The Economic Importance Of American Natural Gas – Huge Benefits Include Lower Electricity Costs and A Boost For The Plastics And Chemical Industries That Use Gas As A Key Ingredient

By Paolo von Schirach

December 28, 2011

WASHINGTON – A recent The Wall Street Journal story reported that newly exploitable, abundant and cheaper US natural gas is fueling now a renaissance of the American chemical and plastics industries, since they both use natural gas as feed stock. New plants are coming on line, workers are hired. This is really great news, with wide ranging, positive implications for an otherwise battered US economy. Significantly lower costs for a key industrial component translate into better pricing power and enhanced competitiveness for US chemical products, fertilizers and plastics products. Gas producing states like Ohio, West Virginia and Pennsylvania will get new investments, as manufacturers will want to locate their facilities close to the gas supply.

The US natural gas revolution

Let’s say this once more: the veritable “natural gas revolution” made possible by the hydraulic fracturing (“fracking”) and horizontal drilling technologies that make shale gas (gas trapped in rock formations) accessible is by far the best energy and economic news of the last three or four years.

Given its magnitude and wide ranging implications, I frankly cannot understand why, aside from occasional articles like this one in the WSJ, the US shale gas revolution is a surprisingly under reported story.

Washington silence

Even more amazing is the almost complete Washington silence regarding this gas renaissance. For the Obama administration all this might as well not have happened. Is it because natural gas is a fossil fuel and therefore “bad” compared with the “good” green energy provided by wind and solar? Is it all about bias?

Ideological bias against fossil fuels

May be. May be policy makers wedded to the “green economy” idea, (or should I say ideology?), do not want to revise their plans in the light of abundant and really cheap natural gas. Indeed, it may be painful to have to admit that all the rosy projections regarding the benefits of solar panels and wind towers have to be reconsidered, at least for the time being, in the light of much lower natural gas prices that require no subsidies. In fact, the market is providing the cold shower anyway. Even with subsidies, the US solar industry collapsed as it cannot stand on its own foundations. The Solyndra (a promising solar company funded by the US Government) debacle is just one example of failed Washington industrial policies through which policy makers try to pick winners and losers in a still uncertain energy environment.

Policy makers’ negligence

Still, even with renewable energy technologies showing their current limitations, policy makers’ failure to recognize this new fossil fuel bounty and to take it into consideration in framing a solid energy policy that industry and the public can understand and embrace is negligence. This US natural gas phenomenon is not just a blip. Most estimates indicate that shale gas exploitation now guarantee supplies for another 100 years. In fact, recent revisions indicate an additional 25 years.

Immense implications of abundant American gas

If we take all this in, even though president Barack Obama mentioned at some length natural gas in only one major speech, the energy security and economic implications of these vastly expanded gas reserves are immense. America now has more gas than Russia. And the benefits are augmented by the luck of geographic locations of the largest deposits.

Indeed, this new American gas is not in some remote, underpopulated areas from which it needs to be transported to end users at additional costs. On the contrary, much of the new gas is in Pennsylvania (Marcellus shale) and Ohio (Utica shale), that is to say right in the middle of the highly populated and industrial North East. No need to build major new infrastructure, Gas can be supplied to existing utilities and there is no need to construct new transmission lines to send the electricity to the customers. Abundant natural gas, right next to factories and tens of millions of consumers, means cheaper electricty for households, businesses and factories. All this is like supplying precious oxygen for an out of breath US economy.

Lower prices

Consider this. As the WSJ reports, now 1/3 of all US natural gas production is coming out of newly exploited shale gas deposits. As a result of this additional supply, (coming on line at a time in which it was estimated that the US had to become a net importer), US natural gas prices have fallen dramatically. Six years ago natural gas cost $ 15 per million British Thermal Units, (BTUs), now future prices are around $ 3.20. This is incredible. This means much lower power generation costs and therefore lower electricity costs. And it is also a major boost for states like West Virginia now trying to convince Shell to open up an ethylene plant there, relying on a steady supply of shale gas, (necessary to produce ethylene).

Lowest world costs outside of the Middle East

Outside of the Middle East, the US has now the lowest natural gas cost in the world with obvious benefits for the entire US economy. And natural gas can also be used as transportation fuel, as T. Boone Pickens has been saying. Here the low hanging fruit is represented by heavy trucks. The technology exists to build trucks running on natural gas, as opposed to diesel fuel. Even taking into account the upfront large investment necessary to switch to new trucks, there will be huge savings down the line for fleet operators because of the lower cost of natural gas. Not to mention the added environmental bonus of natural gas lower emissions. Large vehicles running on comparatively much cleaner natural gas emit a lot less.

So, let’s consider this: American shale gas is good for US energy security, for the economy, for many industrial sectors and for transportation, while it reduces US greenhouse gases emissions. It is about time to tell this story.

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