It wasn’t very many years ago that energy experts predicted natural gas production in the United States was in a state of permanent decline. It was a generally accepted position that the U.S. would be forced to rely on more and more foreign imports to supply the fuel needed to generate electricity, heat homes and provide the integral component necessary to the manufacturing of products such as fertilizers, plastics and chemicals.
But now, unexpectedly, production of natural gas in the U.S. is at an all-time high. Tremendous amounts of natural gas, which is economically recoverable from shale, have been discovered in dense rock formations throughout the country. A recent discovery in Louisiana alone is estimated to hold over 200 trillion cubic feet of natural gas, the equivalent of 18 year’s worth of current U.S. oil consumption.
Industry experts now predict that quantities of natural gas available in the U.S. will meet the country’s demand at current levels of consumption for more than a hundred years. A recent industry-backed study has put the figure at 2,200 trillion cubic feet of gas accessible for pumping in the U.S.
This is terrific news for U.S. chemical companies that use natural gas as a feedstock in the manufacturing process. Since natural gas is also the primary fuel that powers most chemical and refining processes, margins for U.S. chemical companies are at their highest in years. The current glut of natural gas has resulted in lower costs, leading to significant new investment in the chemical industry. New plants and factories are being built while current ones are operating at full capacity.
The country’s position as a low cost producer of chemicals has created more demand for movement and storage of chemicals in North America. This increase in production, coupled with the rapid expansion of investment and growth in the chemical industry is driving the need to address limitations caused by an aging infrastructure, tight capacity due to driver shortages and other contributing factors.
Established 3PL’s can provide a vital service to chemical companies in the area of supply chain management. Faced with the escalating costs of updating existing infrastructure to accommodate the demands of fast-paced industry growth, it is more cost-effective for companies to outsource shipping and warehouse management to a 3PL, eliminating the need to invest in existing infrastructure improvements.
3PL’s with expertise in the chemical industry have a laser-like focus on the supply chain. Providers that operate under a Lean culture in particular are trained to identify wastes and opportunities for efficiencies, which cut costs to the chemical companies. Lean tools improve the routine management of chemicals in the workplace, enhancing safety and influencing attitudes toward efficiency in areas such as equipment maintenance, storage and kitting, labeling, inventory, and transportation— all with an eye toward adding value to the process.
Hiring a 3PL to manage its supply chain allows the chemical company to focus on its primary areas of business. The 3PL acts as a partner, problem-solver and information resource, providing assessments and evaluations pertaining to implementation of Lean tools and supply chain solutions. In addition, the cost savings to the company increases its available capital and frees it to invest in plants, production and sales as opposed to logistics. Also, since 3PL’s enjoy a pre-existing professional relationship with a variety of carriers, the shortage of experienced drivers can be addressed.
Even in the most structured organizations, processes can become chaotic and disorganized. Over time, ineffective methods and habits become second nature. This happens in all businesses. Changes occur, which demand changes in the process. When any industry suddenly experiences rapid and unexpected growth, these processing issues become exacerbated. Lean principles are designed to identify these problems and implement techniques that emphasize creating more value, organizing the state of operations and realizing cost savings due to efficient processes and workflows.
The current boom in production of natural gas and its subsequent impact on the chemical industry creates a unique opportunity for a partnership between these companies and 3PL’s to create a more efficient and productive method for storage and movement of chemical products in the U.S.
Mike Wood is Director of Operations, Chemical and Energy Group at Menlo Logistics. During his tenure with Menlo, Mike has helped build out the company’s Chemical and Energy market offering and practice. With an extensive background in physical distribution management, Wood has worked with customers in the logistics and supply chain industry for close to three decades.