U.S. energy production could create almost a half-million…

U.S. energy production could create almost a half-million…

Jul 17, 2015

“U.S. energy production could create almost a half-million new jobs, but here’s the thing”

By Clare Goldsberry, Plastics Today

Energy resources in the United States offer a huge opportunity to send the U.S. economy on an upward trajectory that hasn’t been seen since the mid to late 20th century. A new report from the Boston Consulting Group (BCG; Boston) and Harvard Business School (HBS; Boston), titled America’s Unconventional Energy Opportunity, addresses this opportunity and, more importantly, why we’re not taking advantage of it.

One interesting observation made by BCG and HBS about the obstacles to taking full advantage of America’s energy resources is a “divisive and often misinformed debate about unconventional gas-and-oil resources” that is “jeopardizing a once-in-a-generation opportunity to change America’s economic and energy trajectory.” BCG defines the term “unconventional gas-and-oil resources” as shale gas and oil resources as well as tight gas and oil resources accessed and extracted through the process of hydraulic fracturing.

At a time when the U.S. economy is stuck in neutral, job prospects have declined with the lowest labor participation rate since World War II and wages are stagnant, the report notes there is “an urgent need for the U.S. to get on a new path” by taking full advantage of the energy resources development that can put us back on top. BCG, based on the Harvard Business School’s U.S. Competitiveness Project, concludes that “America’s poor economic performance is not cyclical but structural, and it reflects an erosion of the nation’s fundamental competitiveness.”

While large, multinational corporations are performing quite well, small businesses aren’t so fortunate. They are “registering eroding performance, and business failures have outnumbered new startups from 2009 through 2012—the last year of available data—for the first time since at least the 1970s,” says the BCG report. What can change this, it adds, is the “global energy advantage” of the United States, with wholesale natural-gas prices averaging about one-third of those in most other industrial countries and industrial electricity prices 30 to 50% lower than in other major export nations.

While the recent decline in oil prices slowed production of domestic natural gas and oil, the U.S. has had a 10- to 15-year head start in commercializing unconventional resources versus other countries. BCG believes that even with low crude prices, these are “unlikely to significantly impact the fundamental U.S. competitive advantage over the next several decades.”

All of that is good news for the plastics industry. The American Chemistry Council (ACC), in a report issued in May,The Rising Competitive Advantage of U.S. Plastics, noted that “the surge of natural gas production from shale has reversed the fortunes of the U.S. plastics industry” and “has changed the competitive landscape for U.S. plastics.” Companies are capitalizing on this boon, as the ACC is tracking $130 billion of new investment in chemical manufacturing capacity announced since 2010 to be put in place over the next decade.

This includes nearly $25 billion of investments in new plastic resin capacity; investments of $2.5 billion to increase capacity in plastics compounding, additives and colorants; and investments totaling $19.6 billion in new plastic products capacity to consume that resin. “The combined output from the new investments,” said the ACC, “in compounding and ancillary chemistries (additives, colorants and so forth) and products will be $46.98 billion.”

That translates into jobs, with the ACC estimating that the plastics industry will directly generate a total of 127,500 jobs, with the affected supply chain adding 172,900 indirect jobs to support the industries that supply materials, utilities, parts and services. Payroll is estimated to be $19.1 billion, with 161,000 “payroll-induced jobs” supported from the gain in shale-advantaged plastics industry output. A combined 461,800 direct, indirect and payroll-induced new jobs will be created because of shale-advantaged production.

However rosy that picture may look, there are roadblocks ahead. The BCG notes in its report that despite these major benefits, “public support for unconventional energy development and especially hydraulic fracturing, is decidedly mixed and seems to be declining. Further development is increasingly threatened. Opposition reflects both legitimate concerns over local environmental climate impacts, and widespread confusion over the facts.”

In June a report from the U.S. Environmental Protection Agency (EPA) found hydraulic fracturing has not caused widespread harm to U.S. drinking water, but still poses many threats to water. “We found that hydraulic fracturing processes are being carried out in a way that has not led to widespread systems impact on drinking water,” said Thomas Burke of the U.S. Environmental Protection Agency.

While the development of unconventional energy does pose some environmental risks, the BCG and HBS said that their research reveals that real progress is being made in managing these risks “at a cost that does not threaten competitiveness. . . . There is no inherent trade-off between environmental protection and company profitability. With sound regulation and strong compliance, the cost of environmental performance is modest and gives companies a level playing field on which to compete.”

The study also found that America’s unconventional energy development and its transition to alternative forms of energy are actually complementary. “Natural gas is the only fuel that can cost-effectively deliver large-scale carbon emissions reductions over the next 20 years while also providing a bridge to achieving even lower carbon solutions over the long term,” said the report.

That’s good science, and good news for all of us in the plastics industry.

 

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