There has been lot of speculation about the strength of US manufacturing. One bright spot has been the shale oil boom.
A hot topic among politicians, environmentalists and concerned citizens, the boom in shale oil production is making a big impact on the industrial sector of the US economy.
How far-reaching the impact is, and whether or not shale oil changes the makeup of the US energy supply is yet to be seen, but one question on many people’s minds is “Can fracking revitalize US manufacturing?”
The short answer is, it already has.
Shale oil production has been accelerating in the US, growing from 111,000 barrels per day in 2004 to 553,000 barrels per day in 2011 (equivalent to a growth rate of around 26% per year). Shale contributes approximately one third of natural US gas supplies, and US production is expected to make up nearly half of world production by 2035.
As a result, US oil imports are forecast this year to fall to their lowest levels in over 25 years.
The ramping up of shale oil production is anticipated to benefit the US economy in two primary ways:
Lower feedstock/energy costs
Increased demand for products needed to extract the gas
Lower prices for natural gas are benefitting US manufacturers, which use about a third of domestically-produced gas. Perhaps the biggest beneficiaries are petrochemicals manufacturers, which rely on gas to produce chemicals such as methanol and ammonia, used in many products.
Petrochemicals have remained cheap due to manufacturers switching their feedstock from naptha, which is oil-derived, to ethane, which is derived from gas. In turn, these chemicals provide cheaper raw material costs to automakers, big agriculture, builders and other manufacturers.
Aside from stimulation due to lower raw materials costs, the US economy is seeing growth from businesses that support the fracking industry.
The sudden boom in shale oil has manufacturers searching for ways to enter the shale oil arena. They are seeking ways to apply their existing manufacturing capabilities to any and all things needed by the industry. Whether it be leveraging a new material or new process, companies are scrambling to get a piece of the action.
Regardless of your opinion of the shale oil boom, it appears it is having a positive affect on manufacturing growth. Feel free to contact me with any questions about CoreElement or our industrial marketing solutions.