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Shale gas, chemistry and the manufacturing multiplier effect

The awards season is upon us and shale gas is winning acclaim as the star of America’s economic recovery.

Kevin Bullis, senior editor for energy at MIT Technology Review, is just the latest thought leader bestowing accolades on shale gas. Bullis noted in a Fox News commentary that the mention of a manufacturing renaissance conjures images of advanced robots doing the heavy lifting on the shop floor or an advanced factory making wind turbines.

But “the real American edge might be something entirely more mundane,” Bullis wrote recently. “Cheap starting materials for plastic bottles and plastic bags.”

The economic resurgence starts with natural gas, according to Bullis:

[quote]The plummeting price of natural gas—which can be used to make a vast number of products, including tires, carpet, antifreeze, lubricants, cloth, and many types of plastic—is luring key industries to the United States. . . . Over the last 18 months, these low prices have prompted plans for the construction of new chemical plants to produce ethylene, ammonia for fertilizer, and diesel fuels.[/quote]

The major beneficiary of low gas prices is the $148 billion ethylene industry, Bullis stated. Ethylene extracted from the ethane contained in natural gas is used to manufacture everything from bottles and toys, to clothes, pipes, carpets and tires.

Because of low natural gas prices, the United States enjoys a huge price advantage for ethylene, which costs $300 per ton, down from $1,000 per ton a few years ago, and much cheaper than the $1,717 per ton price tag in Asia, where factories depend on high-priced oil instead of gas, according to Bullis.

The benefits from this price difference are huge. Over the last two years, manufacturers have announced plans to add 10 million metric tons of ethylene capacity in the United States by 2019, accounting for close to half of the industry’s planned expansions globally, Bullis wrote. Bullis sees the benefits from low natural gas prices on manufacturing extending beyond chemical production to steel and other products, which in turn makes the U.S. more attractive for investment.

Joseph Carson, the director of global economic research at Alliance Bernstein, agrees. In a recent interview, he credited low-priced gas for growth throughout the manufacturing supply chain:

[quote]When production is brought back home, you require considerable materials, supplies, distribution and an export framework. The manufacturing part of the economy has huge multiplier possibilities.[/quote]

Yes, natural gas from shale deserves another round of applause.

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