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The Warsaw Voice » Business » August 29, 2013
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US Energy Revolution: A Magnet for European Manufacturing
August 29, 2013   
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Last May, during the European Union’s energy summit, a slide circulated among national delegations that graphically highlighted the gap between electricity prices in Europe and the United States. North America’s cheap energy prices are rooted in the fracking revolution that has driven U.S. gas prices down to a quarter of those in Europe. The chart explains how shale gas has made the United States a magnet for Europe’s energy intensive industries, pulling their investment and jobs across the Atlantic.

Cheap natural gas provides a critical competitive edge to petrochemical, steel, aluminum, fertilizer and other industries that rely on it as a raw material, or as an energy source. America’s shale gas boom provides both, in unprecedented quantities and at low cost, catalyzing a resurgence of the U.S. manufacturing sector.

The impact has been dramatic in the petrochemical industry. IHS Global Insight, a consultancy, estimates that this sector will spend $95 billion, building and expanding plants in North America, an investment surge made possible by cheap gas prices. The National Association of Manufacturers estimates the shale gas bonanza will generate some 1 million new manufacturing jobs in the United States by 2025.

European business leaders are acutely aware that their high energy prices are undercutting their competitiveness, if not survival. A recent Accenture study found 58 percent of business leaders have little confidence that European industry will, in three years, be cost-competitive from an energy standpoint, compared with rivals in North America, Eurasia and Asia.

This concern is reflected in a surge of European investment in the U.S. manufacturing base. “The exodus has started in the chemical, automotive and steel industries. If Europe doesn’t change course, that process will accelerate, and at some point, may not be reversible,” said Wolfgang Eder, chief executive of Voestalpine, an Austrian maker of steel. Indeed, the list of European firms directing their production sites to North America is growing and now includes:

- Voestalpine, which plans to construct a $550 million direct reduction plant in Texas. The plant, which will rely on natural gas, will generate 150 jobs and produce sponge iron that will be shipped back to Voestalpine’s steel plants in Austria. Asked why he chose the U.S., Eder replied, “Low energy prices gave us the final, and not insignificant push.”

- Royal Dutch Shell is building a multi-billion dollar petrochemical plant in Pennsylvania that will employ several hundred full-time employees, and as many as 10,000 during construction.

- Wacker Chemie, a German chemicals company, is investing $2 billion in a new poly-silicon plant in Cleveland, Tennessee, citing government incentives and cheap energy as key reasons.

-4 BASF, another German chemicals giant, expanded significantly its presence across the Atlantic to leverage the advantages of cheap gas. Since 2009, it has directed over $5.9 billion in new investments in North America, including a new formic acid plant in Louisiana.

- Vallourec, a French steel maker, has invested heavily across the U.S., and in June opened a billion-dollar mill in Ohio to produce steel pipes.

It is not only European firms that are attracted by North America’s cheap energy. Reuters reports that South Africa’s SASOL is considering investing $7 billion on an ethane cracker complex in the United States; Egypt’s Orascom Construction Industries is building a $1.4 billion fertilizer plant in Iowa; Taiwan’s Formosa Plastics plans a new ethylene plant in Texas; and Japanese oil refiner Idemitsu Kosan is exploring an investment in the U.S. petrochemical sector. Last year, Vancouver-based Methanex Corporation decided to spend $425 million to move its methanol plant in Chile to Louisiana.

The emigration of European manufacturing has caught the attention of some of Europe’s top political leaders. Günther Oettinger, the EU’s Energy Commissioner, warned last May, “If we in Europe do not respond to the energy price gap in global competition, we will not be able to compete in ten years.” Echoing that sentiment during the May energy summit, European Council President Herman Van Rompuy said, “Affordable energy is key to keeping factories and jobs in Europe... Industry finds it hard to compete with foreign firms which pay half the price for electricity, as in the United States.” The question remains whether and when this recognition will translate into energy policies that strengthen the global competitiveness of European-based industry.

Ian Brzezinski

The author leads the Brzezinski Group, LLC, a strategic advisory services company, and is a Senior Fellow at the Atlantic Council in Washington, D.C. He served as Deputy Assistant Secretary of Defense for Europe and NATO Policy from 2001-2005.
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