The shale gas revolution is firing up an old-fashioned American industrial revival, breathing life into businesses such as petrochemicals, glass, steel and toys.
Consider the rising fortunes of Ascension Parish, La. The Methanex Corp which closed its last US chemical plant in 1999, is spending more than half a billion dollars to dismantle a methanol plant in Chile and move it to the parish.
Nearby, a petrochemical company, Williams, is spending $400 million to expand an ethylene plant. And on November. 1, CF Industries unveiled a $2.1 billion expansion of its nitrogen fertiliser manufacturing complex, aiming to displace imports that now make up half of US nitrogen fertiliser sales.
These companies all rely heavily on natural gas. And across the country, companies like them are crediting the sudden abundance of cheap natural gas for revving up their US operations. Thanks to new applications of drilling technology to unlock natural gas trapped in shale rock, the nation’s output has surged and energy experts almost unanimously forecast that prices will remain low or moderate for a generation. The International Energy Agency says that by 2015, the United States will overtake Russia as the world’s biggest gas producer.
Ascension Parish falls inside the Haynesville geological region — one of the nation’s big shale gas prospects.
“It has become clear to me that the responsible development of our nation’s extensive recoverable oil and natural gas resources has the potential to be the once-in-a-lifetime economic engine that coal was nearly 200 years ago,” US Steel Chairman John Surma said in a speech this year.
Industrial companies are betting that the surge in the domestic production of natural gas is much more than a blip. Cheap and plentiful supplies of natural gas are flooding the US market, and prices in the US are as low as a quarter of what they are in Europe or Asia.
“For the foreseeable future, thanks to the recovery of vast underground gas deposits of shale, natural gas is likely to remain 50 to 70pc cheaper in the US than in Europe and Japan,” said a recent report by the Boston Consulting Group.
“That will translate into significantly lower costs for electricity generation, for fuel used to power industrial plants and for feedstock used across many industrial processes,” said Justin Rose, a BCG principal and co-author of the report.
Manufacturers have plans to invest as much as $80 billion in chemical, fertiliser, steel, aluminum, tyre and plastics plants, according to Dow Chemical. And the main reason, said George J. Biltz, Dow Chemical’s vice president for energy and climate change, “comes back to the massive competitive advantage the United States has with natural gas today.”
Years of pioneering work on drilling techniques by an independent oilman, George Mitchell, paid off. Despite concerns about water pollution risks linked to hydraulic fracturing of shale, drilling and production have soared.
The country is producing more oil than in any year since 1994. The natural gas production has jumped to record levels. In 2000, shale gas was two per cent of the US natural gas supply; by 2012, it was 37pc.
Some advocates of natural gas have called it a ‘bridge’ to a clean-energy future because its greenhouse gas emissions are half those of coal and because gas plants can start up quickly and pair with wind and solar to provide a reliable alternative to coal.
The United States has drilled more oil and gas wells than any other country, and the new wave of supplies has brought a new wave of rigs dotting the countryside and new crisscrossing pipelines.
Dow Chemical is drawing up plans to construct a plant in Freeport, Tex., and is restarting a plant in St. Charles, La. And year-end nationwide chemical-industry employment has edged up for the first time in a decade.
Methanex chief executive Bruce Aitken said natural gas prices made moving operations to Louisiana attractive.
“The proliferation of shale gas in North America has resulted in a structurally low natural gas price environment, which underpins the very attractive economics for this project,” he told investors in a July 26 conference call.
He said moving the methanol plant from Chile to Louisiana will pay off in less than four years if gas prices stay around $4 per thousand cubic feet.
CF Industries was also lured by the price and proximity of natural gas in Ascension Parish. Gas makes up about 70 per cent of manufacturing costs at its ammonia and urea units. The company said the site is served by five pipelines at prices set at the nearby Henry Hub, which is the nationwide benchmark for spot gas prices.
In September, a large Egyptian construction company announced that it would build a new nitrogen fertiliser production plant in southeast Iowa to supply customers in the US Corn Belt. Cairo-based Orascom Construction Industries, one of the world’s largest fertiliser makers, said the $1.4 billion plant would be “the first world-scale, natural gas-based fertiliser plant built in the United States in nearly 25 years”.
After years of losing manufacturing jobs, most American communities are vying to lure industries. —Washington Post/Bloomberg