US shale boom to spur manufacturing growth, but not energy independence

The ongoing shale boom and increasing use of hydraulic fracturing has comparative advantages that could drive future US manufacturing growth, according to a new report released Thursday by credit-watch company Fitch Ratings.

However, Fitch does not expect it will provide a platform for US energy independence.

Fitch believes that if shale gas development is allowed to expand, the volumes will add to other comparative advantages such as cost of labor, demographics, supply chain security and transportation costs. Collectively, these factors could incentivize a higher volume of manufacturing to return to the US.

Low natural gas prices provide an additional competitive advantage to US producers in many industries including chemicals, steel, copper, aluminum, cement, and other energy intensive materials.

The return of more sophisticated levels of manufacturing will be driven more by economic fundamentals and technology than low energy prices.

The US currently imports approximately half its daily consumption of 19 million bpd of oil and remains both the largest importer and consumer of oil. Conservation and the shale revolution would not eliminate upward pressure on prices from rising emerging market demand.

Even with the growth of hydraulic fracturing, Fitch does not believe coal production will contract significantly, and expects an eventual rebound once market conditions become more favorable.

While coal will have a smaller share of the electricity market, it will still be the biggest single source of energy for conversion to electricity, the report says.

The effect of the shale revolution on the North American midstream sector is generally positive. In other cases it is more mixed, as the shale revolution has both provided a strong source of organic growth for the industry, but also unfavorably pressured the economics of coal fired electricity producers in select cases.

The primary effect of shale gas will be lower costs for US industry and consumers and expanded capacity and profits for petrochemical companies and energy intensive materials producers, according to the Fitch report.

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