Industry leaders: Domestic oil, gas driving U.S. manufacturing resurgence

10 26, 2012 by Fuel Fix

Leaders from business, manufacturing and chemical groups struggled Thursday to find superlatives big enough to describe the transformation in the United States’ energy landscape amid an explosion in domestic oil and gas production.

Sean McGarvey, the president of the AFL-CIO’s building and construction trades department, said the surge of oil and gas being extracted from shale and other dense rock formations nationwide translates into jobs for the workers he represents.

John Larson, a vice president at IHS Global Insight, described a “tsunami of production coming online” from the Bakken in North Dakota, the Eagle Ford shale in South Texas and other parts of the country.

And American Petroleum Institute President Jack Gerard said a “revolution in shale energy” is giving an advantage to the western hemisphere and providing the U.S. with a new avenue to “heal our economy and put it back on track.”

The commentators, who offered their optimistic outlooks during an API-sponsored forum on energy and the election in the nation’s capital, broadly described the spike in domestic oil and gas production as essential to driving growth despite a sluggish economy.

A major theme: How factories downstream are harnessing the oil and gas being pulled out of the ground in the West, Northeast and Midwest not just to power operations, but also as a feedstock transformed into products domestically.

Owen Kean, senior director for energy policy at the American Chemistry Council, noted that natural gas and natural gas liquids are used as a building block to create fertilizers, polymers and other products.

As long as natural gas liquids are pouring out of some wells, “we will continue to enjoy a decisive competitive advantage,” Kean said.

“NGLs are our bread and butter,” he added. The current production makes “the United States the place to be.”

Kean said the industry has responded to the promise of cheap and abundant natural gas by announcing more than $40 billion in new investments in the U.S. over the next several years. Cheap natural gas — transformed into polymers later sold to fabricators — also is a lure for manufacturers of auto parts and other durable goods that moved offshore to return to the U.S., We’re seeing “a resurgence in manufacturers of finished products that I think a lot of people had written off,” Kean said.

Ross Eisenberg, vice president of energy and resources policy for the National Association of Manufacturers, noted that it is still 20 percent more expensive to produce goods in the United States compared to overseas. But U.S. manufacturing enjoys a cost advantage when it comes to energy.

“We actually have a remarkable opportunity to expand that advantage and try to make it easier on the whole to compete globally,” Eisenberg said. But, he cautioned, that edge could fade ”if you take a step back.”

The location of new unconventional oil and gas extraction in the United States also is changing the siting of chemical and manufacturing plants.

Kean envisions clusters of manufacturing facilities around energy hubs. “Instead of shipping raw material up from the Gulf,” they’d be able to take advantage of economies of scale and use supplies closer to home, Owen suggested.

A potential threat to the equation is the possibility that the U.S. will begin selling more of its natural gas bounty overseas.

The Energy Department is vetting applications from more than a half dozen companies to begin exporting liquefied natural gas. Although the United States already sells some natural gas to Mexico, Canada, Brazil and a few countries, pending proposals could put the U.S. on track to export more than 16 billion cubic feet daily.

An Energy Department study expected later this year will evaluate how selling more American-harvested natural gas overseas would affect prices for U.S. consumers.

But Christopher Guith, vice president for policy at the U.S. Chamber of Commerce’s Institute for 21st Century Energy, downplayed that worry.

“There’s a lot of fearmongering by people who don’t want to see these hydrocarbons produced at all,” he said, noting that it would take a while for liquefaction and export facilities to come online. That would mean “marginal at best” impacts from exports.

Naysayers were hard to find at the event Thursday, but some analysts caution that abundant domestic supplies don’t guarantee a drop in the cost of energy, especially since oil prices are set on a world market, subject to a complex mix of factors outside the United States’ control. Even if net U.S. or North American oil imports plummeted to zero, the United States would still be connected to that global market.

And other skeptics warn that tremendous unconventional oil and gas pouring out of U.S. wells won’t last forever. Art Berman, a Sugar Land energy consultant and David Hughes, a geologist at the Post Carbon Institute, have highlighted 40 percent decline rates wells in the Bakken formation. That initial boom of oil coming out of Bakken wells starts dropping fast — and energy companies must keep drilling to replace the decline.