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The American Industrial Renaissance is a simple way



Thanks to new drilling technologies, we are unlocking vast new supplies of natural gas in underground shale formations across the country. The increased supply has pushed prices lower. And lower natural gas prices improve the profitability and competitive edge of many American industries – including chemicals, plastics, cement making, steel, power generation, and transportation.



Cheap natural gas produced from the U.S. shale revolution has transformed America into "the low-cost industrialized country for energy," according to the Wall Street Journal. Savings on input costs can increase profits.



This gives U.S.-based manufacturing a huge competitive advantage.



Cheap natural-gas-powered electricity is a boon to all industry... But if you make materials like plastics, chemicals, and fertilizer, you're in even better shape. One-quarter of the cost of making plastics goes to natural gas. It's almost triple that for fertilizer.



Now, everyone wants to build manufacturing capacity in the U.S.



And for the first time in decades, a new steel plant is going up in Youngstown, Ohio, in the Utica/Marcellus area. The plants cost $650 million to build, and 400 construction workers are currently building it. The 1 million-square-foot plant will make 500,000 tons of steel tubing per year, the kind used to produce natural gas from shale.



The trend continues...



An Egyptian fertilizer manufacturer is building a $1.4 billion fertilizer plant in Iowa. It's the largest U.S. fertilizer plant built in 20 years.



Dow Chemical (NYSE:DOW) and Chevron Phillips Chemical Company (NYSE:CVX) are both planning new multibillion-dollar chemical plants in Texas and Louisiana. Royal Dutch Shell (LON:RDSA) is planning an ethylene plant in Pennsylvania.



Fertilizer maker CF Industries will spend $2 billion boosting its U.S.-based production through 2016. The company's CEO, Steve Wilson, says cheap domestic manufacturing has led to "a complete 180-degree change in our thought process."



Some of the world's biggest companies are lining up to make new investments in this renaissance: Occidental Chemical Company, Chevron Philips Chemical, Formosa Plastics, LyondellBasell Industries, and Eastman Chemical (NYSE:EMN) have all announced plans to either build or reopen new energy and chemical plants in the U.S.













Over the last few years, companies across various industries, including electronics, automotive and medical devices, have announced that they are “reshoring” jobs after decades of shipping them abroad. Lower energy costs in America, rising wages in developing countries like China and Brazil, quality control issues and the desire to keep the supply chain close to the gigantic American consumer base have all factored into these decisions.



“Companies were going abroad in pursuit of cost reduction, and it turns out there were a lot of unintended costs,” said Diane Swonk, chief economist at Mesirow Financial. “America has been looking a lot more competitive lately.”



Even so, the impact on the American job market has been modest so far. Much of the work brought back has been high-value-added, automated production that requires few actual workers, which is part of the reason America’s higher wages are not scaring off companies .



The New US Industrial Renaissance

( From The Atlantic,​ Daily Wealth, Business Insider, The Motley Fool, California Beach Pundit, EIA )

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​There's a common misty-eyed perception that American manufacturing is in deep decline. In terms of production, it really isn't. As recently as 2010, America was the world's largest manufacturer (depending on how it's calculated, China may have overtaken the U.S. in manufacturing output last year). Even adjusted for inflation, America manufactures about twice as much today as it did in the 1970s.



​It s a Manufacturing Boom You Won't Notice because it is building up slowly and things are starting to change significantly for the US for those main reasons :



1) ​​Cost of Transportation :

Read Also Oil Anecdotes

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2) Cost of Energy : The natural-gas boom in the U.S. has dramatically lowered the cost for running something as energy-intensive as a factory here at home. (Natural gas now costs four times as much in Asia as it does in the U.S.)





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Oil prices are three times what they were in 2000, making cargo-ship fuel much more expensive now than it was then.​​: The natural-gas boom in the U.S. has dramatically lowered the cost for running something as energy-intensive as a factory here at home. (Natural gas now costs four times as much in Asia as it does in the U.S.)​​​

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These two charts could be the most bullish of all. Natural gas production ( see left graph below) is up by one-third in the past six years. The huge increase in natural gas production has caused the price of natural gas to decline by about two-thirds relative to crude prices ( see right graph below ). The U.S. now enjoys a huge advantage over other countries because it has easy access to the world's cheapest source of energy (natural gas). The huge change in relative prices is almost certain to cause monumental changes throughout all the industries that are energy intensive, as companies switch from crude to natural gas. This dramatic change in the type of energy we use and its price could have a major impact on U.S. growth in the coming years.

In fact, insourcing solves a whole bundle of problems—it simplifies transportation; it gives people confidence in the competitive security of their ideas; it lets companies manage costs with real transparency and close to home; it means a company can be as nimble as it wants to be, because the Pacific Ocean isn’t standing in the way of getting the right product to the right customer.



Many offshoring decisions were based on a single preoccupation— cheap labor . The labor was so cheap, in fact, that it covered a multitude of sins in other areas. The approach to bringing jobs back has been much more thoughtful. Jobs are coming back not for a single, simple reason, but for many intertwined reasons—which means they won’t slip away again when one element of the business, or the economy, changes.



Since natural gas is difficult to transport, prices tend to be regional , meaning our low prices provide a big competitive advantage over other nations. Natural gas in the U.S. currently costs $3.30 per million BTUs. In Europe, it's $10.60. In Japan, $16.70.

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3) US Energy self sufficiency :

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Monthly crude oil production in the United States is expected to exceed the amount of U.S. crude oil imports later this year for the first time since February 1995. The gap between monthly U.S. crude oil production and imports is projected to be almost 2 million barrels per day (bbl/d) by the end of next year—according to EIA's March 2013 Short-Term Energy Outlook.















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4) China competitveness :

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A changing wage dynamic between China and the United States is moving quickly. Plus the scarcity of Chinese workers starting to add up

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​​ In dollars, wages in China are some five times what they were in 2000—and they are expected to keep rising 18 percent a year.

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Chinese wages are growing much faster than productivity, while in the U.S. it's the other way around. Add it up, and you get this, according to a report by the Boston Consulting Group:



Our analysis concludes that, within five years, the total cost of production for many products will be only about 10 to 15 percent less in Chinese coastal cities than in some parts of the U.S. where factories are likely to be built. Factor in shipping, inventory costs and other considerations, and -- for many goods destined for the North American market -- the cost gap between sourcing in China and manufacturing in the U.S. will be minimal. ... When all cost are taken into account, certain U.S. states, such as South Carolina, Alabama, and Tennessee, will turn out to be among the least expensive production sites in the industrialized world.



This is all great news for American manufacturing, and it will very likely usher in a manufacturing boom .

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Read also : ​ China Now Has Third Highest Labor Costs in Emerging Asia

​ INTERNATIONAL COMPARISONS OF HOURLY COMPENSATION COSTS IN MANUFACTURING, 2011

​ Talent scarcity in China ​​

5) American unions : They are changing their priorities.



​​Appliance Park’s union was so fractious in the ’70s and ’80s that the place was known as “Strike City.” That same union agreed to a two-tier wage scale in 2005—and today, 70 percent of the jobs there are on the lower tier, which starts at just over $13.50 an hour, almost $8 less than what the starting wage used to be.

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Organized labor is in free fall. The number of workers who belong to a union has plummeted about 20 percent over the last decade. Only 8 percent of all workers are unionized. And leading labor activists are wringing their hands over the seemingly inevitable death of a movement unable to cope with technological change.



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One key difference between the U.S. economy today and that of 15 or 20 years ago is the labor environment—not just wages in factories, but the degree of flexibility displayed by unions and workers. Many observers would say these changes reflect a loss of power and leverage by workers, and they would be right. But management, more keenly aware of offshoring’s perils, is also trying to create a different (and better) factory environment. Hourly employees increasingly participate in workplace decision making in ways that are more like what you find in white-collar technology companies.

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Read also : ​​ Unions’ Past May Hold Key to Their Future

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6) Productivity : U.S. labor productivity has continued its long march upward, meaning that labor costs have become a smaller and smaller proportion of the total cost of finished goods. You simply can’t save much money chasing wages anymore.



​​The addition of high-tech components to everyday items makes production more complicated, and that means U.S. production is more attractive, not just because manufacturers now have more proprietary technology to protect, but because American workers are more skilled, on average, than their Chinese counterparts. And the short leap from one product generation to the next makes the alchemy among engineers, marketers, and factory workers all the more important.



Read also : ​​ Labor Productivity and Growth

​ 10 Educational Advances the U.S. Has Over China

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And US Oil is cheaper than world prices



As shown by the graph below, ​the difference in price between North Sea Brent Crude and the North America s West Texas Intermediate (WTI) are roughly $15 per barrel difference...









​​​​​And since the beginning of 2012, the price differential between crude oil produced in the Bakken region of the Williston basin, located mostly in North Dakota, and West Texas Intermediate (WTI) crude oil varied as a result of transportation constraints. Rapidly growing production in the Bakken coupled with lagging takeaway infrastructure (pipelines and rail capacity) contributed to Bakken prices that were as much as $28 per barrel lower than WTI in early 2012.

The story behind that situation to explain why WTI prices trade at a now "traditional" and massive discount against Brent is that barrels delivered to the "basing point" for WTI, located at Cushing, Oklahoma - the Nymex oil pricing "hub" for physical deliveries - cannot be onward transported south to the US Gulf Coast for refining. They are even less able to be shipped outside of the US, earning an instant $15/$20-a-barrel mark up.



And below, the graph on the left is the difference in price between the ​ WTI and the Brent, now at around $15 per barrell difference...

​And the graph on the right shows the ratio of price between the ​WTI and the Brent, now at around 85 percent...

Spread in $ Between

​West Texas Intermediate (WTI) and Brent

Ratio in % Between

​ West Texas Intermediate (WTI) and Brent

So after having seen those graphs, it is obvious that the cost of oil for a US producer and a world producer can be 15 to 20% at discount.

It is a huge economic ​advantage...

With all the new supplies coming online in the U.S, gas production has jumped 20% in the past five years – that's not a popular position.

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​America is on its way to becoming a self-sustaining domestic energy supplier... as well as the world's largest energy producer and one of the largest energy exporters. Nobody expects this. But it will absolutely happen

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By the way... the sheer size of the U.S. economy, the amount of natural gas storage available, and the trading we support made us the fourth-largest net importer last year. That won't last long...



​But I know that over the next several years, an enormous shift is going to take place in the market for natural gas. In short, as the U.S. begins to export its massive supplies, natural gas will become a global fuel – with a consistent global price – just like oil.



Most of the demand for natural gas imports (in the form of liquefied natural gas, or "LNG") comes from Asia.



India, the world's second-most populous country, consumes about three times more gas than it produces. Just 7% of its energy consumption in 2010 was fueled by natural gas. As with China, it still uses coal for the overwhelming majority of its energy needs.



Indonesia only produces about 2.7% of world supplies, but has the world's fourth-largest population. Japan is the largest importer... with 116 billion cubic meters in 2011. Korea is the world's fifth-largest importer.



Europe is also chronically short on gas. Italy and Germany occupy the No. 2 and 3 importer spots, respectively.



The shortage is most intense in Japan. The March 2011 tsunami killed thousands of people and resulted in the closure of Japan's entire fleet of nuclear power plants. To make up for the power lost by these closures, Japan turned to LNG. According to International Energy Agency figures, Japan increased its LNG imports by 20% in 2011.



China, the world's most populous country, produced 3% of the world's 2011 supplies. It became a net importer in 2007, as its demand for natural gas increased to meet the needs of its developing infrastructure. And while natural gas represented just 4% of China's energy consumption in 2009, the government has pledged to increase the natural gas share to 10% by the year 2020.



China increased its imports by a massive 31% in 2011, and experts expect volumes to increase 3.5-fold by 2020. This will be a huge fundamental driver of LNG for the next 50 years – at least.