Natural gas is a new
king of the hill, according to a newly released ExxonMobil’s
2013 Energy Outlook. Natural gas would displace coal as the world’s second
biggest energy source after crude oil, claims the report. One of the key
conclusions of the ExxonMobil report is that “North America will change to a
net energy exporter from an importer by 2025.” It predicts that over “half of
the growth in unconventional gas supplies will take place in North America,
providing a foundation for strong U.S. economic growth with solid contributions
from the energy, chemical, steel, and manufacturing industries.”
The latter points, however, appear to be a matter of debate.
To a degree, industrial growth is in a collision course with America’s ambitious
natural gas export plans. Gas prices hovering at around $3 per million metric
British thermal units in the U.S. for many months and energy companies
switching to more profitable crude oil production from shale formations,
exporting natural gas seems like a sensible policy, pushed forth by the energy
industry and some government officials. While it will take years before gas
exports will become a reality, given the time required to secure licenses and high
costs of liquefied natural gas (LNG) infrastructure, there is also a concern
that exports could be a setback for the U.S.
Namely, the manufacturing and industrial sectors see greater
difficulty to grow in the U.S. if natural gas exports materialize and push
domestic prices up. The revolution of the shale gas industry has revitalized domestic
industrial sector and brought back manufacturing from abroad to the U.S. Manufacturing
costs are much cheaper in the U.S. due to low-cost natural gas compared to even
places such as China, the world’s leading manufacturing workshop.
Major industrial firms began taking advantage of low energy
costs in the U.S. and creating jobs. For example,
“steelmaker Severstal recently expanded its Mississippi and Michigan plants,
and Airbus unveiled plans for a giant, new factory in Alabama.” Dow
Chemical, among other major chemical companies, “which is investing $4 billion to build three new chemical
plants in Texas and restart a fourth in Louisiana, compiled a list of 102
projects across a range of industries worth a total of some $80 billion that
are being started in response to the availability and low price of domestically
produced natural gas.” Investment in manufacturing is attractive to even some energy
companies, such as Shell Oil, which is mulling over construction of a large
petrochemical complex in shale gas-rich Pennsylvania to produce ethylene, a feedstock
for plastics, from ethane.
These and other companies
are now concerned that exports of natural gas will increase the prices, which have
enabled the U.S. industrial renaissance, and threaten billions of dollars worth
investments in capital. According
to Dow Chemical’s vice president of climate change and energy, George
Biltz, “if a single cubic foot of natural gas is
exported, it gives the United States a one-time jolt. But if you take that same
cubic foot and you roll it through manufacturing, whether it's steel or
chemicals or pulp and paper or rubber, this has as much as a 20x impact when
you roll it through the whole GDP of the country.” A recent study
by NERA Economic Consulting for Department of Energy argues that exports will
not bring sharp increases in gas prices; on the contrary, “export revenue would
generally help most Americans.” The NERA report
admits that “natural gas prices could jump by over a
dollar per thousand cubic feet, or more than 25 percent, over five years if
there are significantly more exports,” which would still be much lower than
just four years ago. It
is to be seen whether the U.S. Department of Energy
will manage to ensure that continued issuance of export licenses would not to drive
up gas prices high enough to carry negative consequences on manufacturing and
industrial production.
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