Although projected year-on-year growth rates for most segments during the next few years appear good, they must be considered in the context of the exceptionally sharp declines seen in 2008 and continuing into 2009. It may take years for activity to surpass past peaks.
The expected modest gains in chemical industry production volumes and stable capacity suggest improving operating rates in 2013 and, with strengthening production volumes, capacity utilization could improve even further in 2014 and beyond. The possibility of perhaps 150 projects spurred by shale gas (see below) should result in fairly strong gains in capacity through 2018.
Abundant long-term supplies of natural gas from shale as well as oil from shale and other unconventional sources are possibly the most important domestic energy developments of the past 50 years and, for the chemical industry, the most important since the 1930s. Following a decade of high and volatile natural gas prices that destroyed industrial demand and led to the closure of many gas-intensive plants, shale gas offers a new era of American competitiveness. Growth in domestic shale gas production is helping to reduce U.S. natural gas prices and create a more stable supply of natural gas for fuel and power. It also is leading to more affordable supplies of natural gas liquids (NGLs), including ethane, which is a key petrochemical feedstock.
Thanks to shale gas, the competitive position of the United States has improved, prompting plans for significant new investments (Figure 2). We count about 135 chemical-industry projects valued at over $90 billion announced in the past three years to capitalize on the abundant supplies of natural gas and NGLs. This is a supply-side response and, if incorporated into projections, suggests a much higher growth profile moving past 2015. Indeed, growth likely will average over 4% per year in the second half of the decade.
Such projects include new ethylene crackers, as well as plants for derivative products (e.g., polyethylene and ethylene oxide), methanol, ammonia, on-purpose ethylene coproducts, etc. When all is said and done, the number of major projects should exceed 150 (possibly reaching 200) and should represent perhaps $112 billion in investments by 2025.
Shale gas should spur the creation of more than 46,000 direct jobs in the U.S. chemical industry.
The abundance of shale gas (and the resulting disconnect between U.S. natural gas prices and global oil prices) should boost U.S. exports in the years ahead. Large trade surpluses in basic chemicals should increase, as should surpluses in specialties and consumer chemicals. These should continue to more than offset the trade deficit in pharmaceuticals, resulting in growing trade surpluses.
In all, chemical industry growth in the United States should surpass that in Western Europe. Figure 3 compares the likely growth of the U.S. chemical industry and baseline projections for the chemical industry in Western Europe. As production from new investments comes online over the next several years, the United States should capture market share from Europe.
Shale gas also is spurring substantial investments in other manufacturing sectors — including in areas of the country that had been hard hit by industrial decline. The United States has emerged as the place to invest!
The industry's expansion also is reversing the declines in employment that occurred each year from 1999–2011. The number of jobs in the chemical industry is expected to have increased by 1.3% (to 794,000) in 2013 — and growth should continue through 2018. At that time, industry employment should approach 810,000. The impact on local economies will be significant since chemical industry workers are among the highest paid in the manufacturing sector.
Because U.S. manufacturing is set to gain substantially, due in large part to shale gas development, government and industry must work together to ensure that the American workforce is prepared for the jobs building and working in the emerging manufacturing renaissance. Between a graying manufacturing workforce and decades of young people turning away from careers in manufacturing and the trades, there is concern about the quality and quantity of workers available for the diverse portfolio of skilled manufacturing and construction occupations that will be required in the coming years. Addressing this concern will require concerted efforts.
In summary, the global recovery stalled in 2012 and 2013 — with Europe slipping back into recession and manufacturing in China slowing sharply. In the United States, uncertainty, higher taxes and debt, and other factors curbed growth. More than four years since the official end of the recession, the majority of manufacturing industries remain below their pre-recession peak. In the coming year, growth should accelerate across most regions of the world. The U.S. should particularly benefit because of the favorable oil-to-gas ratio in North America — and emerge as a global low cost supplier of many petrochemical and plastic products. As balance sheets continue to improve and the nation's shale resources are developed further, chemical producers and other manufacturers are bringing investment back to the United States. This manufacturing renaissance offers huge potential, not only to the millions of American workers it will employ, but the U.S. economy as a whole.
THOMAS KEVIN SWIFT is chief economist and managing director of the American Chemistry Council, Washington, D.C. E-mail him at Kevin_Swift@americanchemistry.com.