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Hydraulic fracturing of shale rock across the US has led to a huge boom in natural gas production and a subsequent surplus in supply over demand. This has led gas prices to fall by as much as 50% in just two years, “triggering an avalanche of industrial expansion plans,” according to Pehlivanova and Wang of Barclays.
The first industry that grew as a direct result of the shale boom was the chemical industry. After years of decline the cheap costs of natural gas enabled chemical manufacturers to slash their costs and become much more profitable and competitive. Shares in LyondellBasell Industries NV have more than doubled since its bankruptcy back in 2010, and it is just one of several chemical giants to invest billions of dollars to develop plants around the Gulf of Mexico to take full advantage of the cheap gas.
The latest industry to benefit is the US steel industry; once a powerhouse in the American economy, it has struggled since the financial crisis in 2008 led to a collapse in commodity prices. However the availability of cheap gas is attracting investment to this once great industrial sector.
Related Article: Why the US should not Invest in Exporting Natural Gas
The Austrian Steelmaker Voestalpine AG has announced that it may develop a €500 million ($661 million) factory in the US in order to benefit from the cheap natural gas, and Nucor Corp, the largest US steelmaker said it plans to build a $750 million project in Louisiana next year. They are just two of several such projects that are under consideration, or already under construction, that would use cheap natural gas instead of coal to purify the iron ore.
Michael Applebaum, from the consulting firm Steel Market Intelligence, explained that the “technology has been around 30 years, but for 29 years gas prices in the U.S. were so high that the technology was not economical.”
By. Charles Kennedy of Oilprice.com
Charles is a writer for Oilprice.com