Lower natural gas prices resulting from increased unconventional production have made US manufacturing globally competitive again, witnesses told a joint hearing of two US House Energy and Commerce subcommittees last month.
Additional steps will be necessary to improve that advantage, they testified on June 19. Their recommendations to the Energy & Power and the Commerce, Manufacturing & Trade subcommittees ranged from removing barriers to more US oil and gas production to providing financial incentives for more alternative and renewable energy projects.
"The US has hit the lottery," declared Drew Greenblatt, owner and president of Marlin Steel Products LLC in Baltimore. "It has abundant, affordable energy, and manufacturing is realizing the benefits. This is undeniable, and should be uncontroversial."
Growing US unconventional oil and gas production is leading to more stable prices for energy, which he called the lifeblood of US manufacturing, he continued in testimony on behalf of the National Association of Manufacturers.
"Even the slightest competitive advantage in the price of energy can make an enormous difference for companies that compete globally," Greenblatt explained. "Like all manufacturers, we benefit from the decreased production costs attributable to lower energy prices. Perhaps the most notable impact to a company like mine from lower energy costs is the benefit it brings to our customers: other manufacturers."
He said manufacturers across the US are expanding production and winning contracts they had little chance of competing for even a few years ago because foreign companies could produce goods at lower costs. "More expansion and new orders for US manufacturers have translated to more jobs and an improving economy, and for my company, more business," Greenblatt said.
Chemical game-changer
Abundant US shale gas also is a game-changer for the energy-intensive US chemical industry, according to Dean Cordle, chief executive of AS&S Inc., a Nitro, W.Va., chemical manufacturer. "We use energy inputs, mainly natural gas and natural gas liquids, as both our major fuel source and raw material, or feedstock," he said in testimony on the American Chemistry Council's behalf.
Low-cost gas gives US companies a decisive advantage in producing ethylene, ammonia, and methanol because of the incredible supply of petrochemical feedstocks in shale gas formations, Cordle said. "Ethane supply is already growing quite rapidly, and IHS projects that it will increase by more than 90% by 2030," he said. "US crackers are producing ethylene for less than $400/ton compared to about $1,000/ton in Europe and even more in Asia."
The US is emerging as "the place to manufacture chemicals now" as a result, he maintained. Cordle said ACC has identified as of March more than 100 potential chemical industry projects valued at nearly $72 billion in the US which are expected to come online by 2020. Roughly half of those investments are by foreign firms, which is unprecedented in recent history and a testament to the abundance and affordability of US shale gas and ethane supplies, he said.
South African energy and chemicals company Sasol Ltd. already had substantial US operations based in Houston when the shale gas revolution arrived, noted Andre Ruyter, Sasol's senior group executive for global chemicals and North American operations. The rapid development of US unconventional gas resources makes it necessary to monetize and diversify their use, and Sasol is uniquely positioned to do so through its "transformational gas-to-liquids technologies," he said.
Consequently, Sasol announced in December that it would begin front-end engineering and design work on a world-scale ethane cracker and integrated GTL facility adjacent to its existing complex near Westlake, La., he told the subcommittees. The $16-21 billion project will produce an estimated 1.5 million tons/year of ethylene, which will be used to make ethylene oxide, mono-ethylene glycol, ethoxylates, polyethylene, alcohols, co-monomers, and other high-value derivatives, Ruyter said.
Transportation fuels
The GTL plant, which would be the first of its kind in the US, would be a game-changer in its own right because it would use technology to produce transportation fuels, he indicated. Unlike LNG, GTL technology fundamentally alters the chemistry of gas so it can be converted into liquid fuels and chemicals, including GTL diesel fuel, Ruyter said.
"Unlike other alternatives to conventional petroleum-based fuels, GTL is fully fungible with conventional diesel and can therefore be used neat or as a blendstock in existing diesel vehicles and in existing fuel delivery infrastructure without modifications," he testified.
"GTL diesel's high quality makes it an ideal blendstock for refiners to upgrade heavier products into higher-quality diesel fuels," Ruyter continued. "Used on its own, however, GTL diesel is a cleaner-burning, next-generation fuel with significant environmental benefits. It's virtually free of sulfur and aromatic compounds, and its use in transportation, especially in older vehicles without advanced exhaust after treatment systems, reduces emissions of particulates and other pollutants, helping to improve ambient air quality and meet emission mandates."
Cordle noted that a successful US energy policy is necessary to optimize the US chemical industry's competitiveness and to realize the US shale gas opportunity. This will need to include a true all-of-the-above approach that includes coal and nuclear as well as oil, gas, renewables, and energy efficiency, he suggested.
"It must be aligned with tax and trade policies, and, it should be designed to avoid excessive price volatility by balancing supply and demand," he told the subcommittees. "At a time when gas demand is poised to grow in several sectors, federal policies on access to gas on federal lands are not aligned with demand forecasts."
LNG exports
When it comes to LNG exports, ACC's board reaffirmed its support in February of free trade principles when it comes to energy, Cordle said. "ACC supports the application of existing trade rules, including Word Trade Organization commitments and bilateral free trade agreements," he said. "We support exports of American-made products, including LNG, and we oppose imposition of any new LNG export bans or restrictions."
Paul N. Cicio, president of the Industrial Energy Consumers of America, said the organization's member companies that produce building-block products such as plastics, iron and steel, fertilizer, and industrial gases used by other manufacturers, do not oppose LNG exports either.
They are concerned that careless due diligence by DOE at reaching public interest determinations and approval of LNG exports to non-FTA countries could pose a major threat to the US manufacturing renaissance's continued growth, he said in his written testimony. IECA questions DOE's decision to conditionally approve the Freeport LNG project's application to export LNG to non-free trade countries, Cicio noted.
"IECA urges Congress to provide greater oversight and encourage DOE to complete a rulemaking to develop transparent criteria for the public interest determination, with public input on which to make decisions regarding LNG export applications," he said. "Decisions on LNG export applications need to done on a case-by-case basis and sequenced to avoid price spikes and give producers time to increase production."
Phyllis Cuttino, who directs the clean energy programs at the Pew Charitable Trusts, urged the subcommittees' members not to neglect further development of alternative and renewable sources which are complementing US unconventional oil and gas development. "Simply put, clean energy technologies have moved from the margins to the mainstream of global energy markets as a result of increased global demand, worldwide economic competition, and the resulting dramatic decline in the price of solar, wind and other emerging technologies," she said.
Lack of certainty about US energy policy directions is the overriding impediment to clean energy investments and progress, Cuttino said. "We've found instances where incumbent energy sources have favorable provisions in our tax code, some of which have existed for more than a century," she said. "Similar provisions for renewable and alternative technology development, by contrast, have been episodic at best." Renewable energy developers would like to be able to form master limited partnerships similar to those which oil and gas pipelines and refiners use, Cuttino said.