You Say You Want a Revolution - Shale Gas Implications for US Manufacturing

Consistent lower natural gas prices resulting from the boom in shale production are expected to fuel a major increase in industrial demand over the coming years. RBN expects that sector’s demand to increase by 5 Bcf/d from 19 Bcf/d in 2013 to 24 Bcf/d in 2025. There have been numerous announcements of new plant builds and expanded capacity projects in primary industries. Less well documented are the wider ramifications of abundant shale natural gas and natural gas liquids (NGL) supplies for US manufacturing industry as a whole. Today in the first of a two part series Taylor Robinson from PLG Consulting outlines the changes underpinning a new industrial renaissance.

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The convergence of hydraulic fracturing and horizontal drilling to harvest crude oil and natural gas from US shale deposits over the past 7 years is at the core of the US energy revolution. The sharp increase in crude oil production has resulted in tremendous benefits for the US –  reducing foreign oil imports, creating jobs and bringing wealth back to the US.  Many people are less aware of the larger and more far-reaching impact that the plethora of natural gas produced by “fracking” is currently having on our industrial economy and the eventual boost to our manufacturing competitiveness that will result.  The shale gas to manufacturing story ties together many of the themes discussed on a daily basis in RBN blogs to paint a hopeful picture for a portion of the US economy that has been declining for several decades.

The US shale gas boom took off in the 2007 timeframe with dramatically increasing supply causing a precipitous price drop between 2008 and 2012 from close to $10/MMBtu to a new standard of $3-4/MMBtu over the past few years, up until the polar vortex prices of this winter (which are expected to subside in the coming months).  At the start of the boom, there were around 1,000 rigs specifically drilling for natural gas (“dry gas”) in the US.  However, the greatly reduced pricing in 2009 made it difficult for drillers to cover their costs on dry gas wells, so they shifted their target to “liquids” (crude and natural gas liquids “NGLs”) and the new norm is about 300 dry gas rigs.   But despite the sharply lower dry gas rig count US natural gas production continued to increase at a healthy rate (see black arrows in Figure 1). As we explained in our recent series  “Golden Years: The Golden Age of US Natural Gas”  improved rig productivity, associated gas from liquids drilling and new production delayed by infrastructure build out have kept production growing despite lower rig counts.

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