CHICAGO, Ill. – The chemical and plastics industry is a leading force in economic growth that is helping U.S. cities bounce back from the recession, according to a new study commissioned by the U.S. Conference of Mayors.
The study paints a rosy picture of economic growth and credits the manufacturing of plastics and chemicals with spurring a surge in jobs, exports and research in many cities across the country. Behind the industry’s role as a growing economic force are rock-bottom natural gas prices, largely due to technologies allowing extractors to tap into new reserves.
Natural gas fuels most U.S. chemical processes. Chemical companies are investing money into places as diverse as the Gulf of Mexico and Pittsburgh – wherever the gas is, according to the study conducted by IHS Global Insight, a Colorado-based industry analytics company that focuses on energy issues.
The report cites 2 to 4 percent job growth in the chemical and plastics industry in some large cities including Minneapolis, Los Angeles, San Diego, Dallas and Milwaukee from 2010 to 2011. Smaller metro areas such as Warren, Mich., Spokane, Wash., Greeley, Colo., Gadsden, Ala., Janesville, Wis. and Alexandria, La., have seen more than 10 percent growth in the industry’s employment.
However, some major cities, including Chicago, New York and Philadelphia, had a small decrease, the study says.
Robert Atkinson, president of the Information Technology and Innovation Foundation, a non-partisan economic think tank in Washington, D.C., said the chemical industry historically has been strong in the U.S. compared to other industries and that this growth could continue to boost the economy.
“Chemicals are a stable industry … partly because you have higher fixed costs, you don’t just walk away from a chemical plant,” said Atkinson, who did not participate in the study.
The study, which was prepared for a mayors’ conference held last week in Philadelphia, predicts the U.S. economy will continue to improve through the end of 2012, anticipating job growth of 1.4 percent and unemployment to fall to 8 percent.
Low natural gas prices have driven new hiring at chemical companies. The metropolitan Chicago area has the highest employment in chemical and plastics with 43,346 jobs, just above the Houston area at 42,834. Twenty-eight metropolitan areas have more than 10,000 people working in the industry and 206 metro areas have more than 1,000, according to the study.
Tracey Easthope, environmental health director at the Ecology Center in Ann Arbor, Mich., said she hopes this trend will carry over into “green chemistry,” the design of chemicals and industrial processes that are non-toxic and environmentally sound.
“While green chemistry is growing, it’s still a relatively small proportion,” Easthope said. “As we keep increasing domestic manufacturing of chemicals, it’s important that both the chemicals and production be more sustainable.”
The report did not mention how much of the growth was “green,” but it is typically a drop in the bucket. According to a 2011 report by Pike Research, green chemistry was a $2.8 billion industry, compared with the $4-trillion global chemical industry. In the U.S. alone, the chemical industry is a $760 billion enterprise, according to the American Chemistry Council.
The report, however, predicted the green chemical industry would grow to $98.5 billion by 2020.
Manufacturers of chemicals and plastics have been under fire recently, with scientists linking many high-volume synthetic compounds – including flame retardants, plasticizers such as bisphenol A and phthalates, pesticides and Teflon ingredients — to a variety of health threats.
The chemical industry has been able to grow in recent years because natural gas prices have dropped dramatically. According to the U.S. Energy Information Administration, natural gas was $1.89 per thousand cubic feet (not including transportation costs) in April 2012, down from $10.79 in July 2008. The combination of horizontal drilling and hydraulic fracturing, known as fracking, led to the price drop, as shale gas production grew 48 percent from 2006 to 2010, according to U.S. Department of Energy estimates. And when the prices dropped, out came the businesses that rely on cheap energy.
“Four or five years ago manufacturers were bemoaning the high prices of natural gas in the U.S., and they were going elsewhere,” Atkinson said. “Now you’re hearing something a lot different as the low natural gas prices are driving their ability to be productive.”
At the same time, concerns over the environmental safety of fracking are being raised across the nation. Dow operates a chemical plant in Midland, Michigan.
From worries about water pollution in western Pennsylvania to cancer rate concerns in north Texas, many communities have expressed unease with the nascent practice of injecting chemicals into the ground near drinking water. Multiple towns have enacted moratoriums on fracking pending more research. Industry officials say the practice is not a threat to drinking water and that natural gas burns much cleaner than coal.
The cheaper energy source could fuel greener chemicals. Easthope cited low natural gas prices as an opportunity for developing environmentally sustainable chemicals and plastics.
“This is a big chance to ramp up innovation,” she said. She said coupled with the lower costs of handling hazardous materials, this could make green chemicals more competitive.
Whether it’s driving green or traditional chemicals, Atkinson said the low natural gas prices are here to stay. “This is a long-term, structural change in our energy supply,” he said. “With these new technologies like horizontal drilling, they’re bringing online a lot more natural gas than we ever thought was available…These are not artificially low prices.”
But Atkinson said it’s going to take more than just low energy prices to keep the chemical and plastics industry driving growth.
“It’s innovation that’s going to sustain growth, and there’s a fair amount in those industries right now,” he said.
He said it’s important to keep putting money into research, and to use the low energy costs to constantly reinvent the industry. Atkinson pointed to plastics that conduct electricity as a recent example of the industry pushing forward.
“It’s not like they’re just cranking out a bunch of plastic bottles,” he said.