A photo of natural gas extraction pipelines set in a lush field of yellow wildflowers.

Other Inputs

Assess Costs Everywhere icon image
  • Natural gas is an important source of both energy and raw materials in manufacturing, and booming domestic production has greatly lowered the price of this important input.
  • While it is difficult to compare real estate prices across countries, registering a property can be significantly faster and less expensive in the United States than in other countries.

There are many physical inputs to consider in the manufacturing process, and their relative costs can sway cross-country comparisons considerably. The discussion below focuses on threeenergy, raw materials, and land—and underscores how quickly costs can change. Over the last few years, the United States has experienced a boom in natural gas production, lowering prices and dramatically increasing the availability of natural gas as both a raw material and a source of energy. Meanwhile, the United States remains among the most attractive locations for energy infrastructure and efficient real estate markets.

Natural Gas

There is relatively little variation across countries in the prices of many raw material inputs. Natural gas is an exception. The surge in U.S. domestic production has brought U.S. market prices down while prices in Europe and Asia have climbed.

Natural Gas Prices in U.S. Dollars
2001-2013

Line chart: Natural gas spot prices at Henry Hub in Louisiana rose from 2001 to 2009 before dropping back and staying low from 2009-2012.  In contrast, prices for Russian natural gas and for Indonesian liquid natural gas rose from 2001 to 2013 to more than triple the U.S. 2013 price.

Source: Economics and Statistics Administration analysis using data from the International Monetary Fund/Haver Analytics. 

Because tankers can continually cart millions of barrels of oil across oceans, oil prices are set globally. In contrast, natural gas tends to travel through pipelines within countries or continents, with only about one-third shipped between continents. The recent surge in U.S. natural gas exploration has identified record levels of U.S. natural gas reserves and is now opening low-cost energy options to commercial and residential users across the country. In contrast, the northern European or Asian spot markets post prices ranging from twice to several times the prices paid in the United States.

To be specific, the United States has seen a dramatic, fourteen-fold increase in the production of natural gas from shale formations over the past ten years—exemplified by the quadrupling of Pennsylvania's production between 2009 and 2011. Reserves of natural gas within U.S. shale formations, less than 10 percent of the total natural gas stock only a few years ago, now account for nearly a third of all natural gas reserves.

U.S. Natural Gas Proved Reserves
2000 - 2011 

Area chart: Natural gas reserves in the U.S. have increased since 2007, driven by large gains in shale gas reserves.

Source: Economics and Statistics Administration analysis using data from the Department of Energy, Energy Information Administration.

Shale Plays in the United States 

 

Map:This map of the U.S.’s lower 48 states shows the location of current and prospective shale plays.  The most extensive current plays extend from western New York, Pennsylvania, West Virginia, and eastern Ohio.

Source: Economics and Statistics Administration analysis using data from the Department of Energy, Energy Information Administration.

Inexpensive U.S.-produced natural gas has multiple industrial uses ranging from onsite electricity generation to process heating, space heating, steam generation, and petrochemical processing. The low cost of natural gas combined with its flexible use are factors in the United States' favor when firms make total cost assessments. There is ample evidence that the country's natural gas boom is sparking an expansion in petrochemical manufacturing as well as in the manufacturing of steel and equipment needed for gas extraction.

 

Natural Gas Prices for Industrial Use
2001 - 2010 

Line chart: Over the past half-decade, prices of natural gas for industrial use in the U.S. have declined, while the world average rose.  In 2010, U.S. prices were at about half of the world average.

Source: Economics and Statistics Administration analysis using data from the Department of Energy, Energy Information Administration.
Note: World average includes only countries with data reported by the Energy Information Administration.

Electricity

The current mix of fuels and infrastructure help the United States compare favorably with other countries in terms of electricity pricing and reliability.[i] Likewise, while the procedures and time involved in getting electricity are comparable in the United States and many other countries, the cost tends to be considerably lower in the United States, as highlighted in the table below.

 

 Procedures

(number)

Time

(days)

Cost 

(% of income per capita)

United States

4

60

15.6%

Brazil

4

58

34.4%

Canada

7

142

131.8%

Chile

6

30

63.9%

China

5

145

499.2%

Germany

3

17

46.9%

Mexico

7

85

369.1%

Poland

6

161

205.2%

Singapore

4

36

27.5%

South Korea

4

18

17.7%

Source: Economics and Statistics Administration analysis using data from the World Bank, Doing Business project.

Since 2009, power generation has been the most common domestic use of natural gas, followed by industrial, residential, and commercial uses. Natural gas fuels nearly one-quarter of domestic electricity generation, and this share is expected to increase over the next quarter century. EIA forecasts suggest coal likely will remain the principal fuel firing domestic power plants.

Real Estate 

In contrast to the majority of commodity inputs, whose prices are largely determined by global supply and demand, property values and rental costs are local.  Because there is a lack of data for making general cross-country comparisons, comparing land and real estate rental costs across countries is not straightforward. In its Registering Property section, the World Bank's Doing Business project publishes data comparing the "steps, time and cost involved in registering property, assuming a standardized case of an entrepreneur who wants to purchase land and a building that is already registered and free of title dispute."

The following table compares this important start-up cost and process between the United States and a selection of other countries. Although these costs are more associated with the initial start-up activities of moving abroad rather than ongoing operations, the data highlight once again that purchasing land in the United States is relatively easier in terms of steps, costs, and time.

 

 Procedures (number)

Time

(days)

Cost

(% of Property Value)

United States

4

12.0

3.4%

Brazil

14

30.0

2.6%

Canada

6

16.5

3.4%

Chile

6

28.5

1.2%

China

4

29.0

3.6%

Germany

5

40.0

5.7%

Mexico

7

74.0

5.3%

Poland

6

35.0

0.4%

Singapore

5

5.5

2.9%

South Korea

7

9.0

5.1%

Source: Economics and Statistics Administration analysis using data from the World Bank, Doing Business project.

Conclusion

Manufacturers who are considering locating their plants overseas or sourcing abroad should consider the costs of all inputs to the production process, including raw materials, energy, and real estate.  Natural gas highlights how quickly cost calculations can change, as the boom in domestic production and decline in prices has made the United States much more attractive for expanding some manufacturing industries.

[i] For data on the quality of electrical infrastructure, see Table 2.07 on page 438 of The Global Competitiveness Report 2013-2014.