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Manufacturers Save As Natural Gas Prices Fall

Wednesday, May 2, 2012 at 7:35 PM

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Thanks to a mild winter and tons of recent drilling activity, the United States now has an abundant supply of natural gas. The reserves are so full, the price of natural gas has fallen to a ten year low and that's transforming the regional economy. As the price falls, manufacturing companies that depend on the resource are reaping the benefit. Ideastream's Michelle Kanu has our latest Changing Gears report.

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City Plating owner Randy Solganik wants prices to stay low so he can save money when running his natural gas boiler. Coils roll off the production line at City Plating. They’ve just been dipped in chemical baths heated by natural gas.

When local manufacturer Randy Solganik gets up each day, there’s one thing on his mind:

Solganik: “Every morning I wake up and I turn on Bloomberg and I look at the prices of various commodities that are being sold in the world.  Natural gas has been quite low, record lows for the past year, and I got a big smile on my face about that.”

Solganik owns City Plating, a company that puts metal coatings on parts that eventually end up in all types of cars. 

At the shop, Solganik explains the production line where natural gas heats several pools of chemicals that will glaze thousands of coils, bolts, and other steel parts.

Solganik: “The parts go down the line and they’re cleaned, they’re dipped in acid, they’re electroplated.  They come off and they’re covered with a top coat which is also heated, then they come off the line, the parts unload and they go into a dryer.  They’re dried, and then they’re basically inspected and shipped off to the customers.”

The price of natural gas extracted from ground wells is hovering near two dollars per thousand cubic feet.  After it filters through interstate pipelines, suppliers and utility companies, manufacturers pay closer to four dollars.  Solganik says that’s a steep drop from four years ago when he was paying more than three times that amount.  It’s reduced his operating costs by two percent, and while it doesn’t sound like much, Solganik says that has a big impact on his bottom line.

Solganik: “Every dollar of cost that you save is potentially profit.”

Solganik is just one of several companies around the region relishing the low cost of natural gas.  Virtually every manufacturing company uses natural gas in some way… to heat their facilities or power their machines. 

For the chemical industry, natural gas is a key ingredient in chemical compounds.

At McGean-a specialty chemical company in Cleveland, machines use natural gas to create and mix chemicals that will eventually line the inside of food containers.

Company Vice President Dave Hurder says the low cost of natural gas has reduced his total operating costs by nearly five percent.  The lower utility bills are nice he says, but it’s the availability of natural gas as a low cost raw material that really helps sustain his business.

Hurder: “ If you have an abundance of raw material supply and stable pricing, it allows you to compete better around the world, and that’s good news here in Ohio.”

Some experts say the low cost resource is a boon for the chemical industry in Ohio and around the country.  Jack Pounds is president of the Ohio Chemistry Technology Council.

Pounds: “We’re already beginning to see chemical companies in the state expanding their operations and that is in large a reflection of the fact that more than half of the market for chemicals today is outside the United States and that’s only going to get larger.”

And while some companies are expanding in the U.S., others are bringing their operations back after having moved overseas.

Skip Horvath, president of the Natural Supply Gas Association, says for the past ten years, the high cost of natural gas was one of the issues that pushed many aluminum, steel and fertilizer makers offshore.

Horvath: “This turn around with shale gas-and Ohio is a key state here-is amazing because these same industries have approached us and said, hey, you guys are causing us to come back to the United States.”

Horvath says local manufacturers now have a competitive advantage over foreign ones.

But--not everyone wants to see natural gas prices stay so low – perhaps least of all the drilling industry itself.  Big players like Chesapeake Energy-have announced plans to slow down production recently due to the oversupply.  Their goal is to boost demand for natural gas nationally and overseas in order to drive prices—and their profits—up.

Tags

Economy, Regional Economy/Business - Analysis and Trends, Regional Economy/Business - News, Shale, Changing Gears

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