A London School of Economics study reveals in numbers what we see with our eyes; a US manufacturing renaissance due to fracking as Europe has slept.
John F. Kennedy, as a young man, wrote a book entitled While England Slept about that nation’s political slumber in the years leading up to World War II. All of Europe, until recently, has been similarly asleep as fracking has bloomed in the US, bringing about a manufacturing renaissance here. France and Germany have banned fracking, although circumstances are likely to lead to reversals of those bans in the not too distant future. The UK is finally getting with it and has enormous potential but it’s late to the game. Meanwhile, here in the US, in true American spirit, we moved ahead without fear and have seen enormous gains. That’s what a new study from the London School of Economics tells us.
The very academic study is entitled “On the Comparative Advantage of U.S. Manufacturing: Evidence from the Shale Gas Revolution” and may be found here. If you want the Readers Digest version, a condensed version for the use of the calculus challenged (me included) is available here. If you want the CliffsNotes version you may find it on the always excellent Energy In Depth site here. I recommend starting with EID and working up the ladder to the highfalutin’ stuff. Indeed, one EID chart created to match the story sets the stage beautifully:
It’s hard to miss the point; a US manufacturing renaissance has been birthed by fracking we’ve allowed by private sector as Europe has slept, the UK only wakening in the last few months. It’s not for lack of trying by reasonable Europeans like our buddy Nick Grealy over at ReimagineGas (a/k/a No Hot Air). He even created his own company, London Energy, with a view to kick-starting the thing, but it’s taken until now for the UK to decide maybe it’s not a bad idea to tap one of the world’s largest shale gas resources. Experience here suggests it will soon be boring (pun intended) and highly productive. Perhaps, our LNG shipments to Scotland have opened some eyes. If so, the US can take credit, yet again, for saving Europe after it slept its way through a revolution.
Anyway, we’ve learned something from other Londoners who studied the facts. They found just how much we American cowboys have gained by moving ahead with fracking while Europe slept. A quick note of explanation, though: by “natural gas price gap” they mean how much cheaper gas is in the US than Europe due to fracking. They illustrate it as follows:
So here’s just a few of the findings:
- Output in energy-intensive sectors expands significantly with the widening of the natural gas price gap
- Energy-intensive sectors absorb more capital (produce more investment) and labor (create employment) to produce this additional output
- The increase in the price gap is associated with a significant expansion in exports of energy-intensive goods
- Between 2006 and 2012, chemical manufacturing accounted for almost 20% of overall manufacturing GDP and for every dollar increase in the price gap, chemical manufacturing output increased by 1.6%
- The value of exports from chemical manufacturing rose by 1.6% for every dollar increase in the natural gas price gap
- Average manufacturing exports expanded by roughly 10% due to the shale gas boom, amounting to roughly 4.4% of the overall value of US exports of goods and services in 2012
How about that? Our manufacturing renaissance was once thought impossible. I well remember talking, several years ago, with an economist at one of our voluminous number of Federal agencies assigned to hand out economic development grants. He told me manufacturing was now a dead-end. He was bemoaning it, not celebrating it, and thought we were forever condemned to a low-paying service economy, but neither of us knew fracking was coming and how it would save the day by turning everything upside down. It’s a beautiful thing, like being awake and productive early in the morning while others are still sleeping. Love it!