Natural gas is a resource with a lot of uses. Not only can it heat homes and supply electricity — things most people would typically associate it with — it can also be used to make many of the everyday items Americans take for granted.
For example, it is because of natural gas that we have plastic, a product everyone of us has used in some capacity. And because America has emerged as the world’s leader in natural gas production, there has been unprecedented investment in U.S. plastic in recent months — just another component to America’s increasingly attainable march toward “energy dominance” that can be directly credited to the shale revolution. Here’s a look at why this trend is happening and why it should not be taken for granted.
Petrochemical Investment: Then and Now
Prior to the shale revolution of the last decade, the American chemical industry was struggling with high natural gas prices and damage from Hurricane Katrina that hit the industry’s Gulf Coast facilities especially hard. In fact, in 2005, the New York Times reported,
“High prices are a double whammy for the chemical industry. Natural gas is both its main fuel and its main raw material, the starting point for the basic chemicals from which the fibers and compounds in shirts, eyeglasses and even the wrappers for single-serve soups are derived.”
“The industry has passed along costs, and it is likely to continue doing so for now. …The trickle down effect to retail shelves is inevitable – soda and water come in plastic bottles, computers use plastic housings, even organic greenmarkets pack fruits and vegetables in plastic bags.”
That all has changed in recent years thanks to improved technologies – the combination of using horizontal drilling with hydraulic fracturing – unlocking the vast supply of natural gas located in America’s shale plays. In April 2016, the American Chemistry Council’s (ACC) Senior Director of Energy Policy Owen Kean said,
“America enjoys a robust supply outlook, expected to last for decades, and a price environment that’s the envy of the world. Our country has become the most attractive place in the world to make chemicals, and a historic wave of expansion and investment is underway.”
Investment in chemical industry at that time, just over a year ago, looked like this:
That investment continues to grow, with ACC saying in May 2017,
“Since 2010, 301 projects cumulatively valued at $181 billion have been announced, with nearly half completed or under construction.” (emphasis added)
The Wall Street Journal reported in June that this investment has since increased to $185 billion, and that in 2016 “expenditures on chemical plants alone accounted for half of all capital investment in U.S. manufacturing, up from less than 20% in 2009.”
The WSJ put this the tremendous impact this investment is having on not only America, but the world, into perspective when it explained,
“When new parents in Rio de Janeiro buy baby food in plastic containers, they are bringing home a little piece of the U.S. shale revolution.”
A Surprise Player Emerges in the World of Plastics
Historically, the Gulf Coast has been the ideal location for the plastics industry – and don’t get us wrong, it still is — thanks to it’s abundance of shale gas in places like the Haynesville Shale. The Gulf is home to eight of the nine new ethylene cracker plant facilities recently built or under construction in the U.S., as well as three expansion projects and the only facility in America that is being re-started.
But thanks to the tremendous amount of natural gas located in the northeast’s Marcellus, Utica and Rogersville shales, the Appalachian Basin – Pennsylvania, Ohio, West Virginia and Kentucky – has become a somewhat surprising new hotspot for the manufacturing of American plastic.
ACC President and CEO Cal Dooley recently said during a presentation on Capital Hill,
“The Appalachian region has distinct benefits that could make it a major petrochemical and plastic resin-producing zone. Proximity to a world-class supply of raw materials from the Marcellus/Utica and Rogersville shale formations and to the manufacturing markets of the Midwest and East Coast has already led several companies to announce investment projects, and there is potential for a great deal more.”
The region will soon be the location of not one, but two new ethane cracker plants. The first is a multi-billion dollar investment by Shell Chemical Appalachia to build a facility in Beaver County, Pa. The project will employ 6,000 people during construction, which is slated to begin this year, and will permanently employ 600.
In addition to this, PTT Global Chemical recently announced it will buy land for the region’s second $6 billion cracker plant, which will be located in Belmont County, Ohio.
A report published by ACC in May analyzed a hypothetical scenario of investment in an Appalachian storage hub for natural gas liquids and chemicals, pipelines and other infrastructure in the region. It found,
“The economic benefits could be substantial. By 2025, the quad-state region could see 100,000 permanent new jobs, including 25,700 new chemical and plastic products manufacturing jobs, 43,000 jobs in supplier industries and 32,000 ‘payroll-induced’ jobs in communities where workers spend their wages, according the report. The new investment could also lead to $2.9 billion in new federal, state and local tax revenue annually.”
None of this investment, whether in the Gulf Coast or Appalachia, would be possible without fracking unlocking the vast needed resources to rejuvenate American manufacturing. And it’s only going to keep getting better if the ACC’s December 2016 energy outlook is any indication,
“Over the next five years, the most dynamic growth will occur in the Gulf Coast region, followed by the Ohio Valley and Southeast regions. In the long-term, the U.S. chemical industry will grow faster than the overall economy, and by 2020, U.S. chemical industry sales are expected to exceed $1 trillion.” (emphasis added)
As Neil Chapman, president of the chemicals unit at Exxon Mobil, recently told WSJ,
“We don’t see this [$20 billion investments in Gulf Coast projects] as a bet. You’ve got to pinch yourself sometimes and say ‘this is the envy of the world.’ ”