Economic Outlook n° 1187 | Special Report | The Reindustrialization of the United States
Euler Hermes
duction and refining are likely to be in high demand going forward, it would appear that true growth opportunities in Texas energy lie more in natural gas and renewables.
▶ Chemicals
As in the petroleum industry, Texas is the leader in U.S. chemical production with over 200 chemical plants. The industry provides employment for over 70,000 workers at an average salary of over $85,000 per year. The state’s abundant supply of natural gas and its large refining capacity are the main contri- butors to the strong presence of the chemical indus- try in Texas. But unlike crude oil production and refi- ning, the chemicals industry is set for strong growth, due to the emergence of very cheap natural gas. Natural gas is used as a “feedstock” or basic raw material in the production of many chemicals, so its precipitous fall in price is also lowering prices for many goods downstream. There are thousands of products which use chemicals extensively for their manufacturing: apparel, auto parts, clothes, fertilizer, packaging, paints, pharmaceuticals, rubber, and all the plastic products which make up so many every- day items such as appliances, furniture, and the see- mingly endless array of consumer electronics such as personal computers, tablets, smartphones, TVs and many others. The drop in natural gas prices along with lower unit labor costs now make the U.S. one of the cheapest chemical producers in the world. According to Price- waterhouse Coopers, “U.S. chemical manufacturers now have a 50-to-1 price advantage over foreign competitors forced to rely on much more expensive petroleum products. Shale gas represents a once-in- a-century change in the competitive balance world- wide." This change is likely to move significant num- bers of jobs back onshore. As a result, at least a dozen major chemical plants are rapidly expanding in Texas, and expectations are that these projects will entail $15 billion in investments, and create as many as 20,000 new jobs. Clearly the chemicals industry in Texas is poised for strong growth.
▶ Public incentives and export routes are contributing to this favorable outlook in Texas
Texas offers a number of government incentives to promote growth: > Economic Development Corporations help finance both new and existing businesses;
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> Value Limitation tax credits are available for job- creating construction projects; > The Texas Emerging Technology Fund is designed to attract R&D to the state; and > The Texas Enterprise Fund also provides financing to worthy projects. Recently the Fund provided approximately $1million each to chemical manufac- turers Dow Chemical and Kuraray America to help finance their expansions. As far as exports are concerned, like in so many other measures, Texas is number one in the nation, expor- ting $250 billion in 2011 with a 17% share of all U.S. exports. Exports grew in 2011 over 2010 at a bliste- ring 21% rate. Over 20% of Texas exports were refined petroleum products, followed by coal, chemicals, computer and electronic products, non-electrical machinery, and transportation equipment. The top export markets were Mexico with a 35% share, follo- wed by Canada at 8%, and China at 4%. These top three countries buy almost half of Texas’ exports. A significant portion of exports to Mexico is likely to be goods which are then assembled or modified in Mexico and re-exported to the U.S.▣