Unconventional Oil & Gas Leading to Manufacturing Renaissance · 2014-12-18 · Shale Gas as a...
Transcript of Unconventional Oil & Gas Leading to Manufacturing Renaissance · 2014-12-18 · Shale Gas as a...
Unconventional Oil & Gas
Leading to Manufacturing
Renaissance
NCSL Forum
11 December 2014
Dr. T.K. Swift
Chief Economist & Managing Director
Economics & Statistics
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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Crude Oil Production (left) Natural Gas Production (right)
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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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 ($/000 CF)
WTI now at a
discount to Brent
Source: EIA
Leads to Falling US Feedstock Costs
Source: Chemical Week
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Western European Naphtha ($/metric ton)
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US Ethane ($/gallon)
…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
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Middle East
(2013)
Northeast Asia
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Northeast Asia
(2013)
Raw Materials Utilities Direct Costs Other Costs
$ per Metric Ton
…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
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Middle East
(2013)
Northeast Asia
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Northeast Asia
(2013)
Raw Materials Utilities Direct Costs Other Costs
$ per Metric Ton
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.
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
US Chemical Industry Capital Investment: Incremental Due to Shale Gas
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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…
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
In All Scenarios, the US Captures Market Share Away From Western Europe…
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United States Western Europe
Basic Chemicals - Volume Index of Production (2007=100)
Sources: Eurostat, Federal Reserve, ACC analysis
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
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20-29
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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!
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