Cheap Natural Gas Boosts Manufacturing

The fastest-growing slice of the U.S. manufacturing sector today is not being driven by automation or cutting-edge robotics but instead by cheap, plentiful natural gas unleashed by fracking shale deposits.

From 2011 to August 2014, the American Chemistry Council, the trade association of the chemical industry, tallied 196 announcements of new chemical plants or upgrades to existing ones in the United States, with investments totaling $124 billion. Huge petrochemical companies such as Saudi Basic Industries, Dow Chemical, and Chevron Phillips Chemical Company are among the investors. Texas is undergoing the largest expansion of petrochemical manufacturing since the 1960s, and other gas-rich parts of the country, including Pennsylvania and the Ohio Valley, are benefiting too.

Many of these investments are from companies that use natural gas instead of petroleum as a raw material, such as the large petrochemical producers. But cheap natural gas is also offering the prospect of lower electricity costs, which gains the attention of a broad spectrum of manufacturing. The U.S. Conference of Mayors expects employment in energy-intensive manufacturing to grow 1 percent a year through 2020. Steelmaker Nucor has opened a plant in Louisiana that will use natural gas to strip oxygen from iron ore, a classic manufacturing technique that, before the shale boom, had been too expensive for the company to do in the U.S. Tire companies that had largely moved manufacturing to China in recent decades have now announced eight new U.S. plants, including new Bridgestone and Michelin facilities in South Carolina.

U.S. manufacturers could see their energy costs drop by more than $20 billion a year by 2030, according to consulting firm PwC. That could benefit electricity-intensive advanced manufacturing plants, but for many advanced manufacturing facilities the potential savings from cheap electricity are secondary to other considerations.

Samsung Electronics, which operates semiconductor fabrication plants in Austin, Texas, pays close to $60 million a year in electrical bills, says general counsel Catherine Morse, but its recent decision to invest $4 billion mostly in new tooling at the site had nothing to do with electricity prices. Its energy supplier, Austin Energy, relies extensively on solar and wind power, so cheaper gas has a limited benefit for Samsung.

The investment was primarily motivated by an interest in expanding the existing plant’s expertise in logic chips, the chips that control the operation of digital devices. “We do benefit from lower natural-gas prices,” says Morse. “But that’s not driving our investment.”