What if you heard that there was a new technology – hint: think fracking – that could significantly lower energy costs, allowing manufacturing to flourish?
A new fracking code of conduct has been adopted by top 11 hydraulic fracturing companies in Canada.
Would your reaction be to go out and invest in that technology today? Would you demand that your government implement policies that would permit that energy to flow to businesses?
What if I told you that the rumours are true and that only some jurisdictions are allowing this new technology?
What if I told you that the technology we are discussing is the combination of horizontal drilling and advanced hydraulic fracturing (known in the public lexicon as ‘fracking’)?
The advent of these technologies and the subsequent unlocking of shale oil and natural gas have unleashed an energy revolution across North America. New supplies of shale resources have dramatically lowered continental natural gas prices. This, in turn, has facilitated a manufacturing boom that has not been seen in years.
Hydraulic fracturing, commonly referred to as fracking, has been used in Canada since the 1950s.
Nucor Steel has opened a $750 million plant on the Mississippi River in Louisiana. Methanex has relocated a methanol plant from Chile to Louisiana and re-opened a Medicine Hat, Alberta plant. Orascom Construction Industries is opening a $1.4 billion plant in Iowa which will be “the first world-scale, natural gas-based fertilizer plant built in the United States in nearly 25 years.”
A recent report by the U.S. Conference of Mayors entitled “Impact of the Manufacturing Renaissance from Energy Intensive Sectors,” concludes that the economic benefits of shale gas productions go far beyond the wellhead:
Energy intensive manufacturing has played a key role in the recovery of our nation’s metropolitan economies, and the recently new availability of inexpensive natural gas and unconventional oil plays will support long term economic growth in a variety of industries. Since 2010, the aforementioned industries have combined for 62% of the growth in metropolitan manufacturing employment and almost 6% of the total jobs recovered across all metros since the recession.
Even traditionally conservative analysts have been bullish on the significance of the shale revolution to manufacturers. From a PWC report published in Dec 2011:
An underappreciated part of the shale gas story is the substantial cost benefit to manufacturers, based on future estimates of natural gas prices as more shale gas is recovered.
So how does this relate to Canada, our gas production and manufacturing business? Provinces which encourage and regulate energy development, including fracturing, have the lowest unemployment rates in the country and have a strong manufacturing economy. The table below shows that B.C., Alberta and Saskatchewan have comparably low unemployment rates, due in part to a healthy economy driven by natural resource development. Moreover, these provinces’ manufacturing sectors have shown healthy growth in recent years – adding jobs and value to provincial GDP