Natural Gas in North America

Is Business Really Booming?

The period between 2001 and 2007 experienced a 19 percent loss of employment in manufacturing, although the period between 2009 and 2011 saw a slight increase of 2.6 percent. Much of the increase was the result of a strengthening automotive industry in the wake of the global financial crisis and can be largely attributed to the government assistance that came in the form of a bailout and associated policies.

Thanks in large part to discoveries of abundant domestic natural gas supplies, manufacturing now is set to make a comeback in the United States and Canada. Energy intensive industries, such as plastics, rubbers, computers and other electronic equipment manufacturers, are returning to or expanding North American operations.

Increased supplies means decreased domestic prices, thus poising the U.S. and other natural gas rich nations, like Canada, a decade or more of export cost advantages, so long as supplies remain abundant and so long as prices stay low compared to global prices of natural gas. A dropping currency rate is also contributing to these industry advantages.

Both domestic and international companies have plans to upgrade, expand or relocate their plants to the U.S., primarily to resource rich regions with a large number of companies coming from the European Union. G.E., Caterpillar and Dow, as well as BASF, Siemens and Voestalpine, are among the companies that have such intentions.

New technology and the recent drilling boom in the U.S. have increased production by 11 percent over the past two years. The massive Haynesville Shale natural gas field in Louisiana is estimated to hold 200 trillion cubic feet of natural gas – the equivalent to eighteen years’ worth of current U.S. oil production.

Paired with huge discoveries in Texas, Pennsylvania and Arkansas, an estimated total of 2 200 trillion cubic feet of natural gas is waiting to be extracted. The U.S. is sitting on what is predicted to be enough natural gas to satisfy domestic demand, at its current levels, for a century.

Natural gas production peaked in the U.S. in the 1970s and recovered briefly from the 1990s to early 2000s when output fell at the newer fields in New Mexico and Wyoming – at which point, the country felt coerced by circumstance and spent millions of dollars on a natural gas infrastructure, such as terminals and pipelines, to support and maintain demand of imported natural gas. This had an upward effect on prices until technological advances made hydraulic fracking and horizontal wells viable as a means for extraction. Shale gas is found 10 000 feet or more below the surface, in environments that are high pressure and high temperature, and require non-traditional drilling methods to extract the resource.

New extraction methods have led to further exploration and, in the case of the U.S., it has paid off as natural gas prices have decreased 41 percent, the lowest since 2002. As a result, there has been decreasing dependence on imports. Since 2007, natural gas imports are down almost 50 percent in the U.S. and, since 2000, there has been a 62 percent increase in those who are exploring, drilling and extracting natural gas, and these increases are expected to continue into 2035.

Now the U.S. Department of Energy is moving forward with the approval of export terminals so it can not only supply its domestic market at lower prices but can also compete on the international market where prices are substantially higher (five times more expensive in some places).

Benefits of an Increasing Natural Gas Supply and Lower Prices

There are six major shale basins in the United States: Marcellus, Bakken, Nlobrara, Permian, Eagle Ford and Haynesville. A number of studies have been done predicting a potential job creation boom with estimates ranging from one to five million potential jobs (Job estimates include those both directly and indirectly related to shale gas and petrochemical manufacturing.) over the next decade.

The American Chemistry Council (ACC), an industry leading trade group has been keeping track of publicly announced corporate investments that it feels are directly related to the strengthening position of the natural gas industry in the U.S. and the tally has already surpassed $90 billion.

Many of these investments are coming from energy intensive industries (particularly the steelmaking industry) which are moving operations or investing in operations in Alabama and Arkansas. Nucor Steelmaking is among those with plans of expanding operations on account of the rich natural gas laden shale. The ACC predicts that, in Arkansas alone, 13 000 jobs will be added.

There is a firm belief that Eagle Ford will provide decades of production, but concern remains in Eagle Ford, Permian and other shale rich areas that these booms will quickly bust. This was the case in Chesapeake, in 2008, when dozens of companies flocked to the area; production was at an all time high, prices were high and credit was easy, causing a glut in the market.

There are still questions that persist with regard to whether the increase in jobs is a direct result of the natural gas boom or if it is due in large part to government policies, incentives and initiatives. In Arkansas, 55 000 jobs were lost between 2002 and 2012, and people worry that the jobs they have gained will once again be lost when the construction phase of the process is completed.

President Obama has committed close to $100 billion to factories that use natural gas. This support is paramount to the industry, requiring both the federal and state governments to support the industry through policies and incentives at a time when environmental concerns are at the forefront of the debate: a difficult position to negotiate.

In British Columbia, Canada, a discovery was made of 271 trillion cubic feet of natural gas, the equivalent to a supply of one hundred years at current usage rates. The government sees the potential for the generation of $1 trillion, decades of growth and tens of thousands of jobs. In fact, the population of Fort St. John is expected to double over the next two years.

There is substantial resistance in British Columbia as opponents cite concerns with the timeline for competition, the scale of operations, potential damage to the environment and the ability to sustain this rapid growth in terms of infrastructure. Most importantly, they are concerned by the lack of consultation with First Nations people and governments with regard to the environment as well as rights and titles.

With the Presidential Climate Action Plan going forward in the United States and the resistance being faced on both sides of the border, it may be difficult to sustain the growth associated with natural gas without the assistance of supportive government policies and incentives. Some have touted natural gas as a bridge fuel, to help us move to clean energy, but this will still have an environmental impact for years to come, as natural gas still contributes to carbon dioxide emissions.

Although the word boom is synonymous with bust, whether the advantage is satisfying domestic demand or the ability to encourage manufacturing to return to the U.S. and Canada, the natural gas industry should be carefully managed and regulated to ensure predictions are correct: that benefits will continue for decades to come.

October 20, 2017, 1:59 PM EDT

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