So far in InvestorPlace’s continuing series on energy independence, we’ve focused on energy opportunities. As the advanced-drilling boom continues to sweep the nation, everyone from pipeline operators to exploration and production (E&P) companies are benefiting. For investors, the growing use of these unconventional assets could provide one of the biggest portfolio bumps of the next decade.
What about the end users? We’ve looked at the export potential of liquefied natural gas as well as the possibility of using it as a transportation fuel, but the biggest end-user potential of the U.S.’s newfound energy abundance could lie in a revival of the nation’s beaten-down manufacturing sector.
As inventories of both West Texas Intermediate crude and natural gas continue to build, prices for the fuels have plummeted. Electric utilities have been champing at the bit to gain access to the cleaner-burning energy source. And companies that can use natural gas and natural-gas liquids as a feedstock are seeing huge margins. That’s helping to create one of the most robust environments for industrial production since the 1950s.
The shale and unconventional-asset boom in the U.S. could usher in a new era of manufacturing dominance — which means plenty of opportunities for investors.
$11.5 Billion in Annual Savings?
While cities such as Pittsburgh, Milwaukee and Cincinnati can conjure up images of America’s manufacturing past, the shale boom is helping to unleash the heartland’s future. According to PricewaterhouseCoopers, the natural-gas drilling boom could spark a revival in the nation’s industrial production that could lead to more than 1 million new manufacturing jobs by 2025.
Just a few years ago, the U.S. had a shortage of natural gas. Companies such as Cheniere Energy (NYSE:LNG) constructed multibillion-dollar facilities to import the fuel. Today, Cheniere’s Sabine Pass Facility is being reconfigured to export LNG to Asian markets.
The extremely high gas prices ($15 per Bcf) of about five years ago led to the shale-gas and fracking boom as E&P players took advantage of the high prices. As that abundance has been tapped at a record pace, the resulting glut of unsold gas has pushed prices down to extremely low levels. Now, those low gas prices are attracting interest in new chemical-processing plants and utilities that operate gas-fired power plants.
PwC estimates that by 2025, manufacturers alone could save $11.6 billion in energy costs. Ultimately, that’s capital that can be plowed back into new businesses, employment and the economy.
Petrochemical manufacturers are already feasting on low prices for natural gas and their key feedstock, ethane. With natural-gas prices dropping nearly 50% over the last three years, American chemical companies are enjoying a large cost advantage over their European and Asian rivals, and seeing record margins for their end product, ethylene.