• 1 hour South Iraq Oil Exports Close To Record High To Offset Kirkuk Drop
  • 4 hours Iraqi Forces Find Mass Graves In Oil Wells Near Kirkuk
  • 5 hours Chevron Joint Venture Signs $1.7B Oil, Gas Deal In Nigeria
  • 6 hours Iraq Steps In To Offset Falling Venezuela Oil Production
  • 8 hours ConocoPhillips Sets Price Ceiling For New Projects
  • 3 days Shell Oil Trading Head Steps Down After 29 Years
  • 3 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 3 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 3 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 3 days Venezuela Officially In Default
  • 3 days Iran Prepares To Export LNG To Boost Trade Relations
  • 3 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 4 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 4 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 4 days Rosneft Announces Completion Of World’s Longest Well
  • 4 days Ecuador Won’t Ask Exemption From OPEC Oil Production Cuts
  • 4 days Norway’s $1 Trillion Wealth Fund Proposes To Ditch Oil Stocks
  • 4 days Ecuador Seeks To Clear Schlumberger Debt By End-November
  • 4 days Santos Admits It Rejected $7.2B Takeover Bid
  • 5 days U.S. Senate Panel Votes To Open Alaskan Refuge To Drilling
  • 5 days Africa’s Richest Woman Fired From Sonangol
  • 5 days Oil And Gas M&A Deal Appetite Highest Since 2013
  • 5 days Russian Hackers Target British Energy Industry
  • 5 days Venezuela Signs $3.15B Debt Restructuring Deal With Russia
  • 5 days DOJ: Protestors Interfering With Pipeline Construction Will Be Prosecuted
  • 5 days Lower Oil Prices Benefit European Refiners
  • 5 days World’s Biggest Private Equity Firm Raises $1 Billion To Invest In Oil
  • 6 days Oil Prices Tank After API Reports Strong Build In Crude Inventories
  • 6 days Iraq Oil Revenue Not Enough For Sustainable Development
  • 6 days Sudan In Talks With Foreign Oil Firms To Boost Crude Production
  • 6 days Shell: Four Oil Platforms Shut In Gulf Of Mexico After Fire
  • 6 days OPEC To Recruit New Members To Fight Market Imbalance
  • 6 days Green Groups Want Norway’s Arctic Oil Drilling Licenses Canceled
  • 7 days Venezuelan Oil Output Drops To Lowest In 28 Years
  • 7 days Shale Production Rises By 80,000 BPD In Latest EIA Forecasts
  • 7 days GE Considers Selling Baker Hughes Assets
  • 7 days Eni To Address Barents Sea Regulatory Breaches By Dec 11
  • 7 days Saudi Aramco To Invest $300 Billion In Upstream Projects
  • 7 days Aramco To List Shares In Hong Kong ‘For Sure’
  • 7 days BP CEO Sees Venezuela As Oil’s Wildcard

Manufacturing Sector Starting to Show Benefits of US Shale Boom

Manufacturing Sector Starting to Show Benefits of US Shale Boom

The lovely graph below is similar to graphs often rolled out by supporters of the US manufacturing sector when raising fears about the decline of industry’s role in the economy – and America’s role in the world as a manufacturing nation:

Manufacturing Share of GDP

Taken at face value, the decline appears inexorable, but when tracked as this one is, i.e. against world manufacturing, it can be seen that the US really only matches the mature world economies’ rise in the service sector as a proportion of GDP.

Related article: US: Fracking Regulations for Federal Lands?

Even more encouraging is this next graph of US manufacturing, which shows that, far from decline, US manufacturing has grown over the decades even if its rise has not kept pace with the increasing role of the services sector:

Manufacturing Share of GDP

So before we all slit our wrists in the manufacturing sector, let’s take some comfort in the fact that US industry has held its own in an increasingly global environment and has plenty of scope to continue to expand in the future.

An intriguing article in the Telegraph by Tom Stevenson, an investment director at Fidelity Worldwide Investment, discusses not the ongoing health of US manufacturing, but the once-in-a-lifetime game-changer that low energy costs could be providing for the US over the next 10 to 20 years.

There has been a lot of media coverage on the impact that shale natural gas and oil supplies could have on the US economy, but Stevenson draws a cute analogy with the California Gold Rush, saying the real fortunes weren’t made by those panning for gold, but by those selling picks and shovels to the prospectors.

In particular, Levi Strauss jeans grew from the same humble beginnings to become not just a household name and multibillion dollar turnover business, but an icon of the USA to the point that Levi jeans were almost a tradable currency in Eastern Europe during the days of the Cold War.

The point of Stevenson’s musings is along these lines: that while low energy costs will likely raise all boats in the US economy, it will raise some more than others. That is true among the metals industry as much as any other sector, and not always in the most obvious way or at the same time.

For example, one clear beneficiary already has been the rail-freight business with the likes of Canadian Pacific and Union Pacific gaining from a significant increase in volumes of crude oil and petroleum products.

Related article: SOUTH AFRICA: Shale Gas Permits Remain Elusive

With the shale reserves often found in areas without existing pipeline infrastructure, the railways have stepped in to the breach and profited as a result.

But five or 10 years from now, once infrastructure is built along major trunk routes, liquefied natural gas could significantly reduce the cost of road haulage, driving sales for firms like Cummins, who is pouring considerable resources into natural gas-powered engine development and manufacturing capability. Likewise, steel firms could benefit enormously from lower energy costs, but some could benefit more than others.

Shale Gas Bsins in the US

The Barnet and Eagle Ford shale gas deposits are relatively close to refining centers, making their product readily accessible to the Gulf Coast and Texas petrochemicals industry, but many deposits are not so conveniently positioned. Bakken, straddling the Canadian border, and Mancos-Niobrara, straddling the Utah-Colorado border, are better situated for serving local needs such as they are.

Could we see the likes of Nucor, Gerdau and Steel Dynamics expand operations in such locations on the basis of long-term energy deals?

Producers with many production facilities in diverse locations may benefit more than those concentrated in just one or two sites, unless they are lucky enough to be close to a deposit. The size of the Marcellus and New Albany resources will certainly have an impact on energy-consuming industries in the northern Midwest and Northeast; will this reverse the trend of recent decades to site new facilities in previously rapidly expanding southern states?

Plants like US Steel’s massive Gary Works probably already have a new lease on life accessing energy at well below the international market level, but will that mean the likes of US Steel will favor future investment in plants like this?

Energy can be transported, whether it is in the form of natural gas, or oil, or converted into electricity, but infrastructure is costly and is either lacking or needs upgrading (as we have seen) with renewable technologies such as wind farms. Industries that are sited close to abundant natural gas reserves or are willing to locate adjacent to them will reap the greatest rewards.

Picking the winners and losers from such a fast-changing situation will be challenging, but the effects are already rippling out through the metals industry and will become more profound in the years ahead.

One effect that will be welcome by all is that the slow manufacturing decline relative to overall GDP – seen in the graph in the first part of this article – is already beginning to turn, and the process has only just begun.

By. Stuart Burns

Back to homepage

Leave a comment
  • Michael Ray on May 02 2013 said:
    Hello Stuart - Great article. I have been assuming that as America nears relative energy independence those companies and industries most reliant on energy should benefit. One question though? You mention that liquified natural gas will boom but little infrastructure in place right now BUT it is coming. Would not a Chicago Iron & Bridge (CBI) be the right place to be besides Cummins as the real beneficiary of the pipeline build out? Funny you should mention US Steel (X) as I was thinking along the same lines.
    Would enjoy your thoughts on who really puts all of that required infrastructure in place.
    Many thanks!!

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News