The ongoing shale boom and increasing use of hydraulic fracturing has comparative advantages that could drive future U.S. manufacturing growth, according to a Fitch Ratings report. However, Fitch does not expect it will provide a platform for U.S. 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 U.S.
Low natural gas prices provide an additional competitive advantage to U.S. 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 U.S. currently imports approximately half its daily consumption of 19 million barrels/day (MMBD) 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 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 U.S. industry and consumers and expanded capacity and profits for petrochemical companies and energy intensive materials producers.
The full report 'Shale Boom: A Boost to Manufacturing but not to Energy Independence' is available at 'www.fitchratings.com.'