This article was published at The McAlvany Intelligence Advisor on Friday, July 10, 2015:
Dow Chemical corporate headquarters in Midland, Michigan
When Doug May, a regional president for Dow Chemical, announced that his company was going to be investing $6 billion to expand by 40 percent its manufacturing facilities in the US, he was acknowledging simultaneously the massive, if largely unknown, impact that fracking had on that decision. Until that announcement Dow had for years been focusing its attention outside the US where wages were lower and profits were higher. No longer. Said May:
We’re putting $6 billion here in the U.S. Gulf Coast, betting that the gas advantage [will allow] us to get a suitable return on that investment [well] into the next decade.
I think those trends [of lower energy costs] are going to last at least into the early or middle part of the next decade.
That “gas advantage” is the remarkable decline in energy costs driven by the fracking revolution. Industrial energy costs in the US are now 30 to 50 percent lower than they just a few years ago, and are driving other companies to make similar decisions. For instance, Sasol, the petrochemical giant, started construction on an $8 billion ethane cracking plant near Lake Charles, Louisiana. Cheniere and other energy companies are busy building liquid natural gas (LNG) terminals on the Gulf of Mexico to export overseas where natural gas is often three to four times as expensive as it is here.
Ford has shifted 3,250 jobs from Mexico to Ohio and Michigan to build its F-650 and F-750 trucks along with its Fusion automobile. Walmart has reshored more than 4,400 jobs back to the US from a number of countries that are no longer competitive. GE and Caterpillar each have reshored 1,900 jobs to Kentucky, Ohio, Georgia, and Texas. Flextronics, NCR, and Boeing are also moving jobs back to the US, thanks largely to the competitive advantage of lower energy prices.
That competitive advantage is beginning to bite China. In its latest report on American competitiveness, the Boston Consulting Group (BCG) estimates that the average cost to make goods in the U.S. is now only five percent higher than in China, and between 10 and 20 percent lower when compared to the major European economies like Germany and France. In less than three years BCG projects China’s advantage to disappear altogether.
Lower energy costs are reaching into sectors and industries no one even considered to be vulnerable. A report from consulting firm AT Kearney confirmed the sea change:
The documented reshoring activity has been observed across several sectors, including some where reshoring was expected: computers and electronics, appliances and medical equipment, primary metals, machinery, furniture, plastics and rubber, paper, and fabricated metals.
But reshoring is also happening in sectors that most thought would never return, such as apparel and textiles.
Just how big is this sea change? BCG made an estimate back in 2013, long before OPEC made its fateful (and perhaps fatal) decision to try to squeeze American energy producers out of business by letting the price of oil drop. It estimated that reshoring would return between 2½ million and 5 million jobs to the mainland, making a huge positive impact on the country’s GDP.
The fracking revolution is also allowing the US to extend its lead over its competition, as well as its enemies. At present the US has 101,117 fracked wells, while Canada, in second place, has just 16,990. And China? 258.
Observers say this gives the US a 15-year lead over its nearest rival, one that is likely to widen as it strengthens the nation’s economy. It also discomfits the environmental revolutionaries and those in the White House who have moved heaven and earth to reduce America’s footprint in the world, in preparation for its merger with its rivals and enemies into a world-wide government. Fracking is doing more than just keeping gasoline prices low. It is also a huge factor in keeping the country independent.
Sources:
Fortune: U.S. Manufacturing costs are almost as low as China’s, and that’s a very big deal
Manufacturing News: Report: Fracking To Help U.S. Manufacturing Costs To Fall Below China
Manufacturing News: Reshoring In-Depth: Ford, Caterpillar, GE, GM Among Top Reshoring Companies
The New American: America’s Re-shoring of Jobs Is Accelerating
Forbes: U.S. Fracking Boom Won’t Bring Manufacturing Home: Analysts
Forbes: Dow Bets $6 Billion That U.S. Fracking Boom Will Last Another Decade
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