WSJ Article on the Impact of Natural Gas Prices and Plant Location

Network design is not just driven by transportation costs.

Yesterday’s Wall Street Journal article about an Egyptian firm investing $1.4 billion in a fertilizer plant in Iowa.  Why Iowa?  Well, according the article, natural gas is a key raw material in fertilizer and the low natural gas prices in the US are encouraging investment.  This firm is not the only one:

Low gas prices have spurred other investments by chemical makers. Deerfield, Ill.-based CF Industries Inc., another big fertilizer producer, increased its projected capital spending on new nitrogen capacity to $2 billion through 2016, up from a prior forecast of $1 billion to $1.5 billion. Much of the capacity is expected to debut in 2015.


Dow Chemical Co.announced earlier this year it will build a multibillion-dollar plant to convert natural gas into the building blocks of plastic in Texas, creating 2,000 construction jobs before the plant is completed in 2017.


That news followed Royal Dutch Shell PLC’s announcement it would build a similar, $2 billion chemicals plant near Pittsburgh, above the Marcellus Shale.

Currently 50% of the fertilizer used in the US is imported (incurring extra transportation costs, but the article doesn’t mention how much might come from Canada).  So, with the lower price of natural gas, the balance tips in favor of investing close to the source of natural gas and demand points.

It will be interesting to see how the price of nature gas impacts other manufacturing firms. Network modeling can help a firm understand when it makes sense to take advantage of the price of natural gas and move plants to the US.