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Energy boom & revival of manufacturing in our future?

Energy boom & revival of manufacturing in our future?

Last updated on: May 9, 2012 at 8:06 am by Gene Veith

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Energy boom & revival of manufacturing in our future? 2012-05-09T08:06:43-04:00 Gene Veith

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David Ignatius brings up what could be heralds of good economic prospects ahead. (Or is it just a pipe dream?)

First, the case that America is entering a new era of energy security: My expert here is Robin West, a friend who is chairman of PFC Energy, a Washington-based advisory group. He argues in a series of recent reports to clients that, because of the rapid expansion of oil and gas production from shale, America is likely to become by 2020 the world’s No. 1 producer of oil, gas and biofuels — eclipsing even the energy superpowers, Russia and Saudi Arabia.

West explains that the natural-gas boom will mean a dramatic change in energy imports and, thus, the security of U.S. energy supplies. He forecasts that combined imports of oil and natural gas will fall from about 52 percent of total demand in 2010 to 22 percent by 2020. The totals are even more impressive if supplies from Canada are included.

“This is the energy equivalent of the Berlin Wall coming down,” contends West. “Just as the trauma of the Cold War ended in Berlin, so the trauma of the 1973 oil embargo is ending now.” The geopolitical implications of this change are striking: “We will no longer rely on the Middle East, or compete with such nations as China or India for resources.”

Energy security would be one building block of a new prosperity. The other would be the revival of U.S. manufacturing and other industries. This would be driven in part by the low cost of electricity in the United States, which West forecasts will be relatively flat through the rest of this decade, and one-half to one-third that of economic competitors such as Spain, France or Germany.

The coming manufacturing recovery is the subject of several studies by the Boston Consulting Group. I’ll focus here on the most recent one, “U.S. Manufacturing Nears the Tipping Point,” which appeared in March.

What’s happening, according to BCG, is a “reshoring” back to America of manufacturing that previously migrated offshore, especially to China. The analysts estimate that by 2015, China’s cost advantage will have shrunk to the point that many manufacturers will prefer to open plants in the United States. In the vast manufacturing region surrounding Shanghai, total compensation packages will be about 25 percent of those for comparable workers in low-cost U.S. manufacturing states. But given higher American productivity, effective labor costs will be about 60 percent of those in America — not low enough to compensate U.S. manufacturers for the risks and volatility of operating in China.

In about five years, argue the BCG economists, the cost-risk balance will reach an inflection point in seven key industries where manufacturers had been moving to China: computers and electronics, appliances and electrical equipment, machinery, furniture, fabricated metals, plastics and rubber, and transportation goods. The industries together amounted to a nearly $2 trillion market in the United States in 2010, with China producing about $200 billion of that total.

As manufacturers in these “tipping point” industries move back to America, BCG estimates, the U.S. economy will add $80 billion to $120 billion in annual output, and 2 million to 3 million new jobs, in direct manufacturing and spin-off employment. To complete this rosy picture, the analysts forecast that in about five years, U.S. exports will increase by at least $65 billion annually.

via An economic boom ahead? – The Washington Post.

If, that is, the government doesn’t do what many environmentalists are calling for, banning fracking as well as other new technologies, blocking new pipelines, and preventing drilling where new reserves have been discovered. And if the government does not stand in the way of building of new plants and factories

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