The natural gas revolution is marching on. Beside overtaking coal as the leading fuel to create electricity, it is also the key raw material needed for American industry, whose appetite for natural gas and unconventional shale gas is expected to surpass the demands of the utility sector.
It’s a powerful economic story — but one that juxtaposes the goals of natural gas producers with those of manufacturing and utility interests. The United States, which has been the globe’s leading producer of natural gas and shale gas since 2009, is now also a net exporter of it — largely because of the doubling of pipeline capacity to Mexico and reduced imports from Canada.
Demand, no doubt, is on the rise: utilities are shifting from coal to natural gas and manufacturers are expanding their domestic operations. Meanwhile, European and Chinese manufacturers are seeking cheaper supplies, all of which is creating price pressures. Just how will that affect the industrial and power sectors here at home?
“Based on construction plans, EIA expects that by 2020 the United States will have the third-largest LNG export capacity in the world after Australia and Qatar,” the U.S. Energy Information Administration just reported.
LNG refers to liquefied natural gas, which must first be super-cooled before it would be sent via tankers to ports around the world, notably to Asia and in Europe. To that end, China is expected to become the leading importer of LNG, consuming about 40% of it, says the International Energy Agency in Paris. And the U.S. Commerce Department agreed with China in May to let it contract for U.S.-supplied LNG; U.S.-based Chenier Energy Inc. is setting up an office there.
To meet that demand, the U.S. energy agency notes that five liquefaction facilities are under construction here: Cove Point, Cameron, Elba Island, Freeport, and Corpus Christi, all of which will come online in the next three years and increase total U.S. liquefaction capacity from 1.4 billion cubic feet per day now to 9.5 billion cubic feet by the end of 2019.
Hydraulic fracturing, which allows access to shale gas deposits locked deep underground and in rocks, is the catalyst for this economic rebirth. In 2000, shale gas accounted for 5 percent of all gas production in the United States and today, it is about 60 percent, according to U.S. Energy Information Administration.
Industrial Beneficiaries
Steel, chemical and fertilizer manufacturers are among the beneficiaries. Production in these industries require natural gas as feedstock to produce materials such as the steel piping used in oil and gas drilling as well as the steel parts to make power plants and gas turbines.
They are making use of both “dry” natural gas and the “wet gas” that is separated from it. Those so-called natural gas liquids are comprised of such chemicals as butane, ethane, methane and propane -- all of which can serve as the foundation for finished goods that are consumed domestically and exported around the globe.
Manufacturers and chemical producers had been paying as much as $14 per million Btus in 2005 and now they are paying close to $3 per million Btus — something that IHS Markit says will lead to an additional $328 billion in new manufacturing output by 2025.
Dow Chemical Co., for example, has just completed an ethylene production facility in Freeport, Texas, which represents a $6 billion investment in the U.S. Gulf Coast. “Our growth investments leverage the advantaged shale gas supply available in the U.S., and represent thousands of new jobs and significant economic value, including exports of approximately 20 percent of our U.S. production,” Chief Executive Andrew Liveris said
The Chevron Phillips Chemical Co., furthermore, has just completed a $6 billion petrochemical plant in Texas. The project includes two polyethylene units that will each produce 500,000 metric tons of plastic resin yearly. Such resins are used in packaging that extends of the life of fruits and vegetables as well as in the creation of plastic piping, merchandise bags and bottles.
“The US shale revolution shows no sign of running out of steam and its effects are now amplified by a second revolution of rising LNG supplies,” said Dr Fatih Birol, the Executive Director of the International Energy Agency. “Also, the rising number of LNG consuming countries, from 15 in 2005 to 39 this year, shows that LNG attracts many new customers, especially in the emerging world.”
According to the U.S. Energy Information Administration, natural gas exports will make up 10-12 percent of U.S. natural gas production over the next decade — leaving plenty of capacity for American businesses, noting that even the exports will face stiff competition from Australia and Qatar.
The Infighting
Just where an industry stands in the U.S. economy, affects how it reacts to market dynamics. The power sector is largely insulated from the pressures of the market — an industry whose rates of returns are set by state utility commissions. If the price of natural gas would rise, it could thus pass that cost on to its customers.
Manufacturers, however, worry about price volatility. The Industrial Energy Consumers of America says that if they are forced to pay more, it would lead to higher production costs and ultimately less output — factors that would negatively impact the U.S. economy. The growth along the Gulf Coast, for example, would slow. Natural gas, it emphasizes, is a finite resource and should thus be reserved for U.S.-based companies.
“The fact is that utilizing natural gas in manufacturing, as compared to exporting it, creates eight times more jobs, twice the direct value added per year and 4.5 times the direct construction jobs,” Paul N. Cicio, president of the Industrial Energy Consumers of America wrote to Energy Secretary Rick Perry, adding that the United States should not agree to send its LNG to countries that subsidize their manufacturing businesses — like China.
The demand for natural gas both as a fuel for electric generation and a feedstock for manufacturing processes will continue, spawning both an environmental and economic ripple effect. While natural gas producers search for new oversea’s markets and put upward pressure on prices, American industry will remain the key beneficiary of this ever-changing landscape.
