22 March 2013 13:42 [Source: ICB]
Low-cost energy and expansion in petrochemicals can drive a US manufacturing renaissance, says AFPM president Charlie Drevna, but government has to clear the way ahead for the industry to grow
The US energy and petrochemical sectors can power the nation's broader production industries to a major manufacturing renaissance over the next few years, says AFPM president Charlie Drevna - if the White House will just get out of the way.
The road to shale gas development must be kept clear
Copyright: Rex Features
Before the flood of shale gas, argues Drevna, "we were expecting to see more exporting of production and jobs overseas; now companies are looking to make billions and billions of dollars worth of investments here in the US.
"I am cautiously optimistic that we can get this done, that there will be a manufacturing renaissance in the US, returning manufacturing to US shores," he adds.
"In fact, I'm verging on very optimistic - simply because we don't have a choice. This is a binary proposition: yes or no. Do we want to maintain our position as the world's dominant economic force, or do we want to cede our economic prosperity to other nations?"
A lot depends on policy choices, he says. "Our new energy resources and our revived petrochemicals industry can provide a bright and viable future; there really can be a manufacturing renaissance in the nation. But it all has to start with policies, decisions being made well before the feedstock enters a cracker, policies around access to resources, permitting, fracking, and allowing industry to build things."
Drevna believes that President Barack Obama now has an opportunity to enable a manufacturing renaissance. "How the president handles his second term will determine his legacy, and he has a chance to write his legacy with his 'all of the above' energy policy - but he has to acknowledge the central role that oil and natural gas will play in the economic revitalisation of the nation."
Take two key issues, says Drevna. "One, open access to our natural resources, and two, getting these developments permitted and allowed to go forward. There have been delays, delays and more delays by those who oppose our energy development. And this is the challenge for the petrochemicals industry for this year and on into the second Obama administration."
Drevna does not think that outright federal opposition - what he calls the Obama administration's "war on fossil fuels" - can actually shut down the natural gas boom and all of its downstream benefits, but persistent federal government opposition could chill the renaissance.
"The government and those that support them can present significant impediments," Drevna says. "And once there is an impediment to capital investment, then that capital will look for opportunities elsewhere."
Jim Cooper, AFPM vice president for petrochemicals, points out that the government permitting authority can keep throwing roadblocks in front of energy development for years on end. Witness the nearly four-year-long US federal permitting consideration for the Keystone XL pipeline project, an approval process that is still not done and whose outcome is far from certain.
MIDSTREAM INVESTMENT NEEDED
"There is broad potential for midstream interference," Cooper says, citing permitting for infrastructure needed to move feedstock to producers. "We have product coming out of the ground, but that feedstock has to be transited, separated, stored and routed, and that's where there can be significant interference," he says.
Cooper says that the need for expanding midstream infrastructure capacity in the tri-state area - Pennsylvania, Ohio and West Virginia, where the Marcellus shale play is radically shifting the paradigm of industry - is critical, and is critically dependent on government permitting processes.
The potential is real for a logjam crisis with increasing domestic US demand for natural gas on one side and on the other side reluctance of government agencies to allow the production or delivery of that energy resource.
Drevna notes that "there will be a lot of competing interests for natural gas going forward and locking up 97% of the potential gas resources on federal lands could raise doubts about whether there will be sufficient supply for all interests, electric utilities, home heating, transportation. And if the manufacturing renaissance is to develop, that additional manufacturing capacity will need additional supplies of energy, chiefly natural gas.
"To provide the energy framework for all those downstream consumers, we're going to need an increasing supply of natural gas. Do we have those resources? Absolutely. But so far, it has been resources on private lands that have enabled the shale boom; private lands have been the foundation.
"But to keep moving forward, all industry needs to have the assurance of a consistent, long-term supply, to ensure that capital investments are encouraged and made and jobs are created, the economy revived."
But, says Drevna, "investors have to have some assurance that this is not going to be a short-lived proposition", referring to concerns that the shale gas boom might falter when private resources ultimately are depleted while vast reserves under federal lands remain off-limits.
He notes too that not all private sector shale gas resources are necessarily productive, and that some shale plays are "dry", lacking the natural gas liquids that are the key feedstock for US petrochemical producers.
Can the US petrochemical sector rely on private sector shale gas resources and other existing conventional gas production for feedstock? "Yes, we can continue for a while," Drevna says. "But if we are going to be the dominant energy supplier in the world and the manufacturing renaissance is to be a long-term proposition, we can't just focus on one geographical region or just one category of resources," he says.
HELP OR HINDRANCE?
"We have an opportunity to get this country off the dime and moving forward. The question is whether this administration will be a help or a hindrance. I hope Obama will look at the potential for a great energy legacy instead of leaving the nation with a $20 trillion debt."
The potential impact of federal government policies on energy development and uses could be magnified as demand for natural gas expands beyond conventional markets. Electric utilities are increasingly turning to natural gas as a fuel instead of coal, in no small measure because of Environmental Protection Agency (EPA) restrictions on coal-fired power generation.
There are campaigns afoot in the private sector and in Congress to encourage broader use of natural gas as a transportation fuel by switching diesel-powered truck fleets to gas by subsidising engine conversions.
And the US Department of Energy is considering 20 or more permit applications from companies wanting to export liquefied natural gas (LNG) to foreign markets.
FREE AND OPEN MARKET
Some in the US petrochemicals industry and downstream chemicals sector worry that a galloping troika of expanding natural gas demand growth - utilities, transportation and LNG exports - could trample the chemicals industry's new-found feedstock advantage by driving natural gas prices sharply higher. But Drevna says that broadening use for natural gas is not a major concern, if "we have such an abundance of natural gas that we can satisfy all these additional needs - if we can ensure that we will have open access to all the nation's gas resources", he says.
"At AFPM, we are always in favour of a free and open market approach, but you can't have a truly free and open market for natural gas when gas resources are being held hostage," he argues, referring to the vast majority of US federal lands that are off-limits to oil and gas exploration and development.
"When you look at a map of US onshore natural gas resources and what is available for production and what is not, you see that 90% of it is not available," he says. That has to change, Drevna says. If US energy producers can have access to those resources, everything is possible.
"So if you have access to enough of the resources, then we can indeed compete globally with LNG exports and increase our domestic use going forward - but that depends on government allowing domestic oil and gas development and allowing energy imports from Canada," he says.
"This is not complicated," Drevna says. "It's paint-by-the numbers and connect-the-dots, it's not that difficult to see."
He notes that in the recent past, eastern Europe has been held hostage to Russian gas supplies and that Japan would welcome access to US natural gas exports, adding:
"We could be the dominant energy force in the world, the swing producer, the game-changer - but it all starts with production, getting it out of the ground." These and other energy- and feedstock-related issues have energised AFPM's new outreach campaign, Drevna says.
"We are expanding our outreach and enhancing our message to local areas beyond our traditional oil and petrochemicals patch. If manufacturing drives the US economy, our industry is the engine that drives manufacturing," and that is the message that AFPM is trying to advance.
He cites AFPM's recent partnership with Carnegie Mellon University's Scott Institute for Energy Innovation as part of AFPM's outreach effort, designed to bring multiple energy and manufacturing stakeholders into a multi-year evaluation of US energy potential and applications.
Within the partnership with Carnegie Mellon, Drevna says, "we're looking at using our natural resources in a productive manner, and this discussion has just begun.
"We're talking to state and local leaders and opinion shapers as part of an expanded effort to ensure that consumers understand and appreciate the value that these combined industries bring to their daily lives," he says.
He describes the effort as "an exponential increase in our outreach, drawing in other stakeholders such as academia, labour, other industries. We want to make sure that all sides are part of it.
EDUCATION AND SUPPORT
"We all won't agree all the time, but we all see that there is this opportunity within our nation's grasp and how we can take advantage of the incredible resources provided to this nation in an environmentally safe and sound manner," he adds. "We can do this, we can have this - if we have the right policies," Drevna says.
Cooper says that the partnership with Carnegie Mellon and other energy supply chain industries "is going to be about creating an education policy over the next couple of years to support advocacy. People, consumers have to appreciate the supply chain and the importance of what is under ground. The whole idea of the Carnegie Mellon partnership is to write the playbook, the outline of what needs to be done over the next couple of years.
"When talking of things of this magnitude, of this complexity, we want to take our time and make sure that we have a solid stakeholder group and a way forward," Cooper says.
Among the federal policy issues that confront the US energy picture, Drevna says, are modernisation of the Toxic Substances Control Act (TSCA) and Obama's renewed campaign to try to influence climate change. In talks with congressional and other policymakers on how to modernise TSCA, Cooper says that it is a question of whether the whole nature of conversation is going to change.
TSCA REFORM CAN WAIT
As Drevna puts it: "We'd be in what we thought were bipartisan talks with various stakeholders and members of Congress, and we thought we were making progress. But then we'd see a draft bill that bore no resemblance whatever to what we'd been discussing with congressional staffers."
Many in the US chemicals sector and certainly among environmental groups want to see a TSCA modernisation bill passed this year if at all possible, but Cooper says that urgency is not necessarily a top AFPM goal. "Because of the complexity involved in TSCA modernisation, we don't necessarily share others' urgency," Cooper says.
"We want to see it done - but we want to see it done right the first time, rather than revisiting the issue every couple of years," he says. "If that means taking an extra year or two to get it right, that works for us."
On the president's renewed focus on climate change policy and regulations, Drevna says that Obama has a choice to make. "Do we want an economic and manufacturing renaissance, or do we want to cede our economic and manufacturing prowess to China, India, Brazil, Russia and other nations," Drevna says.
"This is another binary choice. Do you want this nation to have a broadly revived manufacturing sector and get people back to work and remain an economic superpower, or do you want to continue talking about things that sound good - alternative energy - but that in reality are not going to get us where we need to be. The president can lead us into a manufacturing renaissance - or into an abyss," Drevna concludes.
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