Appalachian Basin

Shale Fueling America’s Chemical Industry

**Cross-posted from**

Back in December 2011, PricewaterhouseCoopers (PwC) released a report on the major impact shale development was having on American manufacturing. The report, “Shale Gas: A Renaissance in US Manufacturing?” highlighted how affordable, domestic supplies of natural gas will save U.S. manufacturers more than $11 billion per year over the next decade, create one million new jobs during that same period, and increase disposable income for each household in the United States by as much as $2,000 per year. Now, nearly a year later, PwC has released a new report, “Shale gas: Reshaping the US chemicals industry,” focused on the direct impact of shale development on North America’s chemical industry.

In addition to the natural gas that heats our homes and generates electricity, development often also yields valuable liquids such as ethane, butane, and propane. These “NGLs” (natural gas liquids) are used to make things like shampoo, the bumper on your car, and the sole of your shoe. So as natural gas production expands – thanks in no small part to proven technologies like hydraulic fracturing and horizontal drilling – NGL production also increases, spurring new growth in American manufacturing.

As PwC U.S. Chemicals leader Anthony J. Scamuffa highlights:

“As the U.S. chemical industry expands NGL conversion into a higher volume of downstream products, 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.

“…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.”

And the impact of this increased supply is being felt across the United States. Hector Rivera, president and CEO of the Texas Chemical Council, noted recently in the Houston Chronicle, “Low natural gas prices related to the shale gas boom have spurred an estimated $15 billion in planned expansions at Texas chemical companies.”

In Pennsylvania, Shell announced in April that it would be constructing a mulit-million dollar ethane cracker near Monaca, PA, a project that is estimated to create more than 10,000 permanent jobs, according to the American Chemistry Council.  And according to PwC, these types of investments are just the beginning.

To date, the U.S. chemicals industry has invested $15 billion based on the shale industry’s production of ethylene, increasing capacity by 33 percent. The result: affordable feedstock for America’s robust chemical and manufacturing sector and fuel for America’s economy.  And while ethane production has been historically fueled by the Middle East, North American shale development is redefining the supply-demand dynamic, putting America back in the lead. As PwC further explains:

“The Middle East ethane production chain is predominantly centered in Saudi Arabia, which has leveraged its historically low-cost raw material sources to become a global petrochemicals powerhouse. However, its newer ethylene production facilities rely on an ethane-butane mix, which yields higher-priced ethylene and other feedstock chemicals. These factors are serving to reduce the country’s historic competitive advantage.”

It’s clear that the economic and even geopolitical benefits of shale are being realized every day. In fact, a new report released Friday by a team of Yale University economic graduates shows that lower natural gas prices — a result of expanded shale development — saved consumers an estimated $100 billion in 2011. Amazingly, the report also found the economic benefits of shale gas drilling exceed the costs by an astounding 400 to 1.

Pretty convincing odds, and yet another reminder that shale development truly is a game changer for the United States.

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