Is a Natural Gas Boom Good or Bad for Manufacturing?
Posted February 21, 2014 & filed under Job Search
Out of the Port of Corpus Christi in Texas alone there are 400,000 barrels of oil leaving for other U.S. ports and ports abroad. Simultaneously, while the U.S. economy diminished 3%, direct employment within the oil and gas industry rose 40% from 2007 to 2013. The numbers don’t lie: shale oil deposits are making big changes to the U.S. economy.
Other industries are even seeing a short term boost but a question arises about the long term: is a natural gas boom good or bad for U.S. manufacturing?
Diminished Production Costs
Cheap natural gas can lower costs for a multitude of U.S. manufacturing sectors. Research from the Boston Consulting Group shows that any manufacturer using electricity from a natural gas powered plant will save on energy costs. Steel and glass manufacturers are already seeing more investment because of it.
Any manufacturers that use natural gas as a raw material (those making finished or plastic resin products) have the potential to produce a greater output at lower costs. Even if a company doesn’t have much to do with natural gas, production costs are being trimmed by 1% to 2% overall.
Moreover, the cost of natural gas prices are three times higher in China than the U.S. currently. When you factor in the lower quality assurance levels in Chinese products and the push for a higher wage, it becomes more viable to produce goods in the U.S.
Decline in Competitiveness
Oddly enough, the very thing that could make American manufacturing more financially sustainable could rob it of the talent needed to keep it afloat. Due to a phenomenon dubbed the Dutch Disease, a country that experiences a greater harvest in natural resources may see an inverse decline in other sectors and manufacturing might have the most to lose.
When a large natural gas field was discovered in the Netherlands in 1959, Dutch companies and citizens scrambled for their piece of the pie. That kept investment dollars and talented employees from flowing into manufacturing. There were fortunes to be made and manufacturing lagged as attention was focused elsewhere. That’s not immediately bad from a macroeconomic perspective but it has the potential to hurt an American manufacturing recovery if the trend carries over to U.S. soil.
Thus far, that doesn’t seem to be a problem. Michael Zinser, a partner with the Boston Consulting Group, told Manufacturing.net that “companies from around the world are already taking notice and beginning to make long-term manufacturing investments in the U.S. to take advantage of low-cost natural gas.” In Ohio, Louisiana, and Houston there are million and even billion dollar plant investments be made by domestic and foreign companies.
With that investment comes more hiring and more ways for the American economy to climb the upward slope of recovery.
by James Walsh
