- POSTED: 26 May 2014 20:37
- UPDATED: 26 Jun 2014 11:23
The shale gas boom has lowered energy prices in the US, and this is attracting more US manufacturers overseas to move parts of their production back home. While there are fears this could pose a risk to Asian manufacturing and jobs, some analysts said the impact on Singapore is likely to be muted.
SINGAPORE: The shale gas boom has lowered energy prices in the US, and this is attracting more US manufacturers overseas to move parts of their production back home.
While there are fears this re-shoring process could pose a risk to Asian manufacturing and jobs, some analysts said the impact on Singapore is likely to be muted.
In the petrochemicals industry, raw material feedstock -- like natural gas -- make up 70 per cent of production costs.
But due to shale fracking, the cost of gas in the US is now about a third of the cost elsewhere in the world -- at US$4 per million British thermal unit (BTU).
The developments in the shale energy space have enticed manufacturers, particularly those from energy-dependent sectors, to set up plants in the US.
Krithika Tyagarajan, senior director of chemicals, materials & food practice for Asia Pacific at Frost & Sullivan, said: "The latest estimates from the American Chemistry Council is that there are almost US$100 billion worth of investments planned in the petrochemical and chemical industry in the US, and more than half of that is coming from outside the US.
"US companies were actually expanding in Asia, but now what we're seeing is that there're also 170 projects within the US itself."
While analysts said it will take another five years before the full impact of the shale revolution can be seen, investments that would have happened in Asia are already being channelled to the US. This could hurt the growth of Asian manufacturing, particularly jobs and plant openings.
Deutsche Bank said the petrochemicals and chemicals sectors will be most affected by the re-shoring of manufacturing activity to the US. These two sectors account for 40 per cent of Singapore's exports.
However, some analysts said the risk of companies pulling out, and job losses is low, for now.
Irvin Seah, a senior economist with DBS Bank, said: "The investments that have been put in place are quite significant. So it is unlikely that in the near term, potentially lower energy prices in the US will lead to a hollowing out or some downside impact on the energy sector."
In addition, analysts said that it is important for the petrochemicals and chemicals firms to be close to where their customers are -- and the biggest demand driver right now is from within Asia.
Analysts added that Singapore has been successful in wooing specialty chemical players like ExxonMobil -- and that should buffer the economy from any shale-related impact.
Demand for these chemicals -- which also include flavours and fragrances -- continues to be high in Asia.