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Abundance of Shale Gas Could Drive the US Manufacturing Industry to New Heights

"The abundance of shale gas resources may spark a U.S. manufacturing renaissance with economic benefits that include cost savings, greater investments to expand U.S. manufacturing facilities and increased levels of employment, according to a new report released last Friday by PwC titled, “Shale Gas: A renaissance in US manufacturing?” To achieve these results, however, PwC says that manufacturers must help manage the environmental, regulatory and tax concerns created by shale gas resources.

Natural Gas Prices

“An underappreciated part of the shale gas story is the substantial cost benefits that could become available to manufacturers based upon estimates of future natural gas prices as more shale gas is recovered,” said Bob McCutcheon, U.S. industrial products leader, PwC. He continued, “In fact, the number of U.S. chemicals, metals and industrial manufacturing companies that disclosed shale gas potential and its impact so far in 2011 easily surpassed that of the last three years combined, indicating this is of growing importance in the outlook of U.S. manufacturers. The significant uptick in shale gas commentary among the manufacturing community reflects the positive influence that shale gas is having from investment, operational and demand standpoints.”

“Lower natural gas prices resulting from incremental shale gas production have the potential to add over one million manufacturing jobs in the U.S. by 2025. The expectation of the new shale gas resource providing a significant long-term boost to move the U.S. manufacturing employment needle shines a light across the nation amid the current labour market woes,” added McCutcheon."

MP: The chart above displays the monthly inflation-adjusted price of natural gas back to 1997, and shows that the real spot price of gas is currently selling at close to a ten-year low, and is 70-80% below the peaks in 2001, 2006 and 2009.  Additionally, gas prices over the last two years have been more stable than any two-year period since the late 1990s; so gas prices are not only close to historic lows adjusted for inflation, but are more stable than in more than a decade.  It's the fact that gas prices are now both low and stable that makes it such an attractive source of energy for American manufacturers. 

This is more evidence that the shale revolution in America is creating: a) thousands of direct jobs in the exploration, drilling, processing and delivery of natural gas, b) thousands of indirect jobs in the supply chain for drilling and exploration (fracking sand, pipes, drilling equipment, etc.), c) thousands of indirect jobs in other support industries (housing, retail, education, transportation, etc.), and d) and now maybe a million indirect manufacturing jobs as a result of lower energy costs. 

Drill, drill, drill.... you know the drill.....

By. Mark J. Perry of http://mjperry.blogspot.com/

Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.




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  • Aly on December 19 2011 said:
    Hi Dr. Perry - I work for an oilfield services company here in Houston, TX. Thanks for sharing your insights, it's nice to read articles about the oilfield and manufacturing industries that actually make sense. Manufacturing and the oilfield have the potential to create hundreds of thousands jobs, no small achievement in today's economy.Anyways, thanks for sharing! -Aly

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