composition of Announced Projects

Inorganic Chemicals

3%

Fertilizers 23% Bulk

Petrochemicals 53%

Plastic Resins 17%

Other 4%

Ohio Valley 12%

Midwest 14%

Other 6%

Gulf Coast 68%

Investment by Industry Segment Investment by Region

Source: ACC analysis of 215 announced projects valued at $133 billion

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In All Scenarios, the US Captures Market Share Away From Western Europe…

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1987 1992 1997 2002 2007 2012 2017 2022

United States Western Europe

Basic Chemicals - Volume Index of Production (2007=100)

Sources: Eurostat, Federal Reserve, ACC analysis

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Announced Plastics Processor Projects by State

Announcements since June 2012

Source: Plastics News, ACC analysis Note: no projects have been announced in AK or HI (not shown)

Announced

Projects

30+

20-29

11-19

6-10

3-5

1-2

0

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Concluding Thoughts

• Shale gas has been a game changer in US natural gas markets with US first mover advantages

• Along with oil developments (and lower electricity costs) shale gas has improved the competitiveness of the US manufacturing, especially chemicals

• Over 215 major chemical industry projects (valued at $133 billion) have been announced (perhaps 250 and $150 billion when it’s all said and done)

• Will generate new business, jobs, and tax revenues

• With renewed competitiveness and new supply, US exports gain as share of output with reaccelerating growth and US capturing global market share

• And tipping point in downstream customer industries points to strong domestic demand, which aids specialties (the next wave?) which will also be aided by competitiveness in raw materials

• In addition to shale gas and manufacturing renaissance, new materials (e.g., nanotechnology) and processes (e.g., bio-based chemistry) will also lead to enhanced growth

• In summary, a promising future!

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Questions?

Telephone: 202.249.6180

Email: [email protected]

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Possible Workforce Development Solutions

• Sector councils to ensure critical needs and challenges are met

• Develop aggressive campaigns to change awareness and

perception of manufacturing, trade and other middle-skill

career opportunities (rethink “college for all” culture)

• Development of common tools and curricula to provide training

and address weaknesses in basic skills and employability (need

for a 21st century competency-based apprenticeship model and

other models for working and learning)

• Coordination to facilitate connections between stakeholders

• Develop tools to collect better demand-side and supply-side data

• Work with education and training providers at all levels to

establish networks to enable information sharing, sharing of

best practices, and strengthening of industry partnerships

Sources: Greater Houston Partnership, National Network of Business and Industry Associations