The Politics of Oil and Gas __ No. 3, “A Manufacturing Renaissance in the US?”

Will shale gas bring a manufacturing renaissance to the US in spite of the Obama administration’s best efforts to make energy costs “skyrocket”? Matt Clinch, of CNBC, thinks it may and that emerging nations; such as China, will be negatively affected.

With the help of cheap energy, manufacturing will pick up and move down the ladder to capturing the production of less “sophisticated” goods (computers, fabricated metals and automobiles) currently manufactured in emerging nations. As a result, the United States will likely compete with emerging markets for market share rather than being a consumer, Morgan Stanley said.

“As the manufacturing renaissance takes hold in the U.S., the move down the value-added ladder in the U.S. is likely to clash with China’s need to further increase the sophistication of its manufacturing base,” it said.

China, however, also has gas shale. They claim they has enough shale gas to provide all of China;s energy needs for 200 years. Maybe they do and maybe they don’t. We must always remember that China is a command economy and that always leads to gross inefficiencies. China is planning to spend $12.8 billion in the coming years to develop their shale gas resources. But, rather than bring in North American experts to do the drilling and development, they awarded all contracts to Chinese companies.

Given the limited extraction capability of Chinese firms, this will exacerbate the already immense challenges China faces in extracting the natural gas and bringing it to market.

These challenges are among the factors that have caused China to fall behind its own shale gas targets. Last year the National Energy Administration announced the goals of producing 6.5 billion cubic meters of shale gas annually by 2015 and between 60 and 100 billion cubic meters by 2020. But with China still not producing shale gas commercially the 2015 target seems increasingly out of reach. Besides this latest auction Beijing has announced subsidies to shale gas producers as a means of jump starting the industry.

It is not just that American manufacturing companies are thinking of bringing their factories back to America. The Wall Street Journal  notes that:

BEAVER COUNTY, Pa.—Three decades after being devastated by the closing of steel mills, this gritty river valley is hoping its revival will come from cheap natural gas.

The hope doesn’t rest on drilling rigs, but on a multibillion-dollar chemical plant thatRoyal Dutch Shell PLC is considering building here because of a flood of domestically produced natural gas. Community leaders are touting the plant as the first step toward reviving a manufacturing industry many thought was gone for good.

In mid-2008, U.S. natural-gas prices topped $12 per million BTUs. The current price is just $3.54 per million BTUs. The U.S. government expects the average price to stay below $5 for another decade, after adjusting for inflation. German and French companies now are paying nearly three times as much for gas as U.S. companies, and Japanese companies even more than that.

So, will the American Renaissance happen? The only thing standing in the way of an incredible economic boom, as a result of the world’s lowest cost energy, is American politics. As long as the regressive Progressives stay in power, they will do everything possible to derail this potential renaissance. Since Barack Obama took office in 2009, he and his Energy Penalty Agency Environmental Protection Agency have worked to drive up the cost of energy in America. Asylum Watch has reported that one influential leftist think tank is promoting a huge tax on each barrel of oil (Council on Foreign Relations)  and another wants to tax carbon (Brookings Institution). While Obama and his circus of fools are pushing wind power and solar power, European companies are looking to escape the high green energy costs their governments have forced on them and are looking to come to America where energy costs are or could be much lower. But, Obama’s priority is climate change. So, will sanity come to this asylum we live in or will progressive politics win over common sense?

Well, that’s what I’m thinking. What are your thoughts?

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Previous posts on The Politics of Oil and Gas

  1. The Politics of Oil and Gas __ No. 1, “New Middle East”?
  2. The Politics of Oil and Gas __ No. 2, “Will King Oil Be Dethroned By King Gas?”
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17 thoughts on “The Politics of Oil and Gas __ No. 3, “A Manufacturing Renaissance in the US?”

  1. Until the green religion is crushed, and we need a pogram to crush the greenies, shale will never be developed in America. If the greenies are not crushed we will witness the humiliating spectacle of the rest of the world developing shale while we fart around with windmills.

  2. Moving a sophisticated technologically advanced service economy down the totem poll into competitive manufacturing of staple low valued-added goods is hardly what I would call an economic renaissance. It is more like an economic degradation.

    No, cheap energy sources do not an economic success make, i.e., Venezuela, Saudi Arabia, Iran, Iraq, Russia, etc…. In fact, it could become a trap.

    Oil and gas is like any other raw material, you sell it to the highest bidder, whether it is in California or in S. Korea.

    Economic renaissance’s are real when they depend on the human brain, i.e., Britain in the 19th C. – no natural resources, just lots of smart people.

    1. You left out Norway, John. Natural gas may not turn out to be a internationally traded commodity. If all the descovery around the world are brought into production, transport LNG will not be viable. In the US demand can be increased by converting all coal fired power plants to gas, coverting vehicles to run on natural gas. Oil and coal can be exported. Then there could be a renaissance in manufacturing in the US, if government does not get in the way. That’s a big “if”.

      1. You are right about LNG. I am in shaky ground when it comes to the comparative advantages of LNG and the economic significance of its technological challenges.

  3. One would think that taking advantage of domestic energy would be a no brainer. One would think…

    I agree with John with one difference: Cheap energy, combined with creativity and ambition, and with liberty to utilize them (the three things your examples all lack) could lead to a renaissance. The cheap energy is a real asset, though. There are more things the human mind can come up with when energy to do things is cheap and abundant (two things that go together). Expensive energy is crushing to economic activity.

    1. Current prices are too low to support much more development unless more uses are found. Return manufacturing would help, converting vehicles to use natural gas would help big time. LNG for export is, in my opinion, a flash in the pan.

    1. Meant to include this posit: Household spending on food, housing, utilities, etc. has fallen from 53% of disposable income in 1950 to 32% today.

    2. The article does make good points. However, the middle class is shrinking. Cheap imports from China are mitigating for the time beiing. The workforce participation rate has been falling since 2000. It does seem to me that it is much harder today for young people to break into the middle class. But, I’ve been away for a long time. Your perspective is surely better than mine.

  4. I hope sanity will eventually win the day but this has become so politically ingrained in the left that it is going to be tough to convince enough politicians to reverse our regressive energy policies.

  5. Cheap energy will help, but that is not the whole story. The reason we have been able to compete with other countries to this point is our productivity, measured in dollars output divided by dollars input. Cheap energy plays into this part of the equation.

    Productivity improved for decades in this country because of innovation, automation and an abundance of cheap energy. If you look at the industries that have gone overseas, it started with labor intensive products like textiles, shoes, printed circuit boards, etc.

    At one time it seemed that our entire automobile industry would leave the country, but now it has been revived, not because of the American manufacturers, but because of foreign owned auto companies building highly automated plants in the USA. We have Mercedes and Honda in Alabama, Kia and Hundai in Georgia, Nissan in Tennessee, BMW in South Carolina, and other foreign owned manufacturing plants in other states.

    In my opinion companies will move some of their manufacturing back to the USA because the cost of building an automated plant in some other country is not that different from the cost in the USA.

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