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From the Desk of Jack Healy

Is the Chemicals Industry a Has Been?

By Jack Healy, Director, Manufacturing Advancement Center, jackh@massmep.org

“Better living through chemistry” is the old advertising slogan that was based on real facts. Over the years, the chemical industry developed over 70,000 products, raising our country’s productivity across all industries and increasing our living standards along the way. Unfortunately, this may not hold true in the future.

The growth of this marvelous industry was due in part to abundant and inexpensive energy supplies. But this is all changing due to the intense global competition for resources and the domestic regulations that impede the opportunity to pursue local resources.

According to testimony before Congress by Thomas Duesterberg, President of the Manufacturing Alliance, “Since 1998, average natural gas prices in the United States have risen over 300 percent. Demand has risen faster than other energy resources largely because natural gas is the most friendly fossil fuel. Also contributing to the rise in price is the reality that natural gas is not easily transported from distant locations. Much of the demand growth resulted from government policy to promote the use of natural gas for electricity production. Between 1986 and 2002, consumption for this purpose grew 215%, and is expected to continue its upward path. At the same time, production in the U.S. has trended lower, falling by 5%.”

The Bad News for New England
In the new millennium, domestic production in the United States has been discouraged by the myriad political choices that have restricted exploration in environmentally sensitive areas and limited construction of input facilities for liquefied natural gas (LNG). While all of this is bad news for the industry, it is especially bad for the over 700 New England chemical plants which are more dependent on natural gas than any other area of the country.

The recent Dow Chemical Co. closing of their 41-acre surfactant chemical plant in Nashua, NH, reflects this change. Dow’s CEO, Andrew N. Liveris, states, “If energy prices stay at these levels, US exports can’t compete.” This is coming true, as reported in BusinessWeek Magazine, “The nation’s balance of trade in chemicals, a rock–steady surplus for 80 years, has become a deficit.”

Energy’s Effects Beyond Chemicals
This critical situation is not confined to just the chemical industry. Fed Chairman Alan Greenspan stated that the dramatic rise in future prices for natural gas can “significantly affect the long term path of the US economy.”

In this current environment, the New England Council, a consistent advocate for a reliable, secure, and economic supply of energy for the New England Region, completed an assessment of natural gas demand and supply within the region that considered the role of natural gas in supporting economic growth and identified the most realistic options for expanding the supply and infrastructure.

The New England Council concluded that there is an economic imperative for additional supplies of natural gas in the region that will require the construction of new LNG import facilities somewhere in New England within the next several years. Specifically, this study found:

  • Additional supplies of natural gas are needed before 2010. This is a clear and present need fueled by the convergence of three factors: (1) a growing reliance on natural gas for the electricity generation (expected to account for 50% of natural gas usage by 2010); (2) enduring high and volatile natural gas prices, which place the region at a competitive disadvantage; and (3) constrained capacity (on peak winter days the region’s pipeline system is at 90% capacity and constrained at key points).
  • LNG is the most realistic supply/infrastructure option. Other options may prove attractive over the long term, but when considered against near term needs, they won’t be able to deliver enough natural gas in time to close the aforementioned supply gap before it becomes problematic. Nor can these options guarantee the quality of supply or capacity that New England needs. Nor can they match the economics of a supply located close to the source of demand.
  • Additional LNG Infrastructure construction is required now. Delays in decision-making could be costly in terms of absolute dollars. It has been estimated that the economic consequences of a two-year delay in natural gas system infrastructure construction planned for the region — pipeline or LNG — will cost New England customers approximately $3 billion in higher natural gas prices by 2010. Given the lead time to permit and construct new natural gas infrastructure facilities, actions deferred or undertaken now will significantly influence the region’s economy for years to come.
Supporting New LNG Projects
A number of LNG projects are being pursued in the region and the New England Council encourages support for those that fully satisfy and complete the federal approval and state permitting processes. The New England Council is confident of LNG technology’s overall safety given its proven track record and ongoing rigorous regulatory oversight. New LNG projects are subject to an extensive assessment process by federal regulators and must meet the permitting requirements established by numerous federal and state agencies. It is the responsibility of this open process to assure safety, assess environmental issues, and equitably resolve local concerns on a case-by-case basis.

We believe that LNG facilities should not be narrowly viewed as “the third rail” of natural gas consumption. LNG should be viewed as the basis for saving the New England chemical industry, as well as for saving the entire industrial sector of over 20,000 New England manufacturers who must compete in the global marketplace against competitors who don’t face the same constraints.

While New England has lost its textile and consumer products industries, manufacturing, with $70 billion in Gross State Product, is still the area’s leading economic sector. If we lose manufacturing, it will leave a hole in the New England economy that no amount of innovation or wishful thinking will ever fill. Manufacturing needs the opportunities that LNG offers.

Contact the New England Council at http://www.newenglandcouncil.com for more details.

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