Despite the recent hubbub about shale gas, a key part of the story has yet to be told.
The emergence of natural gas from shale as an abundant, reliable source of domestic energy is one of the most meaningful developments in America’s energy and economic security.
It is dramatically improving the outlook for the U.S. chemical industry, U.S. manufacturers and our economy as a whole. But this potential can only be realized if we put the brakes on proposals that would either constrain supply or distort markets, such as the New Alternative Transportation to Give Americans Solutions Act.
The NAT GAS Act aims to boost the production and use of natural gas vehicles by offering an estimated $5 billion in taxpayer-funded subsidies to the manufacturers and equipment suppliers who produce NGVs and the people who buy them.
The NAT GAS Act is misguided policy. First, it would create a massive new subsidy for a market that is already developing on its own in sectors where the fundamentals support it, at a time when Congress is struggling to cut spending. And not only is it expensive, it’s highly inefficient. A recent analysis of the bill by Ernst & Young concluded it would result in an average subsidy of $135,000 per NGV projected to come online. It would artificially create new demand for natural gas at a time demand is already growing significantly in the power sector. Finally, it would negatively affect consumers, both residential and industrial, because subsidies like those proposed in the NAT GAS Act add volatility to the market.
A return to volatile natural gas markets, similar to those the U.S. experienced in the previous decade, would undermine a growing resurgence in the domestic chemical industry, a sector that employs 720,000 Americans directly and supports more than 5 million jobs across the economy. This renaissance has the potential to drive growth throughout our manufacturing sector, increase U.S. exports and put hundreds of thousands of Americans back to work. Let me explain how.
Natural gas is the primary raw material, or feedstock, used by the chemical industry to create ingredients for 96 percent of all manufactured goods. To put it simply, natural gas is to the chemical industry, and chemical products are to manufactured goods, as flour is to a bakery. Stable feedstock costs for the chemical industry mean greater certainty for other manufacturers, which helps keep consumer prices low and leaves more resources available for expansion and hiring throughout the economy.
Shale gas has been a game changer for the domestic chemical industry. For the first time in years, U.S. chemical manufacturers have a competitive advantage over foreign chemical producers who rely primarily on petroleum-based feedstocks because domestic natural gas prices have stabilized, while world oil prices have spiked. This advantage is driving demand for U.S. chemical products overseas and boosting American exports.
But that’s only part of the story. In recent months, numerous chemical manufacturers have announced new investments thanks to the outlook for predictable domestic natural gas markets. For example, Dow Chemical Co. announced it will restart operations in facilities idled during the recession and Eastman Chemical Co. has already done so. Executives from Bayer are in talks with companies interested in building new ethane crackers at its two industrial parks in West Virginia, and other companies including Chevron Phillips Chemical Co. and LyondellBasell are considering expanding operations in the U.S.
These investments will generate new, high-paying jobs in the chemical industry and hundreds of thousands more throughout the economy.
A recent American Chemistry Council study found reasonable increases in shale gas production would result in nearly 400,000 new jobs in the chemical sector and supplier industries, more than $132 billion in U.S. economic output and nearly $4.4 billion in local, state and federal taxes annually.
But as anyone who owns a business knows, investment decisions are based on certainty and a positive view of the future. By injecting volatility into natural gas markets, policies such as the NAT GAS Act undermine the certainty chemical companies need to justify new investments and create jobs.
Our nation desperately needs a comprehensive energy plan that promotes all energy sources. Proposals such as the NAT GAS Act, which put investment, competitiveness and job creation in domestic manufacturing at risk, are not the answer.
Calvin M. Dooley is president and CEO of the American Chemical Council and a former Democratic Member of Congress from California.