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May 25, 2005
U.S. Chemical Production Suffers Reversal of Fortune
Just 10 years ago, the U.S. was the preeminent chemical producer in the world, with cutting edge plants and an abundance of affordable natural gas. Now, the landscape has changed completely:
Examine the following statements...1) The U.S. is the world's foremost spot for producing chemicals, representing the largest market and offering the most sophisticated facilities and most advanced expertise. 2) Even more significant, U.S. plants have an edge, because natural gas--a building block for plastics, fertilizers and even pharmaceuticals--is plentiful and cheap.
According to a May 2, 2005 article in BusinessWeek, 10 years ago both statements were true. Today, it's 1) false and 2) sorry but not anymore.
Overseas markets are bigger and logging healthier growth rates. And new facilities in developing countries boast the same--or higher--level of sophistication and output. And in what BusinessWeek calls a "crippling reversal," U.S. natural gas prices are now the steepest in the world. And while U.S. chemical producers are enjoying annual sales of $500 billion, the fact remains: chemical production is on its way out of the country.
And according to the magazine, the consequences to the U.S. will likely include less investment, a loss of jobs and stunted innovation.
What went wrong? At the beginning of this decade, orders fell, derailed by the recession in manufacturing and the departure of industrial customers to countries that offer low labor costs. And making things even worse, U.S. natural gas prices suddenly soared in 2000 due to unheard-of demand for new, gas-fired power plants. Today, supplies continue to be tight and natural gas prices hover around $6 to $7 per million British thermal units (BTUs) in the U.S., significantly up from their 1990s average of $2 per million BTUs. In comparison, natural gas prices are about $5.25 in Europe, $4.50 in China and Japan and $1.25 and less throughout the Middle East and Russia.
What's more, the country's trade surplus in chemicals, which stood for 80 years and reached almost $20 billion in 1997, is now a deficit.
Even Dow Chemical Co., which posted its best year in 2004 and is expecting an even more robust year, acknowledges that a major reason for its blockbuster numbers is its decision to forsake home-based operations, which are pricey. And this holds true for many other chemical companies, which are directing capital investments to the Middle East and Asia, where energy is less expensive and growth rates are more robust. In fact, chemical companies shuttered 70 facilities in the U.S. last year and have identified 40 more for shutdown, according to a registry created by Chicago-based BuildCentral Inc. for demolition outfits. And industry employment now stands below 880,000, a big drop from over 1 million in 2002.
According to BusinessWeek, "the industry's slippage affects more than national pride. Even in today's digital economy, chemical producers are essential to manufacturers, providing key ingredients for everything from hand soap to home insulation to hard drives." Now, more and more of these goods are being produced in other countries, and chemical production is heading abroad, too.
Comments Edward W. Merrow, president of the Ashburn (Virginia) capital-projects consultancy, to BusinessWeek, "The U.S. has gone from a privileged position to where it's hard to find a rationale to put anything here."
Source:
No Longer The Lab Of The World
Michael Arndt
BusinessWeek, May 2, 2005
www.businessweek.com
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12 CommentsHey, ten years ago? Isn't that just after when Clinton made the EPA a cabinet level entity? Looks like they're winning. Keith
May 25, 2005 12:54 PMLooks like the Steel industry of thirty years ago. Competition and the need to modernize and innovate? Not needed. Let's cut our R&D, capital and human investments. Let's also spend on lobbying for personal tax cuts and getting the Government out of industrial development.
May 25, 2005 2:41 PMThe real trajedy is that we are killing our manufacturing base , destroying the enviornment & alienating the rest of the world with our arrogant,shortsighted & wasteful use of energy resources.We ignore renewable( solar,wind hydroelectric)photo cell, nuclear & clean coal for natural gas & oil.All kept in place by the political blood money of the oil & car corps.WE HAVE MET THE ENEMY & HE IS US!!!!
May 25, 2005 9:48 PMI concur with the other Frank:
If there was ever a case to be made for government intervention in business in the US, it's alternative energy. Here is an infant industry that could be the biggest catalyst to our economy since the personal computer. Here is a chance to restore leadership to our engineering and manufacturing sectors and maybe even fix our balance of trade. Japanese government subsidies made Japan the economic force of the 70's and 80's. We need to subsidize alternative energy research and development to help it become economically competitive here and worldwide before other countries do it. As unpopular as high prices for petrochemical fuels are, putting an additional gas tax to work on alternative energy research would be an investment in our future. And if we don't begin to conserve our natural gas and oil resources, what will we use as feedstock for our plastics and chemical industries when they're gone? Let's look ahead to that day and not risk the wrath of our grandchildren.
I respectfully disagree with Mr.Popiel, for this nation is AWASH in energy,--even coal, gas, and oil. The WORLD is awash in oil and gas(petroleum- reserves are CREATED within the Earth's crust by taking methane gas and subjecting it to extreme pressure, oil being INORGANIC, not dinosaur/other-based)--whether its available locally or not is simply a factor of the cost of EXTRACTING that energy. The USA is the "Saudi-Arabia" of coal, which COULD be gasified to produce either gas for power and production, hydrogen for power, transport, or production, or merely conventional diesil/gas for transportation. The reasons such is NOT done, here, is simply that its cheaper for those multi-s already selling to us in the USA to obtain the oil, gas, whatever, elsewhere. If there was an additional tax, that could FUND gas/oil/coal-cracking to produce: gas/oil/hydrogen, DONE WITHIN USA borders, but govt. obstructive bureaus like the EPA would have to be "RICO'd" to get them to "back-off". Due to the "eco-nazis", refinery production(new refineries) within the USA has been curtailed, but refineries COULD be built on MOST of some of the military bases to be shut-down. Most Arizonans would approve a new refinery below the town of Buckeye, but as one might suspect, --its hard to get such liscenced, as such involves holding the hands of up to 18 different State and federal agencies,--any of whom are encouraged by the eco-nazi-non-profits, to be "obstructionist".
May 26, 2005 8:51 PMGreed!! Eco-Nazi's is not a valid reason. The real reason is greed. It's as simple as that. People also forget the US economy is not what it used to be, this is a very mature market. You put money and invest in areas that are up and coming, the US is not.
May 26, 2005 11:34 PM
