from as far away as Canada. Since the Bakken boom, the inflow of crude oil has far outstripped Cushing’s outflow pipeline capacity, creating an overabundance of crude oil in the region. As a result, West Texas Intermediate (WTI), the price benchmark used for crude oil in the region, has plummeted. Te downward trend represents a diver- gence from Brent prices, the crude oil price benchmark on international markets. In 2011, WTI prices per barrel totaled $94.9 compared to $111.3 for Brent crude, rep- resenting about a $16 price differential. As infrastruc- ture investments picked up, the gap narrowed. In 2013, WTI is estimated to decline to $87.8 per barrel, while Brent is expected to fall to $96.8, lowering the difference to $9.0. Nevertheless, domestic manufacturers were able to access relatively cheap fossil fuel over the past two years.
Energy Price Outlook In the five years to 2018, investments in pipeline infrastruc-
ture, such as the under-construction Cushing MarketLink pipe- line by TransCanada, will further narrow the price differential between domestic and international fossil-fuel prices. Surging energy consumption from emerging economies such as China and India will particularly drive up the price of crude oil and natural gas. According to the most recent EIA forecasts, WTI prices will converge on world crude oil prices over the next five years. By 2018, WTI crude oil is projected to reach $110.2 per barrel, compared to Brent prices of $113.0. Nevertheless, the US will still enjoy relatively cheap crude oil in the coming years because the convergence is projected to be slow. On the other hand, domestic natural gas prices are antici-
pated to remain considerably lower than international natural gas prices. Although pipeline projects will stimulate natural gas exports, the US will still maintain the technological advantage of hydraulic fracturing and shale gas extraction techniques, which will keep domestic natural gas prices relatively low. In the five years to 2018, the EIA projects domestic natural gas prices to increase at an average annual rate of 5.6% to $4.42 per MCF. Over the same period, the world price of natural gas, calculated using spot prices from Russian natural gas border prices and Indonesia liquefied natural gas prices, is anticipated to increase at an annualized rate of 4.1% to $12.3 per MCF.
Impact on Manufacturing According to the National Association of Manufacturers,
the domestic manufacturing sector contributes about $1.8 trillion to the US economy each year, representing about 13% of the entire economy and supporting about 17.2 mil- lion jobs. Low natural gas prices and relatively low crude oil prices benefit the manufacturing sector. In particular, low energy prices in the US improve the competitiveness of domestic manufacturing industries globally. Other benefits associated with cheap energy include reduced transportation costs, allowing domestic businesses to bring their goods to market more quickly. Although the manufacturing sector comprises many diverse
industries with different operating characteristics, the perfor- mance of two particular sectors should provide a glimpse into the potential impact of cheap energy on US manufacturing.
Chemical Manufacturing Te chemical manufacturing sector is an important indica-
tor of overall US manufacturing performance. Chemicals are used in nearly all manufacturing industries. Increasing demand for chemicals indicates that the manufacturing sector is growing. Te Chemical Activity Barometer, an index of the overall chemicals sector created by the American Chemistry Council, is a leading indicator of the industrial production index. In particular, the Inorganic Chemical Manufacturing industry (IBISWorld report 32518), the Organic Chemi- cal Manufacturing industry (32519) and the Petrochemical Manufacturing industry (32511) are critical suppliers to the manufacturing sector.
Energy Manufacturing 2013 13
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