Strong Chemicals Industry Growth Fueled by Shale Gas
December 13, 2012
The U.S. chemicals industry is expected to post strong growth in the coming year despite numerous concerns about the global economy and a struggling domestic market, with gains driven largely by the boom in natural gas production. In 2012, sluggish growth in the United States GDP, the financial crisis in the European Union and a slowdown in the Chinese market hindered the industrial rebound and increased economic uncertainty worldwide. However, the U.S. chemicals industry has posted relatively healthy performance this past year, and is expected to see a strong boost in 2013 as energy prices drop due to the rapid growth of shale gas production. According to the Year End 2012 Situation and Outlook Shale gas production is considered to be one of the most significant developments in domestic energy in decades, and is likely to have a major positive impact on American manufacturing in the future. Ethane, a natural gas liquid derived from shale gas, is commonly used as a feedstock by U.S. chemical companies, and having a larger supply at lower cost will give them an advantage over foreign competitors that rely on a more expensive oil-based feedstock. "Following a decade of high and volatile natural gas prices that destroyed industrial demand and lead to the closure of many gas-intensive manufacturers, shale gas offers a new era of American competitiveness that will lead to greater investment, industry growth, and employment," Kevin Swift, ACC's chief economist and lead author of the report, said in an announcement of the findings According to ACC's estimate The U.S. chemicals industry is a $760 billion market, with 96 percent of all manufactured goods in some way affected by chemistry products. Although the weakened manufacturing recovery has impeded domestic chemical demand and the ongoing recession in Europe has affected export sales, a favorable oil-to-gas ratio has enabled chemical exports to grow 1.8 percent to $191 billion dollars in 2012. Moreover, chemicals exports are forecast to increase 4.7 percent in 2013 and another 6.2 percent to $209 billion in 2014, as the rapidly rising natural gas supply further improves energy pricing and availability. Although overall U.S. chemicals shipments fell 1.5 percent this year, they are expected to grow by approximately 9 percent over the next two years, rising to a total value of $794 billion in 2013 and $833 billion in 2014. "[Several end-use markets have already shown signs of growth. At nearly $3,650 of chemistry per vehicle, light vehicles represent an important market for the industry and production continues to improve," ACC notes. "U.S. light vehicle sales are expected to rise in 2013 and 2014 as pent-up demand, improved employment and greater availability of credit foster demand. The slowly recovering U.S. housing market (more than $15,000 of chemistry per start) is also likely to spur demand." Despite these positive signs, many businesses within the chemicals industry remain concerned about current and upcoming regulatory measures, as well as policymaking decisions that could emerge during President Barack Obama's second term. "The U.S. chemical industry is apprehensive about President Obama's re-election, according to representatives of the industry...Obama will be empowered by not having to seek re-election and the Environmental Protection Agency (EPA) will be 'much more confident and aggressive' in its approach to new regulations and interpretation of existing law," Chemistry World However, experts also note that the Obama administration has also provided support for the industry by signing three free-trade agreements that will cut millions of dollars in fees for chemical manufacturers who export their products to Colombia, Panama and South Korea.