|By Marketwired .||
|February 13, 2014 12:06 AM EST||
CHICAGO, IL -- (Marketwired) -- 02/13/14 -- Cheap natural gas will have a greater impact on U.S. manufacturing over the next several years than is commonly assumed, giving the U.S. a powerful -- and unique -- cost advantage that will benefit a wide range of industries across the full value chain, from feedstock to finished goods. This cost advantage has already started to boost investment and employment and will persist for at least five years, according to new research released today by The Boston Consulting Group (BCG).
While other studies have assessed the positive economic impact of rising U.S. production of natural gas on the domestic energy sector and on industries such as petrochemicals that use natural gas as a raw material, the new BCG analysis finds that virtually every manufacturer in the U.S. is poised to benefit -- directly or indirectly. Low U.S. electricity prices in natural-gas-fired plants, for example, are already encouraging investment in energy-intensive industries such as steel and glass. Not yet visible are the advantages that makers of intermediate products, such as plastic-resin pellets, and makers of finished goods, such as plastic toys and plastic auto parts, will reap from cheaper inputs. Even in less energy-intensive industries, cheap natural gas will shave 1 to 2 percent off of U.S. manufacturing costs as the benefits eventually flow downstream through the value chain.
The energy cost advantage is amplified by the fact that overall U.S. manufacturing competitiveness is already improving owing to relatively low labor costs compared with those of other developed economies, rapidly rising wages in China, and high productivity, as explained in previous BCG publications. The research is part of the firm's ongoing Made in America, Again series produced by its Operations and Global Advantage practices.
"Several major forces are aligning right now that are dramatically reversing the fortunes of a U.S. manufacturing sector that many gave up for dead just a few years ago," said Harold L. Sirkin, a BCG senior partner and a coauthor of the study. "The energy advantage and improved competitiveness are unique to the U.S. and are accelerating an American manufacturing renaissance."
Multiple, Sustainable Advantages for U.S. Manufacturing
Wholesale prices for natural gas have fallen by around 50 percent since 2005, when large-scale recovery from underground shale deposits through hydraulic fracturing began in earnest. Natural gas currently costs more than three times as much in China, France, and Germany than in the U.S. and nearly four times as much in Japan. U.S. prices are expected to remain within a range of $4 to $5 per thousand cubic feet for several decades. What's more, because it will take many years before other nations are able to begin large-scale recovery of shale gas and before the U.S. can export domestic supplies, the low-cost advantage will be largely exclusive to the U.S. for at least five to 10 years.
By 2015, natural gas will account for only 2 percent of average U.S. manufacturing costs and electricity will account for just 1 percent, according to BCG estimates. By contrast, natural gas will account for between 5 and 8 percent of manufacturing costs in Japan and in Europe's major exporting economies, where it is more expensive, while electricity will account for between 2 to 5 percent in Japan and Europe. Cheap energy will also help further narrow the cost gap between the U.S. and China, where natural gas and electricity combined will account for 6 percent of manufacturing costs.
Cheap natural gas is enhancing U.S. manufacturing competitiveness in several important ways. The most immediate beneficiaries are manufacturers of a wide range of petrochemicals, which enjoy a cost advantage of up to 50 percent over their counterparts in Europe and Asia. As a primary feedstock, these chemicals use ethane, which is also found in many natural-gas fields, as well as propane and butane, which are byproducts of natural-gas production. Much of those cost savings will pass to downstream manufacturers that use those petrochemicals to make everything from plastics to synthetic fabrics -- and eventually to U.S. consumers.
Natural gas is used increasingly as a fuel in U.S. power plants. Therefore, it is likely to ensure that the price of industrial electricity will remain between one-quarter and two-thirds the cost of electricity in major exporting nations such as China, Japan, Germany, France, and Italy for a significantly long time. This will benefit all manufacturers to a varying degree, but in particular energy-intensive industries such as glass and steel. The BCG research estimates that low natural-gas prices help give U.S.-based glass makers a 40 percent cost advantage over South Korean producers, for example, and a 63 percent advantage over German producers. A new steel mill using direct-reduced iron (DRI) technology, which uses low-cost natural gas, produces iron (the key ingredient in steel) substantially more cheaply than mills using conventional blast furnaces.
A Boon for Domestic and Foreign Manufacturers in the U.S.
"Companies from around the world are already taking notice and beginning to make long-term manufacturing investments in the U.S. to take advantage of low-cost natural gas," said Michael Zinser, a BCG partner and coleader of the firm's Manufacturing practice. "Already tens of billions of dollars in new investments have been announced, and we expect to see more such investment in the near future."
Some of the most widely publicized investments have been in chemical production. Formosa Plastics, for example, is spending about $2 billion on a new ethylene plant and downstream assets in Point Comfort, Texas, in part because of the availability of shale gas feedstock. In Louisiana, Sasol plans to a build a world-scale ethane cracker in Lake Charles, and Methanex is relocating two methanol plants from Chile to Ascension Parish.
There also has been a surge in investment in new U.S. steel plants, most of them using a DRI process. Nucor Steel, for instance, recently began production at a $750 million DRI plant in Louisiana. Other steelmakers are adding U.S. capacity to meet demand from the energy industry. In Youngstown, Ohio, Vallourec built a $1 billion plant to supply steel pipe to companies extracting shale gas.
"A number of industries are already nearing a tipping point where it will be more economical to make many goods in the U.S.," said Justin Rose, a BCG partner and another coauthor. "The energy advantage helps them reach that tipping point faster."
Sirkin, Zinser, and Rose are coauthors of the 2012 book The US Manufacturing Renaissance: How Shifting Global Economics Are Creating an American Comeback ([email protected]).
To arrange an interview with one of the authors, please contact David Fondiller at 212 446 3257 or at [email protected].
About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 81 offices in 45 countries. For more information, please visit bcg.com.
Bcgperspectives.com features the latest thinking from BCG experts as well as from CEOs, academics, and other leaders. It covers issues at the top of senior management's agenda. It also provides unprecedented access to BCG's extensive archive of thought leadership stretching back 50 years to the days of Bruce Henderson, the firm's founder and one of the architects of modern management consulting. All of our content -- including videos, podcasts, commentaries, and reports -- can be accessed by PC, mobile, iPad, Facebook, Twitter and LinkedIn.
The Boston Consulting Group
Director of Public Relations and Communications
Tel +1 212 446 3257
Fax +1 212 446 2801
Aspose.Total for .NET is the most complete package of all file format APIs for .NET as offered by Aspose. It empowers developers to create, edit, render, print and convert between a wide range of popular document formats within any .NET, C#, ASP.NET and VB.NET applications. Aspose compiles all .NET APIs on a daily basis to ensure that it contains the most up to date versions of each of Aspose .NET APIs. If a new .NET API or a new version of existing APIs is released during the subscription peri...
Jul. 27, 2016 11:15 AM EDT Reads: 881
SYS-CON Events announced today that 910Telecom will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Housed in the classic Denver Gas & Electric Building, 910 15th St., 910Telecom is a carrier-neutral telecom hotel located in the heart of Denver. Adjacent to CenturyLink, AT&T, and Denver Main, 910Telecom offers connectivity to all major carriers, Internet service providers, Internet backbones and ...
Jul. 27, 2016 11:00 AM EDT Reads: 673
Enterprise networks are complex. Moreover, they were designed and deployed to meet a specific set of business requirements at a specific point in time. But, the adoption of cloud services, new business applications and intensifying security policies, among other factors, require IT organizations to continuously deploy configuration changes. Therefore, enterprises are looking for better ways to automate the management of their networks while still leveraging existing capabilities, optimizing perf...
Jul. 27, 2016 11:00 AM EDT Reads: 1,206
Ixia (Nasdaq: XXIA) has announced that NoviFlow Inc.has deployed IxNetwork® to validate the company’s designs and accelerate the delivery of its proven, reliable products. Based in Montréal, NoviFlow Inc. supports network carriers, hyperscale data center operators, and enterprises seeking greater network control and flexibility, network scalability, and the capacity to handle extremely large numbers of flows, while maintaining maximum network performance. To meet these requirements, NoviFlow in...
Jul. 27, 2016 10:45 AM EDT Reads: 595
SYS-CON Events announced today that LeaseWeb USA, a cloud Infrastructure-as-a-Service (IaaS) provider, will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. LeaseWeb is one of the world's largest hosting brands. The company helps customers define, develop and deploy IT infrastructure tailored to their exact business needs, by combining various kinds cloud solutions.
Jul. 27, 2016 10:30 AM EDT Reads: 1,211
Adding public cloud resources to an existing application can be a daunting process. The tools that you currently use to manage the software and hardware outside the cloud aren’t always the best tools to efficiently grow into the cloud. All of the major configuration management tools have cloud orchestration plugins that can be leveraged, but there are also cloud-native tools that can dramatically improve the efficiency of managing your application lifecycle. In his session at 18th Cloud Expo, ...
Jul. 27, 2016 10:30 AM EDT Reads: 1,048
Continuous testing helps bridge the gap between developing quickly and maintaining high quality products. But to implement continuous testing, CTOs must take a strategic approach to building a testing infrastructure and toolset that empowers their team to move fast. Download our guide to laying the groundwork for a scalable continuous testing strategy.
Jul. 27, 2016 10:00 AM EDT Reads: 1,996
Hostway Services, Inc. and WSM International have partnered to deliver trouble free migration services for any organization that wishes to bring their IT infrastructure to Hostway's Azure managed cloud services. WSM is the leader in providing turn-key IT migration services since 2003 and is now the preferred provider to any Hostway customer that is seeking to move its computer infrastructure to the Hostway Azure-based cloud.
Jul. 27, 2016 10:00 AM EDT Reads: 228
Ovum, a leading technology analyst firm, has published an in-depth report, Ovum Decision Matrix: Selecting a DevOps Release Management Solution, 2016–17. The report focuses on the automation aspects of DevOps, Release Management and compares solutions from the leading vendors.
Jul. 27, 2016 10:00 AM EDT Reads: 1,725
Manufacturers are embracing the Industrial Internet the same way consumers are leveraging Fitbits – to improve overall health and wellness. Both can provide consistent measurement, visibility, and suggest performance improvements customized to help reach goals. Fitbit users can view real-time data and make adjustments to increase their activity. In his session at @ThingsExpo, Mark Bernardo Professional Services Leader, Americas, at GE Digital, discussed how leveraging the Industrial Internet a...
Jul. 27, 2016 09:45 AM EDT Reads: 433
Security, data privacy, reliability and regulatory compliance are critical factors when evaluating whether to move business applications from in-house client hosted environments to a cloud platform. In her session at 18th Cloud Expo, Vandana Viswanathan, Associate Director at Cognizant, In this session, will provide an orientation to the five stages required to implement a cloud hosted solution validation strategy.
Jul. 27, 2016 09:30 AM EDT Reads: 1,020
The cloud market growth today is largely in public clouds. While there is a lot of spend in IT departments in virtualization, these aren’t yet translating into a true “cloud” experience within the enterprise. What is stopping the growth of the “private cloud” market? In his general session at 18th Cloud Expo, Nara Rajagopalan, CEO of Accelerite, explored the challenges in deploying, managing, and getting adoption for a private cloud within an enterprise. What are the key differences between wh...
Jul. 27, 2016 09:30 AM EDT Reads: 2,057
"We formed Formation several years ago to really address the need for bring complete modernization and software-defined storage to the more classic private cloud marketplace," stated Mark Lewis, Chairman and CEO of Formation Data Systems, in this SYS-CON.tv interview at 18th Cloud Expo, held June 7-9, 2016, at the Javits Center in New York City, NY.
Jul. 27, 2016 09:30 AM EDT Reads: 1,624
Deploying applications in hybrid cloud environments is hard work. Your team spends most of the time maintaining your infrastructure, configuring dev/test and production environments, and deploying applications across environments – which can be both time consuming and error prone. But what if you could automate provisioning and deployment to deliver error free environments faster? What could you do with your free time?
Jul. 27, 2016 09:17 AM EDT Reads: 189
SYS-CON Events announced today that Venafi, the Immune System for the Internet™ and the leading provider of Next Generation Trust Protection, will exhibit at @DevOpsSummit at 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Venafi is the Immune System for the Internet™ that protects the foundation of all cybersecurity – cryptographic keys and digital certificates – so they can’t be misused by bad guys in attacks...
Jul. 27, 2016 09:15 AM EDT Reads: 1,352