Shale Gas Creates Domino Effect

As the US shale gas boom grabs more headlines and its impact is being felt by all segments of the transportation industry, now may be a good time for supply chain managers to starting tuning into this phenomenon.

Sure, a lot of the mainstream conversation currently still focuses on how this new energy source is boosting the US economy (shale gas currently accounts for 44 percent of total US natural gas production) or on the physical movement of the gas from the field to the processing plants. But, those savvy types running different cost-reduction scenarios and what-if logistics modeling, will see another story bubbling up in between the lines of the latest news article and how a domino effect could come into play here.

There are a few ways the high-tech industry may benefit both directly and indirectly from the shale gas noise.

One is by being a supplier to this growing industrial sector. Shale gas operators are maturing and realize legacy systems do not adequately serve their needs.

Second (and third) the wave of manufacturing coming back to the US might create advantages both within high-tech organizations and from suppliers that are onshoring production.

PwC, in its “Shale energy: A potential game-changer” report, points out:

This new source of abundant, low-cost energy is proving to be a significant incentive for chemical producers and manufacturers to shorten their supply chain and bring production facilities back to the United States. A revived manufacturing sector would increase the need for rail and trucking to move more products domestically and for shipping exports abroad.

Two questions could be drawn from this. Does this mean more electronics-related manufacturing will come back, too, and see similar benefits? And, if the chemical industry shortens its supply chain — and assuming that lowers costs — and component makers buy chemicals to make their products, should some of this savings eventually pass through the rest of the supply chain?

Let's forget about an obvious benefit. The more shale gas that's used in the transportation and logistics industry, the more chances there are for overall transportation costs to drop, which will make the cost-sensitive supply chain professional smile. PwC found that “the low price of liquefied natural gas (LNG) prices relative to the more expensive diesel fuel has led many companies to switch to vehicles run on natural gas.” Citing UPS and FedEx company data, PwC says those top-tier logistics providers use alternative fuel sources, like liquefied natural gas and compressed natural gas engines, in their fleets of trucks.

Lastly, the high-tech supply chain could be a model of excellence to an industry just beginning to learn things like just-in-time delivery and supplier collaboration. Ironically, as the shale gas boom creates all sorts of new and interesting transportation and logistics opportunities, shale gas operators and their management teams are facing a number of supply chain issues their compatriots in high-tech can relate to. EY, in its “Supply chain management in a shale market” report, names familiar headaches related to:

  • Driving more operational efficiency
  • Optimizing the value chain
  • Better coordinating just-in-time delivery
  • Pushing beyond the limits of legacy processes
  • Developing collaborative supply chain initiatives
  • Improving demand planning and strategic sourcing capabilities
  • Integrating logistics tracking

These are things that the high-tech sector has struggled with and made notable progress on these last few years.

Maybe it's time for a meeting of the minds and finding ways to bring high-tech's best supply chain practices to the gas industry. The benefits may be just under the surface if you dig a little bit.

11 comments on “Shale Gas Creates Domino Effect

    February 18, 2014

    I was surprised to hear that shale gas makes up 44% of the USA natural gas production. I hope this abundancy of low cost hydrocarbon fuel does not derail in any way the push for clean technology and energy conservation.  I know that chemical plants in the UK are already importing such gas from the USA until we frack our own fields.

  2. SP
    February 18, 2014

    Its a good move to get back manufacturing to US. Although finicancially it works or not time will tell. But definitely from quality point of view and national pride its good.

  3. Ariella
    February 18, 2014

    @SP I agree. There is also marketing value in being able to say “Made in the USA.” Some buyers willingly spend more to support the workers in their country and to obtain what they believe is a better quality products. 

  4. Eldredge
    February 19, 2014

    Inexpensive, abundant energy definitely helps to fuel the economy. It also provides raw materials for various chemical industry products. Some time ago, I remember reading that some of the small percentage constituents of the raw natural gas can be separated out and purified for consumption in the chemical supply sector – I think that included products such as helium.

  5. Eldredge
    February 19, 2014

    It would be great if an ample supply of energy would encourage a resurgence in domenstic manufacturing. Among other things, we need to support and retain the manufacturing skill base.

  6. Daniel
    February 19, 2014

    “The more shale gas that's used in the transportation and logistics industry, the more chances there are for overall transportation costs to drop, which will make the cost-sensitive supply chain professional smile.”

    Jennifer, in certain countries, petroleum and gasoline are selling through the well connected pipe line networks. Shale also can think about migrating the conventional method of transportation to pipe lines and hence cost can be reduced.

  7. Daniel
    February 19, 2014

    “The more shale gas that's used in the transportation and logistics industry, the more chances there are for overall transportation costs to drop, which will make the cost-sensitive supply chain professional smile.”

    Sp, various states and federal government are trying for that, but whether companies are willing for such migration?  

  8. Hailey Lynne McKeefry
    February 20, 2014

    @Flyingscott, i hope so too…but by all accounts it seems not. I am in California, which is perhaps more forward thinking than other parts of the country, but wind, solar, and other alternatives are always being considered…and i see new and large installations all the time.

  9. Hailey Lynne McKeefry
    February 20, 2014

    @SP and Ariella, the Made in USA label has some clout, but i think that there's a new generation of customers who are going to have to be educated in this respect. I think the younger generation is much more globally minded.

  10. SP
    February 21, 2014

    @Ariella, quite agree there are many people in US who would like to buy products made in US. Although its hard to find those kind of products.   

  11. Eldredge
    February 23, 2014

    @Hailey – I think the 'Made in USA' label does have some clout. Unfortunately, it is all to difficult to find that option. I can tell you that, when it come to food products, I find it extremely important.                                     

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