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Industry Pundits Vocal About Manufacturing Renaissance

The manufacturing industry is starting to become a bit more vocal about the reality of its renaissance here in the U.S. In order to protect these green shoots, and its investment dollars, many in the industry are openly opposing any increase in liquefied natural gas exports. Instead, the industry sees vast potential to turn our natural gas resources into value-added products that it believes would be worth far more on the export market than simply selling our natural gas to the highest bidder.

At issue here is the fact that low-cost sources of natural gas form a competitive advantage to heavy users, an advantage that until recently was found outside our borders. Natural gas isn't just a fuel source for these companies, it's an important feedstock to a multitude of industries. While the petrochemical industry has been the most vocal, the expanded use of natural gas has the potential to create thousands of manufacturing jobs as companies invest to expand operations. Just last month the manufacturing industry added 29,000 jobs, more than double the rate from the past two months. It sees the potential for more jobs as its renaissance kicks into high gear.      

Source: America's Energy Advantage 

One of the most vocal opponents of increasing the availability of natural gas exports is Dow Chemical (NYSE: DOW  ) . According to CEO Andrew Liveris: "Rushing to sell natural gas to Europe and Asia risks damage to the U.S. economy." His company has $4 billion in planned investments on the U.S. Gulf Coast geared toward consuming low-cost natural gas with more likely in the future. Dow's fears are that as these projects come online between 2015 and 2017 too much natural gas will be making its way out of the country, which will increase the cost of the gas that flows into new plants.   

Natural gas is critically important to Dow as a feedstock to make the basic building blocks for plastics. As you might imagine, plastics have an array of uses, and as the largest consumer of plastics in the world, there are a lot of synergies to be gained by producing more of them within our borders. Not only that, but these value-added products can later be exported at a higher net economic benefit, which is very good for Dow's bottom line and our economy as a whole. That's why the company is not alone in its quest to put a limit on how much gas can be exported. 

Huntsman (NYSE: HUN  ) CEO Peter Huntsman has warned that we can't allow "our nation's natural gas advantage to be stripped and sent overseas to build a new manufacturing base that would otherwise be built here in the U.S." Instead he says that "real, sustained and broad-based growth in the U.S. economy will come from a balanced approach that considers the needs of American manufactures and consumers." In his view "completely unfettered U.S. exports many enrich a few LNG exporters in the short term." So, while his company recently committed $150 million to new capital projects aimed at taking advantage of low-cost natural gas supplies, there is enough caution weighing as the company evaluates additional opportunities worth another $250 million more. 

According to Huntsman: "Four years ago, 90% of our discretionary growth capital was spent outside the U.S. ... Today, 70% is being spent within the U.S., just because of gas. That is the same with virtually any company." In fact, industrywide there are at least 50 projects representing $40 billion of invested capital all devoted to taking advantage of the growth of shale gas. That, however, is just part of the equation with the overall manufacturing sector looking at upwards of $95 billion in capital being spent to take advantage of our cheap shale gas resources.  

As important as natural gas is to the petrochemical industry, that's but one of its many uses as an industrial feedstock. It's also used in fertilizer production. CF Industries (NYSE: CF  )  for example, uses natural gas to produce nitrogen fertilizer. Nitrogen is important for growing corn. Because of the importance of natural gas in the process, and its low cost, the company is spending $3.8 billion to expand its nitrogen capacity.

Source: CF Industries Investor Presentation (expansion projects in yellow)

Not only will these expansion projects drive future profits for CF Industry but it'll help cut our nitrogen fertilizer imports, which represented 54% of the nitrogen fertilizer we used in 2011. 

The trickle-down effect is even greater. One of the many examples is that all this gas needs to be transported from the production basins to these new manufacturing facilities. This takes pipelines like the ones Enterprise Product Partner's (NYSE: EPD  ) builds and operates, as well as the steel that is a major input costs for those pipes. Enterprise has already built $8 billion in infrastructure to move our energy, and the company has another $7 billion in projects under construction. One of the many examples is its recent announcement of the development of a new 270-mile pipeline system for the U.S. Gulf Coast petrochemical industry. This project will directly create 1,500 jobs during its construction as well as indirect jobs in a variety of industries, including steel. 

Which is why steel manufacturers, as you might imagine, are big beneficiaries of the shale gas boom. Not only are the pipes used to provide a secure path for the gas to arrive to the surface, but the pipes are also used by companies like Enterprise to transport the gas around the country. This is a huge opportunity for struggling steelmakers like U.S. Steel (NYSE: X  ) whose tubular segment provides a variety of products and services to the energy industry. Most recently the company entered into a joint venture to provide tubular services to the facet of the energy industry operating specifically in the Permian Basin. As you can see, our natural gas advantage touches all sectors of manufacturing creating thousands of jobs along the way.

Natural gas is a game changer for our economy. However, its greatest benefits still haven't been felt, as we're still in the very early stages of this manufacturing renaissance. The worry is that this renaissance gets derailed because the price of natural gas rises too high because of the expanded use of exports. That's why its no surprise to see major manufacturers stepping up efforts to make sure this doesn't happen. 

The investment opportunities are endless thanks to the growing production of natural gas from hydraulic fracturing and horizontal drilling. Because gas is flooding the North American market and resulting in record-low prices for natural gas we're seeing this amazing manufacturing renaissance. One of the companies leading the way to transport the gas to manufacturers is Enterprise Products Partners. Thanks to its superior integrated asset base, it can profit from the massive bottlenecks in takeaway capacity by taking on large-scale projects. To help investors decide whether Enterprise Products Partners is a buy or a sell today, click here now to check out The Motley Fool's brand new premium research report on the company.

Read/Post Comments (4) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 13, 2013, at 6:25 PM, lee1948 wrote:

    The problem is not the price will get too high the problem is you have an administration that will do everything possible to slow down or completely derail the drilling for nat gas. They could make the exploration and drilling so expensive and difficult that the cost is not worth the risk.

  • Report this Comment On March 13, 2013, at 6:35 PM, grbbiker wrote:

    now hear this, we free market businessmen, extolling the virtues of the market system of capitalism, suddenly do not trust free market pricing of gas, as it may deprive us of great profit opportunities for OUR companies. oh, sure, others may profit, but we are looking out for our own interests in keeping gas prices low..... are they kidding ? let them buy futures through the nose to protect their needs if that's what it takes. surely they already use futures, so it is only a matter of degree.

  • Report this Comment On March 13, 2013, at 6:41 PM, grbbiker wrote:

    and didn't we see recently that Total, the french giant oil company, signed a five year deal to buy our gas at prices roughly double the present price, in a deal that does not start shipments until something like five years from now ?

    dow and huntsman and cf are surely able to make or negotiate deals in their self interests. instead, do they want export controls, violating their professed free market ideals ?

  • Report this Comment On March 13, 2013, at 6:50 PM, TMFmd19 wrote:

    @grbbiker - Yeah, I agree with you that the logic doesn't seem in line. Plus, NGL's like propane and ethane already are exported.

    One more side note, NUE which joined the coalition with DOW and HUN signed a 20-year deal with ECA for nat gas to lock in the costs of its new plant.

    It's a very interesting story to follow.


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