Yesterday was a big day for headlines about energy supplies and global warming. Several committees of the U.S. House and Senate were engaged in hearings that sought to shed light, presumably, on the future. The former Vice President’s remarks certainly pulled in the headlines.
But were they the headlines that would give you an insight into the future of the U.S. economy and, most especially, the future of manufacturing? It’s likely that those headlines were not the ones to read if you wanted to know about real trends.
No doubt most people missed the story that the multiyear U.S. natural gas boom is starting to fade. According to Baker Hughes, there are 1,740 rigs operating in the United States, twice the level of activity just five years ago. That has been the good news. But now, drilling permits have dropped and the costs for equipment and services have increased, bringing a slowdown to the frothy search for new domestic natural gas deposits. In addition, the high prices for natural gas have temporarily dropped after peaking in December 2005 after Hurricanes Katrina and Rita.
Here’s the news in this story: manufacturers use a third of all the natural gas consumed and the hi-tech, high-paying chemicals sector uses it not only for fuel but also for feedstocks to make all the chemicals that show up in a million or more products that we all use every day. If drilling drops here, that means there will be less natural gas down the road. And with supply and demand at work, that forecasts higher U.S. natural gas prices in the future for industry and home heating.
We know from recent experience that such non-competitive natural gas pricing drives many U.S. manufacturers out of the country. Maybe only across the border to Canada or Mexico. Or maybe to the Middle East or Europe or Korea. In most of these places, natural gas prices are lower than in the U.S. Congressional policies curbing exploration and development of our vast resources is at the root of this artificially-high U.S. price. Speaking of headlines, that’s one that most elected officials, guilty of boosting natural gas prices by their inaction, don’t want to see.
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