Shale Gas Could Lower US Manufacturing Costs, Drive Re-Shoring – Equities.com

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Penton Business Media

The expansion of the shale gas market could potentially enable
U.S. manufacturers to lower their raw materials and energy costs as
much as $11.6 billion annually by 2025, according to a PwC report,

Shale Gas: A Renaissance in US Manufacturing?Another PwC
report, Shale Gas: Reshaping the U.S. Chemicals
Industry, notes that the process of removing
impurities from natural gas produces by-products (natural gas
liquids, or NGLs, such as ethane, butane and propane) used to
produce a variety of derivative products that ultimately become raw
materials for several manufacturing sectors. Industries that stand
to benefit include apparel and accessories, computers and
electronics, machinery, textile and fabrics and transportation
equipment.

“The positive impacts could flow through the value chain
into other manufacturing sectors, particularly given that chemicals
are used in an estimated 90 percent of all manufactured
products,” said Anthony J. Scamuffa, U.S. Chemicals leader
for PwC. “Not only could the abundance of NGLs help drive
reduced pricing for derivative products, it could also potentially
drive domestic re-shoring activity and possibly bring about a
favorable shift in the U.S. balance of trade as ethylene capacity
comes on line.”

The latter report further states that major oil and gas
companies and upstream commodity industry participants are
evaluating their business models and moving forward to take
advantage of emerging shale gas opportunities. Some are considering
whether to restart mothballed assets, invest in green field
projects, form strategic alliances, and expand and upgrade existing
assets. Many of these companies are also executing large capital
projects, identifying engineering and construction resources, and
establishing strategic sourcing agreements with NGL providers.

Further downstream, specialty chemical entities are starting to
feel the effects of natural gas and NGL prices on their business
models. Moreover, as the commercial distribution of ethane and
ethane-based raw materials increases, it could trigger new
innovations and investment in new technologies, the report
suggests. Research and development initiatives leveraging
ethylene-based chemistries that replace petroleum-based products
may predominate. Companies might also look for longer-term sourcing
relationships and partnerships with raw material suppliers to help
with developing new products.

“Based on industry reports, we estimate that the U.S.
chemicals industry has invested $15 billion in ethylene production,
increasing capacity by 33 percent,” said Garrett Gee,
director of Chemical Advisory Services at PwC. “As these
investments take hold yielding more supply, the U.S. could become a
major, global, low-cost provider of energy and feed stocks. We are
already seeing increased investment activity among multinational
companies in building the infrastructure to export liquefied
natural gas (LNG) products.”

As manufacturers replace petroleum-based raw materials with
products based on ethylene, their cost structures should also
change significantly, as well as supply and demand for certain
products. This pattern may be repeated for other petroleum-based
raw materials, many of which are used in building, construction,
adhesives, paint, coatings, plastics, packaging and carpeting.

If the changes brought about by shale gas take hold in the
chemicals industry, they will also create a need for specialty
steels, reactors, pumps, valves, fittings, control systems, storage
tanks, and other equipment, as well as the services of engineering
and construction firms. Another possible outcome is that chemical
products will increasingly become a substitute for more expensive
materials, such as metals, glass, wood, leather and textiles.

“There is no doubt that the significant increase in NGL
production could drive change across the U.S. chemicals industry,
but the full potential of the market will depend on a number of
factors,” added Scamuffa. “According to a New York
Times article by Michael Levi in August, these factors include
domestic tolerance for expanded hydraulic fracturing and its waste
products, as well as the political and economic ramifications of
exporting LNG. The implications of the shale gas boom for the
chemicals sector also vary by company, so management teams need to
consider their individual situation and business options, including
the risks and opportunities presented by the abundance of shale
gas.”

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