November 18, 2013    Volume 20, No. 15

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Cheap Natural Gas Is Driving Heavy Investment In Heavy Industry


By Richard McCormack
richard@manufacturingnews.com

The U.S. chemical industry is experiencing a surge of new production capacity due to cheap natural gas. Other industries that use natural gas as a feedstock or energy source are also adding factories, according to a weekly tally of new plants and expansions conducted by Thomas Kevin Swift, Chief Economist and Managing Director at the American Chemistry Council.

Since Swift started keeping track of new projects related to the oil and gas boom in the U.S. chemical, plastics, tire, steel and energy industries (including LNG export terminals) in June 2013, he has documented 134 major new additions and expansions worth $89.3 billion in cumulative capital investment. In May of this year, there were only 97 projects on his list, growing by one-third through the last week of October 2013.

"This is a major trend -- oh yes," says Swift. The total investment value might soon be approaching $110 billion and the total long-term GDP economic growth potential could be 0.2 percent to 1 percent every year.

In looking specifically at bellwether chemicals like ethylene and styrene, "at least one-third of the new global capacity being installed is occurring in the United States and that is up from zero or a negative number a decade ago," says Swift.

There is still a lot of capacity being added in the Middle East and China, which now has the world's largest chemical industry. But China no longer has a substantial cost advantage over the United States. New capacity is being added in China "because it is close to the markets," says Swift. Chemical plants do not need many employees.

With cheap natural gas prices, U.S. additions of chemical and plastics facilities could account for half of all new global capacity over the next decade. The U.S. growth rate for new chemical, plastics and other heavy industrial plants "is going to accelerate next year and the year after that and the year after that," says Swift.

Much of this capacity is coming back to the United States having moved offshore over the past two decades, especially in the methanol sector, which was decimated over the past decade. "Chlorine and ethylene plants were all closed down over the past decade and now there is expansion," says Swift.

Cheap and plentiful natural gas is also driving a shift in the transportation sector. Hundreds of fleet operators are converting their gasoline- and diesel-engine trucks to compressed or liquefied natural gas. Among those companies that are converting their fleets are AT&T, Andersen Windows, Atlanta Gas Light, Central Freight Lines, Chesapeake Energy, Encina, FedEx, Flying J, Frito Lay, Swift Transportation, UPS, Waste Management and Yellow Cab. BNSF Railway is testing natural gas as a replacement for diesel for locomotives.

Low-cost gas is also helping the solar and wind power industries not only by reducing the costs of materials that make those products but also because gas is being used to power electrical generating stations when the sun isn't shining or the wind isn't blowing. "Natural-gas fired electricity represents an outstanding compliment to renewables as it can provide peak power," says the American Chemistry Council.

Of the 134 new plants and major expansions that have been tallied by Swift, more than half of them (54 percent) are owned by foreign companies. Of the 20 new iron and steel projects, nine are the result of direct foreign investment (Ansteel, ArcelorMittal, Essar Steel, Gerdau, ThyssenKrupp, V&M Star, Voest Alpine, Welspun and Whittmann Battenfield).

All five of the major new U.S. tire facilities or expansions are being built by foreign companies (BF Goodrich, Bridgestone, Continental Tire, Michelin and Yokohama Rubber).

The list of 134 new projects includes 13 major liquefied natural gas export terminals, one of which has been approved by the Department of Energy in Sabine, La. The others waiting approval are in Freeport, Texas; Lake Charles, La.; Cove Point, Md.; Coos Bay, Ore.; Hackberry, La.; Brownsville, Texas; Pascagoula, Miss.; Warrenton, Ore.; Savannah, Ga.; Caluhoun County, Texas; Sabine Pass, Texas; and Corpus Christi, Texas.


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