“Shale Effect” Projected to Benefit Manufacturers

A recent report from PricewaterhouseCoopers indicates that U.S. manufacturers could save $22.3 billion per year by 2030 and $34.1 billion by 2040, thanks to an increase in domestic natural gas production. These figures are up significantly from a similar 2011 analysis which estimated that manufacturers could save as much as $11.6 billion annually by 2025 and $11.2 billion by 2035. The new projections are driven by the increasing recovery of shale gas from domestic shale formations, as well as growing consumption of natural gas. According to the report, U.S. production and proven reserves of shale gas have risen steadily since 2007, and in 2010, the United States overtook Russia as the world’s largest natural gas producer.

The so-called “shale effect” is affecting manufacturing on several fronts. The boom in domestic shale recovery is beneficial to manufacturers as a source of cheaper energy and cost savings as noted above, but it is also significant as a driver of demand for manufacturing services such as the production of parts and equipment needed for shale gas extraction and distribution infrastructure. In addition, PricewaterhouseCoopers estimates that 930,000 shale gas-driven manufacturing jobs will be created by 2030 and 1.41 million by 2040.

The report’s projections are based on a high-recovery, low-price scenario for shale gas without taking into consideration elasticity of demand. Shale’s impact may be influenced by other factors, several of which are named in the report:

• Shale gas supply could outstrip demand, potentially slowing investment and reducing the production of drilling equipment and other downstream activities.
• There is a need for the United States to accelerate its natural gas distribution infrastructure to keep natural gas prices competitive.
• Shale’s impact could be amplified if natural gas were to become a more common transportation fuel.
• Changes in tax policy could affect capital investments in shale gas development.
• Researchers are still studying the environmental effect of hydraulic fracturing (fracking) and several states have announced moratoria on the process.

Read the full report at short.mmsonline.com/pwcshale.

PricewaterhouseCoopers LLP, visit pwc.com.