|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
Much of the value of DevOps comes from a (renewed) focus on measurement, sharing, and continuous feedback loops. In increasingly complex DevOps workflows and environments, and especially in larger, regulated, or more crystallized organizations, these core concepts become even more critical. In his session at @DevOpsSummit at 18th Cloud Expo, Andi Mann, Chief Technology Advocate at Splunk, will show how, by focusing on 'metrics that matter,' you can provide objective, transparent, and meaningfu...
May. 2, 2016 08:30 PM EDT Reads: 663
If there is anything we have learned by now, is that every business paves their own unique path for releasing software- every pipeline, implementation and practices are a bit different, and DevOps comes in all shapes and sizes. Software delivery practices are often comprised of set of several complementing (or even competing) methodologies – such as leveraging Agile, DevOps and even a mix of ITIL, to create the combination that’s most suitable for your organization and that maximize your busines...
May. 2, 2016 07:45 PM EDT Reads: 1,871
In his session at @ThingsExpo, Chris Klein, CEO and Co-founder of Rachio, will discuss next generation communities that are using IoT to create more sustainable, intelligent communities. One example is Sterling Ranch, a 10,000 home development that – with the help of Siemens – will integrate IoT technology into the community to provide residents with energy and water savings as well as intelligent security. Everything from stop lights to sprinkler systems to building infrastructures will run ef...
May. 2, 2016 07:00 PM EDT Reads: 1,037
SYS-CON Events announced today that Peak 10, Inc., a national IT infrastructure and cloud services provider, will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. Peak 10 provides reliable, tailored data center and network services, cloud and managed services. Its solutions are designed to scale and adapt to customers’ changing business needs, enabling them to lower costs, improve performance and focus inter...
May. 2, 2016 06:30 PM EDT Reads: 1,285
You think you know what’s in your data. But do you? Most organizations are now aware of the business intelligence represented by their data. Data science stands to take this to a level you never thought of – literally. The techniques of data science, when used with the capabilities of Big Data technologies, can make connections you had not yet imagined, helping you discover new insights and ask new questions of your data. In his session at @ThingsExpo, Sarbjit Sarkaria, data science team lead ...
May. 2, 2016 06:00 PM EDT Reads: 966
In the world of DevOps there are ‘known good practices’ – aka ‘patterns’ – and ‘known bad practices’ – aka ‘anti-patterns.' Many of these patterns and anti-patterns have been developed from real world experience, especially by the early adopters of DevOps theory; but many are more feasible in theory than in practice, especially for more recent entrants to the DevOps scene. In this power panel at @DevOpsSummit at 18th Cloud Expo, moderated by DevOps Conference Chair Andi Mann, panelists will dis...
May. 2, 2016 06:00 PM EDT Reads: 703
Up until last year, enterprises that were looking into cloud services usually undertook a long-term pilot with one of the large cloud providers, running test and dev workloads in the cloud. With cloud’s transition to mainstream adoption in 2015, and with enterprises migrating more and more workloads into the cloud and in between public and private environments, the single-provider approach must be revisited. In his session at 18th Cloud Expo, Yoav Mor, multi-cloud solution evangelist at Cloudy...
May. 2, 2016 05:30 PM EDT Reads: 1,557
Artificial Intelligence has the potential to massively disrupt IoT. In his session at 18th Cloud Expo, AJ Abdallat, CEO of Beyond AI, will discuss what the five main drivers are in Artificial Intelligence that could shape the future of the Internet of Things. AJ Abdallat is CEO of Beyond AI. He has over 20 years of management experience in the fields of artificial intelligence, sensors, instruments, devices and software for telecommunications, life sciences, environmental monitoring, process...
May. 2, 2016 05:15 PM EDT Reads: 980
Increasing IoT connectivity is forcing enterprises to find elegant solutions to organize and visualize all incoming data from these connected devices with re-configurable dashboard widgets to effectively allow rapid decision-making for everything from immediate actions in tactical situations to strategic analysis and reporting. In his session at 18th Cloud Expo, Shikhir Singh, Senior Developer Relations Manager at Sencha, will discuss how to create HTML5 dashboards that interact with IoT devic...
May. 2, 2016 05:00 PM EDT Reads: 1,089
See storage differently! Storage performance problems have only gotten worse and harder to solve as applications have become largely virtualized and moved to a cloud-based infrastructure. Storage performance in a virtualized environment is not just about IOPS, it is about how well that potential performance is guaranteed to individual VMs for these apps as the number of VMs keep going up real time. In his session at 18th Cloud Expo, Dhiraj Sehgal, in product and marketing at Tintri, will discu...
May. 2, 2016 04:00 PM EDT Reads: 897
So, you bought into the current machine learning craze and went on to collect millions/billions of records from this promising new data source. Now, what do you do with them? Too often, the abundance of data quickly turns into an abundance of problems. How do you extract that "magic essence" from your data without falling into the common pitfalls? In her session at @ThingsExpo, Natalia Ponomareva, Software Engineer at Google, will provide tips on how to be successful in large scale machine lear...
May. 2, 2016 03:45 PM EDT Reads: 1,337
SYS-CON Events announced today that SoftLayer, an IBM Company, has been named “Gold Sponsor” of SYS-CON's 18th Cloud Expo, which will take place on June 7-9, 2016, at the Javits Center in New York, New York. SoftLayer, an IBM Company, provides cloud infrastructure as a service from a growing number of data centers and network points of presence around the world. SoftLayer’s customers range from Web startups to global enterprises.
May. 2, 2016 03:30 PM EDT Reads: 1,061
The IoTs will challenge the status quo of how IT and development organizations operate. Or will it? Certainly the fog layer of IoT requires special insights about data ontology, security and transactional integrity. But the developmental challenges are the same: People, Process and Platform. In his session at @ThingsExpo, Craig Sproule, CEO of Metavine, will demonstrate how to move beyond today's coding paradigm and share the must-have mindsets for removing complexity from the development proc...
May. 2, 2016 03:00 PM EDT Reads: 338
SYS-CON Events announced today that Ericsson has been named “Gold Sponsor” of SYS-CON's @ThingsExpo, which will take place on June 7-9, 2016, at the Javits Center in New York, New York. Ericsson is a world leader in the rapidly changing environment of communications technology – providing equipment, software and services to enable transformation through mobility. Some 40 percent of global mobile traffic runs through networks we have supplied. More than 1 billion subscribers around the world re...
May. 2, 2016 02:45 PM EDT Reads: 1,079