Natural Gas -- True Game Changer

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.

 

 

 

Comments

[jojob]

03:30 PM on 04/24/2012

Read this - Detailed information on natural gas markets - st Seeking Alpha

http://seekingalpha.com/article/473091-the-long-term-bullish-case-for-natural-gas-related-stocks-part-1

[daperera]

10:52 AM on 04/20/2012

Short term profits vs long term US energy needs. The US will always take the short term profits and to he&& with the future.

[speculator]

04:45 PM on 04/19/2012

hooray, America's saved, all is right in the world, we can get back on our SUVs and reach that ever distancing horizon.

Too bad that when those gas fields prove it was all just passing gas we'll have to start tapping hopium again. And better find a way to smoke that too to numb the pain as our govt continue to shift the last remaining shreds of wealth from the hoi polloi to their cronies in TBTF banks and Wall Street.

Get ready, whole lotta pain coming up. Thank you free market capitalism.

[OilFieldGuy101]

03:39 PM on 04/18/2012

I work in the NG field in Fort Worth Texas known as the Barrnet Shale. The drilling for NG has slowed to a crawl and will come to a stop in the very near furture. I will soon have to take a job in another area where oil is being drilled for. Thank goodness that the oil field has a good amount of jobs.

[Zoltan Ban]

10:01 AM on 04/18/2012

A game changer perhaps for the next decade or so, but not for the long term. This story, as others in regards to energy is overhyped. According to the EIA, maximum potential recovarable shale gas reserves amount to less than 500 tcf, equivalent to about 100 billion barrels of oil. All other sources of nat gas are in a state of gentle production decline. The huge drop in prices is due to the inelastic aspect of the commodity in terms of consumption, in other words, it takes little overproduction to cause a huge drop, just as it only takes a small shortage to push prices much higher. Some people have a short memory, but oil prices were also selling in the $10-20 just over a decade ago, now we are in a 80-100 dollar range. Unfortuntately there is so much public manipulation when it comes to energy matters, that even jouranlists, economists, traders and business leaders are confused and misinformed. The missinformation happens from both the left and the right. The last time I experienced so much misinformation on a major issue, I was aboard a sinking boat called communism.

http://zoltansustainableecon.blogspot.com/2012/04/larry-kudlow-sarah-palin-president.html