As US Exports More Natural Gas, Manufacturers Worry About Increased Prices

by | Aug 23, 2017

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If you ask the manufacturing and chemical sectors what their greatest blessing has been in recent years, the answer will generally be the plethora of natural gas that has been made accessible to them and how this has decreased their cost of doing of business. But if you turn around and ask them what could be among the greatest threats they now face, some would respond that this newfound national resource would be liquefied and shipped around the world in the form of LNG.

Manufacturers say that they use natural gas for drying, melting and space heating, as well as a feedstock for refining and making chemicals and metals. They are making use of both “dry” natural gas and the “wet gas” that is separated from it. Those so-called natural gas liquids are comprised of such chemicals as butane, ethane, methane and propane — all of which can serve as the foundation for finished goods that are consumed domestically and exported around the globe.

“Over the next decade our nation’s demand for natural gas is only going to grow and much of that growth is from manufacturing,” National Association of Manufacturers President and CEO Jay Timmons said. 

To be clear, there’s traditional natural gas and then there’s shale, or unconventional natural gas that is embedded in rocks a mile below the earth’s surface. The ability to access the shale gas is what has ignited the natural gas revolution.

The United States has been the leading producer of natural gas since 2009. But this year, it is also expected to be a net exporter of the fuel. That’s because of extended pipelines to Mexico and because of less imports from Canada. But it is also because this country is building several LNG export facilities to meet the expected demand from Asia and Europe.

And that demand is expected to push up prices here at home, which will increase the cost of business for chemical makers and manufacturers. While American producers are expected to increase their supplies 48% over the next decade, the Industrial Energy Consumers of America says that if they are forced to pay more, it would lead to higher production costs and ultimately less output — factors that would negatively impact the U.S. economy. 

“The fact is that utilizing natural gas in manufacturing, as compared to exporting it, creates eight times more jobs, twice the direct value added per year and 4.5 times the direct construction jobs,” Paul N. Cicio, president of the Industrial Energy Consumers of America wrote to Energy Secretary Rick Perry, adding that the United States should not agree to send its LNG to countries that subsidize their manufacturing businesses — like China.

China, for example, is expected to be the globe’s biggest importer of LNG, at 40% of the world supply. And in May, the US Commerce inked an agreement with China to allow it to enter into long term contracts with U.S. suppliers.

To meet that demand, the U.S. energy agency notes that five liquefaction facilities are under construction here: Cove Point, Cameron, Elba Island, Freeport, and Corpus Christi, all of which will come online in the next three years and increase total U.S. liquefaction capacity from 1.4 billion cubic feet per day now to 9.5 billion cubic feet by the end of 2019.

The Center for LNG says that the Industrial Energy Consumers of America have an unrealistic outlook. That is, they contend that the supply of natural gas is dynamic — that as technology improves so too will the amount of available shale gas. He notes that the amount of accessible natural gas has been continually adjusted upward.

Those manufacturers “unrealistically limits the size of the natural gas resource base by assuming that technology will never advance and our resource will remain frozen at current estimates, conveniently overlooking the fact that resource estimates are constantly changing due to advances in technology,” says the Center for LNG’s Executive Director Charlie Riedl, in an email interview. 

In 2000, shale gas accounted for 5 percent of all gas production in the United States and today, it is about 60 percent, according to U.S. Energy Information Administration.

Manufacturers and chemical producers had been paying as much as $14 per million Btus in 2005 and now they are paying close to $3 per million Btus — something that IHS Markit says will lead to an additional $328 billion in new manufacturing output by 2025. According to the U.S. Energy Information Administration, natural gas exports will make up 10-12% of U.S. natural gas production over the next decade — leaving plenty of capacity for American businesses. 

Dow Chemical Co., for example, has just completed an ethylene production facility in Freeport, Texas, which represents a $6 billion investment in the U.S. Gulf Coast. “Our growth investments leverage the advantaged shale gas supply available in the U.S., and represent thousands of new jobs and significant economic value, including exports of approximately 20 percent of our U.S. production,” Chief Executive Andrew Liveris said.

The reality is that both the Obama and Trump administrations have pushed for more natural gas exports in the form of LNG. To artificially limit producers’ markets to the United States is anathema to capitalism. And while such exports may increase the prices that manufacturers will pay for their feedstock, they will still be blessed with ample supplies at internationally competitive prices.

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