Affordable natural gas sparks global manufacturers’ investment in America

What do Austria’s Voestalpine, Egypt’s Orascom Construction Industries, Germany’s Wacker Chemie, Japan’s Idemitsu Kosan, Taiwan’s Formosa Plastics and South Africa’s Sasol have in common?

According to Michael Birnbaum’s front page story in The Washington Post, the answer is each of these companies plans massive investments in the United States, whether it’s a $7 billion ethane cracker, a fertilizer plant in Iowa, an ethylene facility in Texas or a petrochemical operation in Texas. All are attracted to the United States because of America’s bright energy outlook, fueled by abundant and affordable supplies of natural gas.

As Birnbaum wrote:

Among those most affected are energy-intensive industries such as steel and chemicals, because they use natural gas as a raw material and power source. With Europe lagging in energy production, manufacturers on the continent warn that a chain reaction could shift more and more investment to U.S. shores.

Amid the challenges Europe is facing with energy production, natural gas prices there remain about four times higher than those in the U.S., pushing chemical giants such as BASF to invest $5.7 billion in North America since 2009, the Post said.

In an earlier news report, Reuters found that industrial companies in the United States are estimated to pay about $40 per megawatt-hour of electricity, compared to $58 in Germany and more than $98 in Britain.

Peter Loescher, the chief executive of German engineering conglomerate Siemens, said in Detroit last month:

The idea that energy costs in North America would always be more expensive no longer holds true. The new reality is that natural gas has turned that equation on its head.

In fact, it’s the price differential for natural gas and ethane derived from this gas that is producing an industrial revival in America.

“There’s no question we are seeing a renaissance in manufacturing because … the cost advantage has shifted to the United States,” Craig Alexander, chief economist from TD Bank Financial Group, told National Public Radio.

As a result, insourcing is replacing outsourcing as U.S. companies like General Electric, Boeing and Apple have decided to bring production home.

Of course, domestic manufacturers, generally, and the chemical industry specifically, are seizing on the long-term availability of inexpensive natural gas to boost investment. By 2020, we could see $72 billion in new chemical industry investments yield $67 billion in additional annual output.

No wonder, as The Washington Post reported, the people in Ludwigshafen see the United States as “the land of the future.”

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