Shale Gas Spurs Chemical Investment and Job Creation [Chemical

Engineering Progress]
Access to vast, new supplies of natural gas from previously untapped shale
deposits is creating a competitive advantage for chemical manufacturing in the U.S.
With this more-abundant, lower-cost feedstock, the U.S. has become a cost-
advantaged location for investment, resulting in industry growth and job creation.
Growth in domestic shale gas production significantly impacts the chemical
industry, which uses natural gas for fuel as well as a raw material. For example,
U.S. chemical companies use ethane derived from natural gas liquids (NGLs) as a
feedstock in numerous applications. Its relatively low price (a direct result of the
abundance of shale gas) gives U.S. manufacturers an advantage over many
competitors in other parts of the world that rely on naphtha - a more-expensive, oil-
based feedstock. Since 2005, the price of ethane has dropped while the price of
naphtha has gone up (Figure 1).
As economic theory teaches and history shows, a reduction in the cost of an input
to production, such as natural gas and ethane, leads to enhanced competitiveness
and a positive supply-chain response. In other words, the supply-demand curve
shifts to the right and a higher quantity of output is produced at a lower cost.
Economic theory also states that the lower the cost of a good, the higher the
demand by consuming industries.
The American Chemistry Council (ACC) has analyzed the potential economic and
employment benefits of natural gas development from shale in three reports, the
third of which was released in May. In this most recent study, "Shale Gas,
Competitiveness, and New U.S. Chemical Industry Investment: An Analysis Based
on Announced Projects," the ACC examined the chemical industry projects that
have been announced as of March 2013 to determine the impact of shale-gas
deposits on the potential for job creation, increased output, and additional tax
revenue at the state, local, and federal levels. The analysis was divided into two
parts: economic impacts that occur during the initial 10-yr capital-investment
phase, when new equipment is purchased and plants are constructed; and th
economic impacts as a result of ongoing increased chemical output, made possible
by lower natural gas prices and increased availability of ethane (Table 1 ).
Capital investment The study forecasts that the U.S. chemical industry's
incremental capital expenditures arising from the availability of shale gas will
reach $71.7 billion by 2020. Already, $3.2 billion of that was invested in 2012, and
$2.5 billion during 2010-2011. The remaining $66.0 billion will be spent between
2013 and 2020.
These capital investments include new greenfield crackers, capacity expansions for
existing products, capacity for new products, replacement of existing plants and
equipment, and projects to improve operating efficiencies, energy utilization, and
environmental, health, and safety performance, among other projects. The
scheduled start-up dates of announced projects indicate that capital spending will
peak at $14.6 billion (in 2012 dollars).

Many of the recently announced projects have an anticipated start-up date of 2018
or later. As a result, the wave of investments related to shale gas will continue well
past 2020 before tapering off. ACC estimates that the chemical industry could
invest an additional $24.5-$29.5 billion (in 2012 dollars) during the 2020-2025
period. By 2025, the potential cumulative investments arising from the renewed
industry competitiveness could reach $96-$ 112 billion (in 2012 dollars). This
conjecture is based on the analysis of previous investment cycles based on factors
similar to the availability of shale gas, as well as previous cycles of chemical
industry capital spending.
These additional investments are spread over several industry segments (Figure 2),
with the majority (55%) for bulk petrochemicals, followed by plastic resins (22%),
fertilizers (14%), inorganic chemicals (4%), and other products (5%). This
distribution by industry segment will likely evolve as more projects are announced,
particularly for downstream petrochemical derivatives such as plastic resins.
Geographically, the projects are highly concentrated in the Gulf Coast, with 78%
of the investments in this region (Figure 3).
Increased output and job creation As new projects come onstream, the incremental
value of their output ($67 billion in constant 2012 dollars) indicates a substantial
boost (9% higher in 2020) to a baseline projection of the value of U.S. chemical
industry output in the absence of shale gas. This added output will lead to the
creation of more than 46,000 jobs in the U.S. chemical industry. Through indirect
effects, another 264,000 supply chain jobs will be supported by this boost in
chemical industry output.
Finally, the wages earned by new workers in the chemical industry and workers
throughout the supply chain are spent on household purchases and taxes. These
expenditures generate nearly 226,000 jobs - induced by the response of the
economy to changes in household spending as a result of labor income generated
by the direct and indirect effects. All told, the additional output of the chemical
industry as result of shale gas will generate $201 billion in output to the economy
and nearly 537,000 jobs in the U.S., with a payroll of $34 billion. This comes at a
time when millions of Americans remain out of work.
Legislative and regulatory policies Shale gas offers the U.S. an enormous
opportunity to become more competitive internationally, grow its economy, and
create jobs. To capitalize on it, industry needs policymakers to develop balanced
legislative and regulatory policies that reflect the importance of natural gas as both
an energy source and a manufacturing feedstock, while protecting our water
supplies and environment.
ACC believes that state governments have the knowledge and experience to
oversee hydraulic fracturing in their jurisdictions, and therefore supports state-level
oversight of hydraulic fracturing. Furthermore, ACC is committed to transparency
regarding the disclosure of the chemical ingredients of hydraulic fracturing
solutions, subject to the protection of proprietary information.
A host of policies will influence whether domestic natural gas supplies remain
robust and affordable and, in turn, whether America's manufacturing renaissance is
sustained. To reach these goals, such policies would need to: * allow access to oil
and gas reserves on federal, state, and private lands * continue state-based
regulation of unconventional oil and gas production * improve the ability to site,
permit, and build infrastructure that links oil and gas production to chemical
manufacturing facilities * preserve coal's important role as an energy source for
base-load power generation * maintain accelerated depreciation schedules for
chemical industry investments in new plants and equipment * expand access to
foreign markets for U.S. goods.
Wrapping up Chemical companies have announced new projects to build and
expand their shale-advantaged capacity in the U.S. The majority of these projects
plan to expand capacity for ethylene, ethylene derivatives (e.g., polyethylene,
polyvinyl chloride), ammonia, methanol, propylene, and chlorine. The focus of this
investment wave will become more balanced, with more projects for higher-value-
added downstream products. Much of the investment is geared toward export
markets, which will help improve the U.S. trade deficit.
Roughly half of the announced investments to date are from firms based outside
the U.S. The fact that so many foreign-owned companies are choosing to source
their chemistry in the U.S. is unprecedented in recent history, and a testament to
the value and affordability of America's shale gas. The U.S. is poised to capture
market share from the rest of the world, and no other country or continent has as
bright an outlook when it comes to natural gas. gJJ Acknowledgments This article
is based on an American Chemistry Council report authored by Martha Gilchrist
Moore and Thomas Kevin Swift T. Kevin Swift American Chemistry Council T.
KEVIN SWIFT is the chief economist at the American Chemistry Council
(Washington, DC; Phone: (202) 249-6180; Email: kevin_swift@
americanchemistry.com), where he is responsible for economic and other analyses
dealing with markets, raw materials, trade, taxes, energy, and competition and
innovation, as well as monitoring business conditions and identifying emerging
trends for the domestic and global chemical sector. Previously, he held senior and
executive positions at several business information/database companies, directing
business research, forecasting, and consulting efforts, as well as domestic and
international business forecasting services and related online databases. He started
his career at Dow Chemical USA. He is a member of the National Association for
Business Economics, the Harvard Discussion Group of Industrial Economics, the
National Economists Club, the Strategic Management Society, and the Socit de
Chimie Industrielle. He received a ?? from Ashland Univ. and an MA from Case
Western Reserve Univ., both in economics. He also received a doctorate in
business administration from Anglia Polytechnic Univ.