America’s unheralded natural gas boom has destroyed China and the emerging market's competitiveness to the point that the cost of shipping a container from Asia to the U.S. has collapsed over the last two years by -84 percent to new all-time-low.
Breitbart News reported in July that ‘Baltic Dry Freight Rate Index’ (BDF), the measure of the cost of containerized ocean shipping, had crashed by -61 percent from 2,227 at the end of 2013 to 874. We stated that the BDF price plunge meant that emerging market export competitiveness was on the verge of collapse, led by China.
Since our July article, the BDF has continued to crash; breaking its all-time-low of 500 in December; before hitting a new low of 354 on January 26. According to the ‘gCaptain’ shipping website, demand for the largest container carrying vessels, referred to as 7,500-9,500 teu ships, is “next to zero.” Lack of demand is so bad for this “zombie fleet” of idled vessels that the value of selling them for scrap steel has fallen from $500 to $300 per ton in the last year.
Americans are keenly aware that the U.S. fracking boom has hammered crude oil prices in the last two years, because they are pocketing huge savings with the average price of regular gasoline falling from $3.52 to $1.82 a gallon. But since natural gas is mainly used for industrial and electrical production, few Americans are aware the price of natural gas fell faster from $6 to $1.92 per thousand cubic feet over the same period.
On a worldwide basis, industry uses four times the amount of electricity versus residential consumers. Because coal is usually much cheaper than clean burning natural gas, about 40 percent of worldwide electrical production comes from coal and only 20 percent generated from natural gas.
This ratio was true for the U.S. through 2008. But the fracking boom over the last 7 years has made natural gas cheaper in the U.S. than coal. Beginning in July 2015, America for the first time in history produced more electricity from natural gas than coal.
In August, Breitbart News reported ‘U.S. Factory Construction Hits Highest Level Since 1958.’ Despite a -68 percent plunge in investment in petroleum and mining due to the plunging U.S. energy costs, spending on all types of U.S. production facilities increased +65 percent for the 12 months ending June 2015.
We explained that the biggest driver for America’s factory building boom was U.S. natural gas prices at $1.92 per thousand cubic feet had fallen to about a quarter of $8.40 per thousand cubic feet cost in Asia. Given labor is 8.5 percent and 13.5 energy of global manufacturing input costs, we suggested “Asians could give away their labor and still not be competitive with the U.S.”
Unlike crude oil that can be transported on massive oil tankers for pennies a gallon. But transporting natural gas costs about $4.50 per thousand cubic feet, because it requires huge amounts of energy to drop the temperature to -160 degrees to condense the gas 600 times to form a liquid. The Liquid Natural Gas (LNG) then must be transported in specially designed tankers that use massive amounts of energy to maintain the super-cooled liquid. The unload and heat the liquid to form a gas again.
America’s new cheap energy boom has re-created America’s “comparable advantage” that existed from 1870 to 1970. During that period, the U.S. dominated worldwide manufacturing and created the first middle class society built on manufacturing wages that averaged a third higher than other industrialized nations.
But once America lost its energy advantage, manufacturers began moving production off shore to benefit from cheap wages. By the March 2009 depths of the Financial Crisis, over half of U.S. manufacturing jobs had moved offshore. As a result, America's US balance of payments imploded, national debt ballooned from 30 percent to 100 percent of GDP, “Disposable Personal Income Per Capita” after-inflation fell by $3,437, and income inequality soured.
Many economists predicted that the U.S. was in a terminal financial decline and would soon suffer a currency crisis. But since the depths of the crisis in March 2009, the U.S. Dow Jones Industrial Average is up 182 percent. In contrast, China’s stock market is up only 38 percent and their industrial profits drop by 4.7 percent over the last year.
The most recent U.S. data for October revealed that natural gas powered 34 percent of U.S. electrical production and coal fell to just 28 percent. With a natural gas boom providing a massive cost advantage over emerging market competitors, American manufacturing is headed for a boom.