OilGasMonitor.com – Breaking Ground: America’s Shale Gas Boom Helping “Reshore” Jobs

image001Have you heard? American jobs are coming back home, thanks in large part to the cheaper energy prices resulting from the shale gas boom. A boom that couldn’t be happening without fracking.
A 2012 survey of 340 manufacturing companies by the MIT Forum for Supply Chain Innovation found that 33.6 percent are considering and 15.3 percent are definitely planning on bringing manufacturing operations back to the U.S.
MIT’s findings were echoed by a 2012 Boston Consulting Group (BCG) survey of American manufacturing companies similarly reported that 37 percent of respondents with annual sales above $1 billion and 48 percent with sales above $10 billion said that they are planning or actively considering shifting production facilities from China to America.

Interestingly and encouragingly, a 2013 Deloitte study of the trend of bringing IT back to the U.S. from Bangalore found that 76 percent of companies who had brought IT operations back to the U.S. are either satisfied or very satisfied with their insourcing programs. None reported being dissatisfied with their decision to insource.

The Reshoring Initiative, an organization that helps companies assess where to manufacture their products, estimates that 50,000 jobs have returned to the U.S. in the last three years, accounting for 12 percent of the total U.S. manufacturing jobs added since 2010 (per Bureau of Labor statistics).

Among those companies bringing at least some of their production back to the U.S. are Whirlpool, Rolls Royce Aerospace, Siemens Gas Turbines, General Electric, Apple, Caterpillar and Ford.

Can We Really Return to “Made In America”?

While 50,000 jobs since 2010 may seem like a trickle, BCG sees it as the beginning of a flood: the consultant expects “reshoring” (also known as “insourcing” and “onshoring”) to drive 5 million more jobs to the U.S. by the end of this decade. That’s due to BCG’s prediction that by 2015, the cost of manufacturing certain goods for the American market will be as cheap here as in China.

The primary reason for this retrograde phenomenon is cost: Chinese labor costs have risen as American wages have fallen or remained static, while oil prices have risen and natgas prices have fallen. Between rising labor and shipping costs and falling American energy costs, manufacturing on American soil is becoming a more attractive option—and it will only become more so as more companies bring production to the U.S., ultimately creating a healthy “ecosystem” for manufacture of complete products here at home.

As the largest natgas-consuming industry in the U.S., the chemical industry is already benefiting from the boom in U.S. natgas production. Natgas liquids are such important feedstocks in chemical production that domestic chemical production is expected to increase annually by 7.8 percent through 2020 as a result of the increased supply. This will translate to upwards of $80 billion in chemical industry investment over the next 10 years, resulting from increased production of shale gas.The chemical industry isn’t the sole beneficiary, of course. The accountancy firm PricewaterhouseCoopers expects the lower U.S. energy prices to drive 1 million more manufacturing jobs in the U.S. as companies build new factories here.

Will Fracking Finally Be Recognized or Remain Villainized?

This is great news for the U.S., but whether the net positive effect of fracking will be recognized remains to be seen. Groups opposed to any form of oil and gas production on U.S. soil have proven adept at ignoring any fact that might weigh favorably on expansion of oil and gas production. As the clock on the public comment period on the U.S. Interior Department’s Bureau of Land Management’s new rules winds down, we can only wait to find out.

Production on federal lands, accounting for only 13 percent of natural gas output and 5 percent of oil output, has already fallen during the Obama administration, due to the expense and difficulty of meeting the extensive permitting requirements.

Yet U.S. crude oil production is at its highest in eight years and natural gas production has surpassed its 1973 peak. Foreign imports have fallen from 57 percent to 45 percent. At the same time, greenhouse gas emissions have fallen, according to the EPA.

MIT recently released a study showing that fracking produces a scant fraction more methane into the air than conventional gas drilling. In the meantime, CO2 emissions from coal fell 18 percent in 1Q 2012. That was the lowest-first quarter CO2 emissions from coal since 1983 and the lowest for any quarter since April to June 1986. The DOE said: “The decline in coal-related emissions is due mainly to utilities using less coal for electricity generation as they burned more low-priced natural gas.”

That low-priced gas resulted from a surge in production made possible only through the growing use of shale gas made possible by fracking.

In other words, fracking to produce more natural gas not only ultimately reduces greenhouse gas emissions, it’s a key driver in bringing desperately needed manufacturing jobs back to the U.S.

Nonetheless, President Obama’s climate speech at the end of June did little to bolster confidence in his willingness to support the efforts of oil and gas producers to create energy security for and help bring jobs and increased revenue to this nation, bringing U.S. trade into balance with the rest of the world.