Natural gas must be top of mind for policymakers when discussing reshoring manufacturing, according to a new report from the Center for Strategic and International Studies (CSIS).
Exponential growth in semiconductors and electric vehicles (EVs) demand has led to a renewed effort to invest in U.S. based manufacturing. In their report, CSIS, with the support of the American Gas Foundation, explores this reshoring of manufacturing and how U.S. natural gas can provide dispatchable, cost-efficient energy for manufacturing in a carbon-competitive world.
Exponential Growth in Demand and Spending
Spending across sectors of computer and electrical manufacturing facilities has increased nearly four times since 2022. The report explains:
“By April 2024, project announcements reached $367.9 billion for semiconductor manufacturing and $84.4 billion for EV manufacturing. These industries now account for nearly 60 percent of all manufacturing investment in the United States.”
The reasons behind this increased domestic investment are multifaceted with many companies looking to diversify their supply chains from East Asia, automakers responding to increased EV demand, as well as federal government initiatives including the, Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act and the Inflation Reduction Act, which provide incentives for semiconductor and EV projects. Overall:
“The Biden administration aims for the United States to produce 20 percent of global leading-edge logic chips and for EVs to comprise 50 percent of new vehicle sales by 2030.”
This, of course, means new and reshored manufacturing stateside.
The Role of Natural Gas
CSIS has defined natural gas as playing a key role in this reshoring. As cited in the report, natural gas supplied 43 percent of U.S. power in 2023, and the expansion of gas in the power sector over the last 20 years has helped to promote global energy security and emissions reductions. U.S. natural gas production has managed to continue reaching record levels even with lowering prices. The connection between low energy prices and increased manufacturing is paramount as CSIS explains:
“A working paper for the Federal Reserve first released in 2014 found that the decrease in natural gas prices between 2006 and 2013 contributed to an increase in manufacturing output by 2 to 3 percent across the whole manufacturing sector… A similar study published in 2021 found roughly similar effects, verifying a larger body of literature produced in the meantime.”
Due to its many benefits, natural gas has continued to grow its support across stakeholder groups. The North American Electric Reliability Corporation (NERC) described natural gas as a “critical resource” for the U.S. electric power supply. Similarly, Goldman Sachs expects, “natural gas to meet about 60 percent of additional load growth from expanding data centers and artificial intelligence,” while recent polling shows that majority of Americans support continued LNG exports and increasing natural gas production. Even Democratic President Nominee Vice President Kamala Harris has seemingly embraced U.S. fossil fuels, including natural gas – a flip flop from her previous position.
Source: CSIS
In addition to this widespread support, CSIS cited U.S. natural gas as having clear competitive advantages in prices, emissions, and carbon competitiveness.
Natural Gas Competitive Advantages
Natural gas, specifically U.S. produced natural gas, maintains multiple advantages over alternative energy resources and natural gas sourced outside of the United States.
The first of these advantages is natural gas prices. While there have been some competing narratives over the relationship between increased demand, supply, and consumption of natural gas and natural gas pricing, Wood Mackenzie’s forecasts show that:
“[L]arge increases in gas consumption—from data center operation, chip manufacturing, and liquefied natural gas exports—will not lead to a significant price increase.”
In fact, in their study Wood Mackenzie found that:
“Corresponding to its upward revision in the U.S. gas demand projection for the early 2040s from 13 billion cubic feet per day (Bcf/d) under the 2022 version to 30 Bcf/d, Wood Mackenzie’s latest forecasts are for Henry Hub to reach $4 per MMcf by the mid-to-late 2030s, and closer to $6 per MMcf through the 2040s.”
Together, these statistics demonstrate the cost efficiency of natural gas.
Source: CSIS
The next advantage natural gas maintains revolves around its emissions and the role natural gas has played and continues to play in reducing global CO2 emissions.
Source: Energy Information Administration
Related to this, is the emergence of emissions standards from global governments restricting scope 1 and scope 2 emissions. As explained in the report:
“While these measures will not immediately affect semiconductors or EV batteries, they will apply to commodities such as steel, aluminum, and chemicals. In these areas, U.S. producers have some carbon advantage over international competitors such as China but may trail producers in Europe.”
Source: CSIS
Technological advancements in carbon reduction technologies, such as carbon, capture, and storage (CCS), and carbon removal, and low carbon intensity renewable natural gas (RNG), also provide pathways for continued reductions in natural gas carbon intensity.
Challenges to Natural Gas Remain
Of course, challenges remain. A burdensome regulatory landscape in desperate need of reform, can and has led to project delays and cancelations which reduces the supply of natural gas.
With this in mind, the authors concluded the report by providing a few key observations and policy suggestions to both reinforce and grow natural gas infrastructure and reliability, but to also place natural gas in an even more competitive position within this oncoming manufacturing renaissance:
- Encourage strategic manufacturing sectors to collect and share energy usage data with a federal agency.
- Accelerate the reduction of emissions intensity from manufacturing.
- Encourage CCS readiness at new gas power plants.
- Encourage infrastructure permitting reform.
Bottom Line: A new manufacturing renaissance has begun and the only way for the United States to not fall behind is to fully support our abundant, affordable, and competitive natural gas resources. The United States should utilize, not penalize, the greatest energy tool we have in our toolbox.
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