Discussion: (7 comments)
Comments are closed.
A public policy blog from AEI
View related content: Carpe Diem
From today’s WSJ article “Cheap Natural Gas Gives New Hope to the Rust Belt,” more coverage of the shale energy revolution in America, which represents a seismic shift in the energy landscape that is transforming the U.S. economy in powerful ways and sparking a manufacturing renaissance, thanks to cheap, abundant shale gas (see chart above of inflation-adjusted natural gas prices for industrial users, which are close to historical lows):
Plunging prices have turned the U.S. into one of the most profitable places in the world to make chemicals and fertilizer, industries that use gas as both a feedstock and an energy source. And they have slashed costs for makers of energy-intensive products such as aluminum, steel and glass.
“The U.S. is now going to be the low-cost industrialized country for energy,” the energy economist Philip Verleger says. “This creates a base for stronger economic growth in the United States than the rest of the industrialized world.”
In mid-2008, U.S. natural-gas prices topped $12 per million BTUs (see chart above). The current price is just $3.54 per million BTUs. The U.S. government expects the average price to stay below $5 for another decade, after adjusting for inflation. German and French companies now are paying nearly three times as much for gas as U.S. companies, and Japanese companies even more than that.
Natural gas will help some industries immensely, but others less so. It accounts for about 70% of the cost of making fertilizer, and 25% of the cost of making many plastics.
Between 1998 and 2004, fertilizer producers—which use natural gas to make ammonia, the key component in nitrogen fertilizer—shut down more than two dozen U.S. plants, representing close to half of U.S. capacity. Some facilities were literally taken apart and shipped overseas, where gas was cheaper.
Now the trend is reversing. In September, Egyptian industrial giant Orascom Construction Industries announced plans for a $1.4 billion fertilizer plant in Iowa, which the company says would be the first large-scale fertilizer facility built in the U.S. in more than 20 years.
Deerfield, Ill.-based fertilizer maker CF Industries Inc. is planning to spend up to $2 billion boosting its U.S. production through 2016. “It’s been a complete 180-degree change in our thought process,” says CF Industries CEO Steve Wilson.
Comments are closed.
1150 17th Street, N.W. Washington, D.C. 20036
© 2015 American Enterprise Institute for Public Policy Research