Analyst: Fracking to Make Manufacturing Cheaper in the U.S. than in China

We celebrated America over the weekend, and it looks like the celebrations are set to continue: manufacturing will soon be cheaper in the United States than in China – thanks to fracking.

Recently, the Boston Consulting Group found that average costs of manufacturing goods in the United States are currently only 5 percent higher than in China. It projects that by 2018, costs will be 2 to 3 percent lower in the U.S. than in China.  Remember, China has long been described as the “manufacturing powerhouse,” or “manufacturing’s shining star,” or “the world’s factory floor.”

But as a Fortune article explains:

“‘Made in the U.S.A.’ is becoming more affordable. The reason? Fracking.” [Emphasis added.]

It goes on to state:

“But perhaps the single largest factor is that fracking has helped dramatically drive down the price of oil and gas that’s being used in energy intensive industries such as steel, aluminum, paper and petrochemicals. BCG calculates that U.S. industrial electricity prices are now 30% to 50% lower than those of other major exporters.” [Emphasis added.]

As Energy In Depth has written before, the shale revolution, by unlocking heretofore inaccessible oil and gas resources and heralding a new era of energy abundance, has driven down energy costs considerably for businesses and consumers. For the manufacturing sector, especially for energy-intensive industries such as plastics, fertilizers, chemicals, and steel, energy costs could very well determine where projects get developed.

President Obama has long credited shale development for driving down energy costs and spurring, in turn, a manufacturing renaissance in the United States that is creating jobs and growing our economy. As he said last November:

“When I travel to Asia or I travel to Europe, their biggest envy is the American, homegrown, U.S. energy production that is producing jobs and attracting manufacturing because locating here means you’ve got lower energy costs.” [Emphasis added.]

President Obama’s remarks echo many a report illustrating the sheer significance of shale to American manufacturing.  In a report titled “Shale Gas: A Game-Changer for U.S. Manufacturing,” University of Michigan professors wrote:

“Managed properly, the availability of low-cost shale gas could catalyze a renaissance in U.S. manufacturing, revitalizing the chemical industry and enhancing the global competitiveness of energy-intensive manufacturing sectors such as aluminum, steel, paper, glass, and food. Lower feedstock and energy costs could help U.S. manufacturers reduce natural gas expenses by as much as $12 billion annually through 2025, creating one million new manufacturing jobs.” [Emphasis added.]

Similarly, a MIT Technology Review article, “Shale Gas Will Fuel a U.S. Manufacturing Boom,” explained:

The plummeting price of natural gas—which can be used to make a vast number of products, including tires, carpet, antifreeze, lubricants, cloth, and many types of plastic—is luring key industries to the United States. Just five years ago, natural-gas prices were so high that some chemical manufacturers were shutting down U.S. operations. Now the ability to access natural gas trapped in shale rock formations, using technologies such as hydraulic fracturing and horizontal drilling, has lowered American prices to a fraction of those in other countries.” [Emphasis added.]

A report released by accounting firm Pricewaterhouse Coopers spotlighted the impact of shale gas on U.S. manufacturing:

“Shale gas activity in the US has taken root in the last several years, and its effects on the country’s energy mix and energy independence have progressed beyond prognostication and shaped new realities. The ‘shale effect’ on manufacturing, too, is taking shape—making the US a more attractive locale due to relatively low energy and feedstock costs.” [Emphasis added.]

In a speech earlier this year, President and CEO of the National Association of Manufacturers Jay Timmons highlighted how affordable energy is “driving manufacturing’s resurgence”:

“Now, let’s take a look at energy, because the time is right—energy that fuels our success as manufacturers and as a country. This is a moment of great opportunity. America has an unprecedented and incredible global advantage in reliable and affordable energy, and it’s driving manufacturing’s resurgence.” [Emphasis added.]

Vice President Biden has also acknowledged the role that lower energy costs have been playing in propelling U.S. manufacturing:

“And now there’s an energy boom.  You all know about the Marcellus Shale — I think you heard of that, right? There’s an energy boom that’s changed the paradigm of manufacturing.  It’s cheaper to manufacture in the United States than it is in Europe and/or in Asia.” [Emphasis added.]

As we see more and more “Made in America” labels pop up in stores, we can thank the men and women of the oil and gas industry for developing homegrown, all-American energy, and for bringing offshore manufacturing back onto American soil.



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