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Jerry Jasinowski

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Natural Gas -- True Game Changer

Posted: 04/18/2012 8:34 am

The precipitous decline of natural gas prices -- to less than $2 per 1,000 cubic feet for the first time in a decade -- promises to be a real game changer for U.S. manufacturing, and indeed the overall economy. The comparable price in Europe is $11 and in South Korea $14.

Of course, millions of homes, office buildings and retail outlets use natural gas -- as do a growing number electric utilities and commercial vehicles. But the biggest immediate impact is on manufacturing which is heavily dependent on energy using 43 percent of our natural gas. It is a critical ingredient in several core industries -- such as petrochemicals, steel, fertilizers, pulp and paper, petroleum refining, glass, plastic, and food processing.

The petrochemical industry is perhaps the best example of the advantage of the decline of natural gas prices. Petrochemicals use natural gas both for energy and as a primary raw material. The chemical ethylene, derived mainly from natural gas, is used to make a variety of products such as pool linings, building insulation and food packaging. Our European competitors rely mainly on oil for these products, putting them at a decided disadvantage.

Kevin Swift of The American Chemistry Council says the United States has a competitive advantage when oil is seven times as expensive as natural gas. Right now our natural gas price advantage is more like fifty to one.

The driving force in this most welcome development is the rapid development of shale gas through fracking technology, which has recently received more favorable reviews by the Environmental Protection Agency. Only a few years ago, experts were forecasting a gradual decline of U.S. natural gas resources. The National Association of Manufacturers, which I led at the time, was complaining that South Korea had more facilities for handling Liquefied Natural Gas (LNG) than the United States. So we started building more LNG terminals -- which will now be used, not to import natural gas, but to export it. Just think of it -- the United States becoming a major energy exporter to the world. It brings tears to my eyes.

Across the industrial landscape, a wide variety of commerce is busily switching to natural gas, and every increment means a more competitive economy, bigger profits and more jobs. But the most immediate impact on consumers is being felt in their heating bills which are lower than they have been in years, leaving them more disposable income that will help generate economic growth. Naturally, a growing number of consumers are switching from other fuels to natural gas to take advantage of the lower prices, a trend that can only accelerate in the months ahead. Likewise, lower gas prices offers proprietors of rental and commercial properties an opportunity for higher profits, and reduces the upward pressure on rental costs.

It is always dangerous to project economic trends far into the future, but I do not see this phenomenon subsiding anytime soon. The development of vast new resources of natural gas in our country will boost economic growth for many years to come.

Jerry Jasinowski, an economist and author, serve d as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements.

 
 
 
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