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The Surprise Driver of the Rebirth of U.S. Manufacturing The Surprise Driver of the Rebirth of U.S. Manufacturing

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The Surprise Driver of the Rebirth of U.S. Manufacturing

Newly reduced domestic natural gas prices are driving major corporations to relocate manufacturing to the U.S.

"Don't you know you can't go home again," said the journalist Ella Winter, over dinner, to the novelist Thomas Wolfe. He was so taken with the line that he begged permission to use it as the title of his 1929 novel.

Though it is not even his, it remains his most famous quotation: a stock phrase routinely used to illustrate the impossibility of returning to the past.

 

But somebody forgot to tell the U.S. manufacturing sector, which is in the midst of a wave of "re-shoring"—the return of manufacturing facilities from overseas to the U.S. And it is a revolution in domestic natural resources, especially natural gas production, that is driving the trend.

Methanex, the world's largest supplier of methanol, is a case in point. The company derives its product from natural gas and supplies producers of plastics, paints and gasoline. It is in the process of spending $1.1 billion to relocate two of its production facilities from Chile to Louisiana.

"The outlook for low North American natural gas prices makes Louisiana an attractive location in which to produce methanol," Methanex President and CEO Bruce Aitken said of the decision to move the plants for his Canada-based company into Louisiana, while calling the state "a positive environment in which to do business."

 

The two new Methanex plants are another positive chapter in Louisiana's remarkable, ongoing economic comeback story. After Hurricane Katrina in 2005, the state's unemployment rate soared to more than 11 percent—more than double the national average. But in the years following the disaster recovery efforts, job numbers—due in large part to an infusion of energy-related jobs—have climbed, making Louisiana one of the few states to experience net job growth since the recession.

"Methanex's decision to build in Louisiana is part of the renaissance that our energy and chemical industries are experiencing today," Louisiana Governor Bobby Jindal said. And while the plants won't be completed until the end of 2016, they are expected to create more than 1,000 new jobs in the area.

The traditional barrier to opening domestic facilities on this scale has been high U.S. natural gas prices. But following the discovery of large natural gas shale reserves and the establishment of new hydraulic fracturing methods for extraction between 2008 and 2012, prices plunged by more than 75 percent and are projected by the Energy Information Administration to remain low for decades. Today, foreign manufacturing companies like Methanex are taking advantage of these near-historically low prices in order to cut down on their own production costs.

The long-term prospect of low natural gas prices will bring at least seven projects, each with more than $1 billion capital investments, to Louisiana—a trend expected to generate tens of thousands of new jobs in the region over the next few years. According to recent reports, the state expects an influx of $50 billion in investments from both national and international companies, including looking to build manufacturing facilities from Baton Rouge to New Orleans.

The supply of affordable natural gas and the investment interest of multinational corporations has been a boon not just for Louisiana's manufacturing sector, but the country's as a whole. In Texas, Dow Chemical Co., which also uses natural gas byproducts for manufacturing, will expand its facilities and usher in hundreds of new local jobs.

Even smaller companies are seeing how favorable gas prices lead to a better bottom line and cleaner air. EJB Paving & Materials Co. in eastern Pennsylvania has saved between 50 and 60 percent in fuel costs, said firm partner Steven Bright.