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Home Publications Blogs Beat the Press Washington Post Finds Fracking Led Manufacturing Boom, that NYT Misses

Washington Post Finds Fracking Led Manufacturing Boom, that NYT Misses

Tuesday, 02 April 2013 03:57

It's always fun when major news outlets look at the same economic situation and come up with directly opposite conclusions. Hence we had the Washington Post telling readers,

"European industry flocks to U.S. to take advantage of cheaper gas,"

on the same day that the NYT had a piece headlined,

"Rumors of a cheap-energy jobs boom remain just that."

When it comes to data, the NYT clearly wins the case. The Post piece has people whining about high gas prices in Europe, but little evidence of jobs actually coming to the United States. The NYT piece makes the obvious point that in most industries gas prices are a small share of total costs. Even in the most energy intensive industries labor is almost certain to be a higher share of total costs than natural gas.

Furthermore, the drop in gas prices in the U.S. is likely to be reflected elsewhere. This means that third countries that have cheaper labor, like Mexico, are also likely to have comparable natural gas prices.

In fact, the large differences in prices between the United States and Europe that are the central feature of the Post article are not likely to persist since the United States is likely to export surplus gas to Europe. The Post notes the likely impact of exports on U.S. natural gas prices, but it doesn't acknowledge their likely impact on prices in Europe. While the Post may have missed this tendency towards equalizing prices through trade, manufacturers that are considering moving their operations almost certainly are aware of this likely outcome.  

Comments (2)Add Comment
written by bmz, April 02, 2013 7:31
"LNG has some fixed costs above and beyond the cost of the raw natural gas. These costs are typically amortized over 20 years. The most significant of those fixed costs are:
1) Liquification plant $1.1 per Mcf +/- $0.20
2) Shipping costs (LNG tankers and operating costs) $0.70 per Mcf +/- $0.30 depending on distance.
3) Cost for regasification $0.35 per Mcf.
The costs come out to $2.15 per Mcf."
written by Ed, April 02, 2013 1:07
I've always been suspicious of claims of a manufacturing boom based on cheap gas. The advantage we currently enjoy won't last once shale plays in other countries, most notably China, come online in ten years.

I like the NYT article. It has a lot to say about how efficiency gains are being shared, or rather not being shared, with labor.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.