With some of the lowest natural gas costs in the country, this region has attracted more businesses and freed up development cash
The story of the natural gas boom in America has largely been one of astronomical mining company profits, “man camps” full of workers who’ve gone to jobs in unprepared small towns, and debates over the environmental effects of the extraction processes. But what has come to light in the past year is the ripple effect far beyond the oil fields in places like the Upstate.
In December, the U.S. Department of Energy’s (DOE) early release of its 2014 energy outlook projected that natural gas will replace coal as America’s biggest source of electricity by 2035. Industry is leading the way in that trend – partly due to having more flexibility in how it buys energy – but commercial and residential customers are not too far behind.
It’s a buyer’s market as the average energy prices for manufacturers have decreased 11 percent from 1998 to 2010. Natural gas is the reason, according to the U.S. Energy Information Administration (EIA). The EIA reported in September that prices for electricity, coal and other energy sources rose during the period, but natural gas prices plummeted 36 percent.
South Carolina is one of the states that have capitalized on the gas boom, and volumes of natural gas delivered to South Carolina’s industrial users increased from about 72 billion cubic feet in 2008 to more than 81 billion cubic feet in 2012, a 12.8 percent increase.
Two major contributors were increased use of the “fracking” extraction process to get harder-to-reach deposits, and the shale oil boom that began in 2008. These started pushing prices down immediately, and right now they’re at the lowest point since that time, said David Trusty, Piedmont Natural Gas managing director of public relations.
When the impacts of hydraulic fracturing and natural gas from shale hit the market, America went overnight from a 60-year supply to more than a 100-year supply at current consumption rates, Trusty said.
“Over that five-year period of time, while there may have been some up or down movement, the long-term trend and the real numbers are lower than they were five years ago,” said Trusty.
The EIA report showed the South has the lowest prices of natural gas incurred by manufacturers with more than 50 employers; the ultimate effect is freeing up cash to do bigger and better business.
Bringing Business Back Home
Those opportunities to save cash on energy costs have helped motivate companies to locate or even return operations to the United States. Low natural gas prices are making the states a prime spot for making things again. All of this has meant more work for construction companies like Greenville-based O’Neal. The company is currently constructing a $115 million plant in Augusta, Ga., for Rockwood Pigments, a manufacturer of pigments for paints, coatings and other materials.
“They did look at multiple locations in other countries, and they chose here in the Southeast,” Brian Gallagher, director of marketing at O’Neal. He said his company began to see an uptick at the start of the year from chemical companies and manufacturers in general. He said many companies in that space are optimistic about 2014.
O’Neal is getting “projects that were delayed four to five years ago because of market uncertainty, but now companies are making the decision to move forward, and with very aggressive schedules,” he said. “They want that asset to be producing product and profits as soon as possible.”
That is also part of a broader trend of companies and jobs returning to the United States, Gallagher said. Natural gas joins rising labor costs overseas, increased automation and a relatively weak dollar among factors bringing more industrial business back this way.
More Than Fuel
Natural gas is not just a fuel source, but also an important feedstock in chemical manufacturing. Gases extracted from natural gas are used as a feedstock for such products as fertilizers and pharmaceutical products.
The use of natural gas and its derivatives in industrial applications is of particular importance in the Greenville metro area, which is known to have one of the highest concentrations of engineers in the country. Industrial shipments of bulk chemicals, which benefit from an increased supply of natural gas liquids, are expected to grow by 3.4 percent annually for the next decade, which is up from the DOE’s previous estimate of 1.9 percent.
Although the competitive advantage in bulk chemicals will diminish in the long term, industrial natural gas consumption is projected to grow by 22 percent between 2012 and 2025. Even if growth accelerates, the chemical manufacturing renaissance brought on by the natural gas supply is of particular interest in the Upstate.
Will It Last?
It’s called a boom for reason: It won’t last forever. Although no abrupt bust appears to be on the horizon at this point, the DOE has estimated that prices could start to increase as soon as next year, precisely because of industrial consumption and consumption for electricity.
Many industry experts say the supply simply cannot continue to outpace the demand for long. It also happens that the man who pioneered fracking in the 1970s, George Mitchell, died last year amid a rush of scrutiny over the processes’ environmental impacts. About 90 percent of natural gas wells in the country are using the process, which has been accused of contaminating water supplies and even causing earthquakes. That controversy forced some mining companies to spend more on environmental protection. Fracking was already a much more pricey process than conventional drilling.
The complete DOE outlook this spring will give a fuller idea of what the future holds for natural gas. In the meantime, it continues to encourage cost savings and investments that have a significant impact in South Carolina.