Energy Crisis Spurs Outsourcing

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There's been a lot written on the subject of outsourcing (especially offshore outsourcing) lately. The primary culprit for the loss of U.S. jobs, according to some people, is greedy companies seeking to exploit cheap foreign labor. There's some truth to that. Microsoft (Nasdaq: MSFT), American Express (NYSE: AXP), and Intel (Nasdaq: INTC) all go overseas to hire cheap local talent from time to time.

But another issue, largely ignored by the press, showed up on my radar a few months ago: Some U.S. companies are moving operations abroad for the simple reason that it costs too much to run their businesses in the U.S. I'm not talking about labor costs now. I'm talking about the high cost of natural gas.

Back in May, for example, aluminum king Alcoa (NYSE: AA) announced that it was opening a 250,000-metric-ton-capacity smelter in Trinidad, taking nearly 600 potential U.S. jobs with it. Trinidad and Tobago, an island nation in the Caribbean, has extensive natural gas fields that provide a source of cheap energy for Alcoa's energy-intensive metal-smelting operations. It's probably no coincidence that Alcoa's other big announcement in May was the acquisition of two aluminum plants in Russia, which is another big producer of cheap natural gas (at least for as long as the EU lets Russia get away with subsidizing local businesses' gas consumption).

According to CBS MarketWatch yesterday, the movement abroad is not limited to metals companies such as Alcoa. Natural gas costs also make up a large portion of the cost of doing business for chemical companies such as Praxair (NYSE: PX), Dupont (NYSE: DD), and Dow Chemical (NYSE: DOW). Dow, for example, announced a joint venture to open a plant in hydrocarbon-rich Oman just last month.

It's worth pointing out that while moving operations to gas-rich countries may be good for industrial companies' profitability, and thus for shareholders in these companies, it is also helping to turn sentiments among the investing -- and voting -- public against these companies. Politicians can then rail against "unpatriotic" companies that move abroad -- to escape an energy crisis that these same politicians very often helped create by voting against natural gas drilling here at home.

For more Foolish coverage of the outsourcing debate, read:

• Brian Gorman discusses the biotech industry's investments in India.
• Mark Mahorney examines whether offshoring is all it's cracked up to be.
• Rich Smith looks at the option of onshore outsourcing.

Are higher gas prices here to stay? Join the discussion on our Exxon discussion board. Have our nation's leaders managed our energy resources wisely? Share your views with other Fools on The Politics of Energy board.

Fool contributor Rich Smith owns no interest in any of the companies mentioned in this article.