D. Dowd Muska


A Comeback for Chemicals, Thanks to Natural Gas

February 02, 2012

It was another addition to a long list of doomed domestic industries. The trend was irreversible. Within a decade or two, its products would join clothing, toys, and television sets as goods formerly “Made in the U.S.A.”

Nothing could be done, really, as long as Washington’s blinkered, bipartisan commitment to free trade persisted. Globalization means “deindustrialization,” and the offshoring of high-wage jobs. America doesn’t make anything anymore.

But before it was loaded into a hearse, chemical manufacturing got its pulse back. An industry that BusinessWeek described in 2005 as “withering at home” has rebounded, bigtime.

The American Chemistry Council reports that in 2010, “exports increased 17 percent, shifting the industry’s balance of trade from a $100 million deficit to a $3.7 billion surplus. Plastics exports alone were up 10 percent … . Industry leaders … have restarted plants idled by the recession. Other companies are expected to announce expansion plans in the U.S.”

Pennsylvania-based geologist John J. Interval, writing in the Pittsburgh Post-Gazette, described a few of the possible investments: “Dow Chemical plans to spend $4 billion to build an ethylene cracker on the Gulf Coast, reopen an idled chemical plant and build two propylene plants. Germany’s Bayer AG is in talks with several companies to construct new ethylene crackers in West Virginia, while Chevron Phillips Chemical and Dutch-based LyondellBasell have said they are considering expanding operations in the United States.”

The Bureau of Labor Statistics (BLS) estimates that in 2011, the chemicals sector added 9,000 jobs. The American Chemistry Council believes that 400,000 more could be on the way.

What sparked chemicals’ revival? Another shift that the “experts” didn’t see coming: Cheap natural gas.

The shale revolution, formerly an obscure phenomenon covered solely by energy publications, now garners widespread attention. “Fracking” enables drillers to tap once-unobtainable seams of natural gas. Supply is surging, and prices have plummeted. Hollywood ignoramuses, anti-technology lunatics, and their allies in the legacy media do what they can to erect barriers. But much exploration and production occurs on private property, where the authority of D.C. land-use bureaucrats is limited. And during a prolonged economic slump, consumers are growing accustomed to an inexpensive method to heat homes and generate electricity. Fracking has many enemies -- but it’s probably here to stay.

Perhaps the most delightful thing about the shale boom is the way it made fools of people who weren’t qualified to offer pronouncements on energy. “Natural gas is in scare supply,” Pulitzer-winning journalists Donald L. Barlett and James B. Steele warned, in a lengthy 2003 piece for Time. The same year, Federal Reserve “maestro” Alan Greenspan got caught in prolonged-shortage groupthink, when he said, in congressional testimony, “We are not apt to return to earlier periods of relative abundance and low prices anytime soon.”

The spectacularly wrongheaded predictions about a crisis must be most amusing to chemical-industry employees. Natural gas is doubly important to their line of work. It’s used as both a fuel in factories and a feedstock to create solvents, dyes, resins, adhesives, pesticides, fertilizers, gasses, and dozens of other products. So when the price of natural gas drops -- the Houston Chronicle reports that it fell “from more than $13.50 in 2008 to under $3 per million British thermal units” today -- U.S.-based plants’ competitiveness soars.

If the comeback continues, chemical manufacturing is an industry that many Americans looking for work should consider. At the top of the skill chain, chemists fare best -- an average annual salary of $71,980 in 2010. But overall pay is impressive, too. In September 2011, the average hourly wage was $27.79 -- 40 percent higher than the average earnings for all private-sector workers. (The compensation data remind us that while labor is an important cost, it isn’t always determinative. Energy and materials can matter as much, or more.)

Chemical production’s renaissance, fed by a natural-gas bonanza that few saw in advance, is a powerful argument for the separation of commerce and state. Technological innovations can be disturbingly disruptive for incumbent players, and jarringly effective for new entrants. “Visionary” politicians and bureaucrats should neither shore up industries in decline nor foster trendy enterprises. When fortune disfavors businesses that were once seen as immutable, they should be allowed to die. Contrariwise, what looks like a sure thing today can go bust awfully fast.

And as the chemical resurrection demonstrates, today’s economic basket case can become tomorrow’s job-generating powerhouse. That’s the magic of the marketplace. Capitalism is sometimes confusing, often frustrating, and always unpredictable. But it beats the alternative.

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.

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