Continuing on the energy roller coaster

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From the Arab Oil Embargo through $4 gas to the boom in shale oil and gas, Americans — and the plastics industry — have ridden an energy roller coaster in the past 40 years.

We’re at the top of the hill right now, thanks to horizontal drilling and hydraulic fracturing, that has unlocked oil and natural gas from shale formations. Only this time, the roller coaster seems like it will only go up. The United States should pass Saudi Arabia to become the largest oil producer in the next year or two.

Resin is the lifeblood of the plastics processing. Petrochemicals, derived from natural gas and oil, drive the industry’s economics even more so than some other industries, since injection molding, extrusion, blow molding thermoforming — almost all forms of plastics processing have become much more automated since Plastics News began publishing in 1989. Machinery is more expensive, of course, but it’s so much more efficient today.

Even rotational molding now has a closed-loop, fully automatic made machine, the Leonardo from Italy.

Labor and machinery have come down as a percentage of total manufacturing costs. That leaves resin, which can be 40 to 50 percent of part cost. So stable long-term prices, for at least the next decade, of petrochemicals — and high volume resins like polyethylene, polypropylene and PVC — have plastics industry leaders and observers gushing with optimism.

Plastics News has reported a fracking ton of these glowing predictions:

• The American Chemistry Council issued a report in 2013 that shale gas could drive more than 500,000 jobs at nearly 100 announced plastics and chemicals expansions.

• IHS Inc. said shale energy will generate 15,000 new plastics industry jobs by 2020.

• Earlier this year, a top executive at Dow Chemical Co. counted at least 120 energy-related chemical expansions in the Unites States, an investment of more than $100 billion.

• Plastics News Editor Don Loepp, in his blog, quoted from something called the U.S. Cracker Leader Board. And that’s not a ranking of snack foods.

Now let’s climb into the Wayback Machine to 1989, when motorists were shocked that gasoline hit $1.13 a gallon. When Plastics News first started publishing, the Oil Embargo of 1973-1974 was still fresh in people’s minds. The Organization of the Petroleum Exporting Countries dramatically raised the price of oil and cut supply. Most plastics processors could not buy resin, or went on extreme allocation.

These days, you have to talk to a real old-timer to hear about how the embargo crippled the plastics industry.

My own memory is as a pre-teen. Gas prices shot up. My father, a Cleveland autoworker, came home one day driving a Chrysler Newport, with a backseat like an overstuffed couch. It got maybe 11 miles a gallon. This was back when neighbors still came over to check out your new car. Dad, what’s the deal? He explained that prices on big gas guzzlers were suddenly super-low. And anyway, the “oil crisis” was just a temporary thing.

And he was right! We drove that car to California, staying at Days Inns and cracking each other up over the ironically named “Tasty World” hotel restaurants. We played the tabletop golf tee wooden peg hole games before the food came … and never, not once, thought about buying the game at the gift shop.

As kids, we drank Hill Billy Joose with that “hug-a-jug flavor.” We guzzled Frostie Root Beer. From steel cans. We had no air conditioned homes, only a few crummy TV stations.

Oh yeah. Those were the days.

Global warming? CAFE standards? Not an issue back in 1973!

Bouncing ahead to the summer of 2000. Gas prices topped $2 a gallon, helping spark a recession, a normal one, with a lower-case “r.” The Big R in 2008-2009 saw gas slam-bang above $4 a gallon, before plunging along with the economy.

And now, in 2014, we’re entering another golden age of low energy prices. Will fracking help fuel a U.S. manufacturing boom? Will Tasty World restaurants make a comeback?

Stay tuned to Plastics News.

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