Study: Shale oil gives Ohio manufacturing edge over China

Ohio now has a plastics manufacturing edge over China, thanks to increased availability of shale-based oil and natural gas.

That's the conclusion of a study conducted by the Shale Crescent USA trade group and released by state agency JobsOhio. Officials with those groups recently commented on the study on a webinar hosted by Plastics News.

The study, using data from machinery maker Milacron and other sources, compared the costs of plastics production in Ohio vs. those in Zhejiang, China. Its results "dispel the long-held belief that plastic-based goods are cheaper to import than to manufacture locally," officials said in a news release.

"Long-term fundamental shifts have changed the playing field," Nathan Lord, president of Marietta, Ohio-based Shale Crescent, said during the webinar. "Ohio, Pennsylvania and West Virginia have developed their oil and natural gas industries, and that's unlocked opportunities for manufacturing."

Energy firms in those states have been able to access those resources in the last 20 years through a combination of horizontal drilling and hydraulic fracturing (fracking) technologies.

"The world is short on energy and the U.S. has energy in abundance," Lord said. He added that recent U.S. natural gas prices of $6 per unit are far less than those in Europe, where the war in Ukraine has impacted access to Russian oil and natural gas.

"The cost model now looks at who can deliver plastic products cheaper, based on transportation, feedstocks and wages," Lord said. "We can offer profitability, reliability and sustainability."

U.S. energy firms are looking to reverse trends that have seen imports of plastic goods from China rise greatly over the last 20 years, while U.S. manufacturing jobs have declined. U.S. natural gas production has increased since 2005, after being in decline since the mid-1970s.

"If the Shale Crescent area was a country, it would be the No. 3 natural gas producer in the world," Lord said. "We can build on top of the feedstock and in the center of customers. It's the only place in the world where you can apply that to the entire plastics value chain."

Shell Chemical's recent opening of a massive petrochemicals unit in Monaca, Pa., is a big step for the domestic plastics industry, according to Joe Eddy, former president and CEO of plastics processor Eagle Manufacturing Co. of Wellsburg, W.Va. The site will have annual production capacity of more than 3 billion pounds of PE resin.

The Shell site "has the logistical advantage of being with a one-day drive of half the U.S. population, 30 percent of the Canadian population and 70 percent of North American polyethylene demand," said Eddy, who now runs his own consulting firm, Enhanced Technologies LLC of Wheeling, W. Va.

He added that wages and manufacturing costs in China are increasing, closing the gap with the U.S., while electricity costs in Ohio also are lower than in Zhejiang, thanks to low-priced natural gas being used as fuel for electric generation.

As a result, Ohio now has similar costs to China on common consumer items such as toothbrushes and window shutters, and lower costs on items like dustpans, tackle boxes, child booster seats and plastic pallets, according to the study. The region also has lower shipping rates and industrial lease rates.

Plastic products made in Ohio can reach distribution centers in two to five days, as compared with 32 days from China, Eddy said. Environmentally, producing in Ohio reduces emissions by having only a 500-mile supply chain vs. 20,000 miles from China.

"These changes are fundamental and long term," Eddy said. "Manufacturers are looking at North America because they see energy and opportunities."

The goal of Columbus-based JobsOhio "is to make it easy to locate and invest in Ohio," Matt Cybulski, energy and chemicals managing director for JobsOhio, said on the webinar. The group addresses 10 industry clusters, including energy and chemicals. Ohio recently has landed large manufacturing projects from Intel, Honda Motor Co. and electric vehicle battery supplier Ultium Cells LLC.

Cybulski added that the state is gaining reshoring work from outside the country, as well as work relocating from both coasts of the U.S. to improve logistics and shorten supply chains.