Shale Gas-Related Growth in the U.S. and Mexico May Hinge on Policy Changes

Steel industry experts at Siemens metals summit say low natural gas prices could revitalize manufacturing in North America with new policies.

MEXICO CITY -- The U.S. manufacturing sector will realize the full benefits of shale gas when the nation's leaders adopt infrastructure investment policies that encourage more domestic steel production, said Werner Auer, CEO of Siemens Metals Technologies, Tuesday at a Siemens media event in Mexico City.

The United States could become an attractive country for new steel industry expansion because of its low-cost natural gas advantage, said Auer, who leads the Siemens AG automation and engineering solutions business unit based in Linz, Austria.

But the nation likely won't see significant benefits from the shale gas boom without additional downstream demand to supply the domestic market, Auer said.

"You need the industry that uses steel," Auer said.

The United States' neighbor to the south could potentially benefit from shale gas expansion, as well, if it leads to increased industrial demand, Auer said.

Mexico's Manufacturing Potential

But like the United States, Mexico faces its own set of policy issues that must be addressed to fully utilize the shale resources in the region, said Alonso Ancira, executive chairman of Altos Hornos de Mexico, or AHMSA, Mexico's largest integrated steel producer.

Siemens' sixth-annual metals technology summit primarily focused on steel industry growth opportunities in Mexico.

In the next 20 to 30 years, Mexico is poised to become the world's sixth-largest economy, Siemens Mexico CEO Louise Goeser told summit attendees Monday evening. Mexico currently stands as the 13th-largest global economy.

Goeser referred to Mexico as "the China of the Americas" because of the country's re-emergence as a U.S. destination for low-cost sourcing.

Rising wages in China and low inflation rates in Mexico have created the ideal climate for U.S. nearshoring, Goeser said.

Mexico also has worked to reduce trade barriers over the past 20 years, establishing free trade agreements with 70% of the world's economy, Goeser said.

Goeser, a U.S native who previously worked in executive roles at Ford Motor Co., praised Mexico's workforce. There's actually an oversupply of skilled workers in Mexico, Goeser said, a sharp contrast to the United States and other global markets where a shortage exists.

"There's probably an overskilled workforce right now, which means there's plenty of skilled people for not enough jobs," Goeser said. "So at this point there's not a shortage of skilled technical people. In fact there's excellent engineers and many of them educated throughout the country."

Policy Roadblocks

Despite the positive outlook, Mexico faces policy challenges of its own.

Goeser said political reforms are needed in Mexico but would not elaborate on specific issues.

AHMSA's Ancira pointed to a map of the Eagle Ford shale play that spans from East Texas across the Mexican border. The shale gas could be a boon to Mexico's steel producers.

Like the United States, the price of gas in Mexico is comparatively low to other regions around the world, Ancira said.

But state ownership of the nation's shale gas resources threatens future expansion by limiting access to private industry, Ancira said.

Ancira said he's hopeful with the upcoming presidential election in Mexico that the next president will implement policy changes that open up shale gas resources to Mexico's steel industry.

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