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Foreign Firms Tap U.S. Gas Bonanza

Companies from the U.S. and abroad have invested or are planning to invest billions of dollars through the rest of the decade in plants that would churn out chemicals, fertilizers, plastics, metals and fuel from gas. Many foreign companies, alone or in joint ventures with U.S. partners, are taking advantage of gas that costs a fraction of what it does in Europe or Asia to expand production in the U.S.

Boston Consulting Group estimates that international companies will invest at least $50 billion through the end of the decade on projects that take advantage of low-price natural gas.

Linde AG, a German gas-and-engineering company, recently said it would spend $200 million to build a new air-separation unit in La Porte, Texas, that would provide synthetic gas for the petrochemical industry. The investment "is directly tied to the price and availability of natural gas," said spokesman Uwe Wolfinger. "Five or seven years ago, this type of investment would have been far more likely elsewhere in the world."

The U.S. gas bonanza, fueled by the widespread adoption of new drilling techniques such as hydraulic fracturing, has already given a boost to domestic manufacturers. When natural-gas prices were high a decade ago—about twice as high as they are today- Dow Chemical Co. invested in new petrochemical facilities in the Middle East, where energy was less expensive. Today, Dow and other energy-intensive firms are investing heavily in the U.S.

Now inexpensive gas also is turning the U.S. into a magnet for investment by foreign companies. Energy consulting firm IHS Cera said in a report last month that cheaper gas would kick-start the nation's chemicals sector over the next dozen years, creating more than 300,000 jobs and driving half a trillion dollars in production through 2025.

The U.S. advantage is sparking concern in other countries about their competitiveness. High energy prices, for example, are bedeviling Germany's plan to boost renewable energy sources and replace nuclear power—which the country is phasing out.

The U.S. petrochemicals sector, which turns raw materials such as natural gas or petroleum products into chemicals and plastics, is a particular target for investment. Chemicals accounted for one-quarter of the $160.5 billion in inbound foreign-direct investment in the U.S. last year, according to the U.S. Commerce Department.

To be sure, foreign investment tied to inexpensive gas represents only a small fraction of the total that overseas companies put into U.S. operations. Foreign direct investment, which varies widely from year to year, reached $198 billion last year, according to Commerce Department figures, so an additional $5 billion or $10 billion in investment in a given year would change the total only a few percentage points.

Still, the investment is a boost to regional economies in places like Louisiana that have good access to natural-gas production.

Still, the investment is a boost to regional economies in places like Louisiana that have good access to natural-gas production. Royal Dutch Shell PLC said this month it is looking to build a $12.5 billion gas-to-liquids plant in the state.

Incitec Pivot Ltd., an Australian fertilizer and explosives company, has experienced high domestic natural-gas prices in Australia, owing in part to unfettered exports from that country. While the U.S. also plans to begin exporting natural gas, Incitec says it is building an $850 million ammonia plant in Louisiana because U.S. energy policy so far has kept gas inexpensive and available for industrial users.

"If you think about the competitive advantages of an economy, having low-priced energy is about the most important," Incitec Chief Executive James Fazzino said. Combined with a stable regulatory framework and a trained labor pool, the U.S. "is really the most attractive place in the world to invest," he said.

South Africa's Sasol Ltd. is hoping to tap natural gas as a feedstock for petrochemicals and as a way to make affordable transportation fuels. The energy and chemicals company is planning to invest between $5 billion and $7 billion in a plant near Westlake, La., that would turn ethane, a liquid found in natural gas, into products useful for plastics and chemicals. Sasol also is looking at investing between $11 billion and $14 billion in a gas-to-liquids plant to make diesel fuel in Westlake.

The company will make its final investment decision on the ethane "cracker" plant in the first half of next year, and on the gas-to-liquids plant in 2016. Ethane is less expensive than naphtha, a feedstock that is derived from oil.

Switzerland's Ineos Group AG in July announced plans for a joint venture with Sasol to produce high-density polyethylene in the U.S. Ineos also is expanding a U.S. plant that produces another chemical.

Officials in Washington and abroad are taking note. The Commerce Department, which for years has sought to help American companies boost exports, has put new emphasis on attracting foreign investment through a program called SelectUSA.

Commerce Secretary Penny Pritzker said in a speech this summer that "low and stable energy costs" were among that factors that made the U.S. a more compelling place to invest. Ms. Pritzker, Secretary of State  John Kerry and Treasury Secretary  Jacob Lew will headline the first SelectUSA investment conference in Washington late this month.

One concern for some U.S. and foreign executives is the prospect that U.S. exports of natural gas will raise prices, eroding the industrial advantage. The U.S. Department of Energy has given conditional approval for four terminals to export liquefied natural gas to Europe and Asia, while more than a dozen additional projects await federal approval.

Dow Chemical CEO  Andrew Liverishas been an advocate of limiting U.S. exports of liquefied natural gas. Dow and other companies have joined forces to argue that natural gas provides more economic benefits if it is kept at home to fuel an industrial revival. Incitec Pivot joined the coalition last month.

Other executives are confident that the advantages of the U.S. gas boom will be long-lasting, especially with oil prices near historic highs in real-dollar terms.

"All of the experts' views show a gas price that continues to stay reasonably low, even taking into account LNG exports, and an oil price that is going to be above $100 a barrel," said Sasol CEO David Constable. "The wide differential between gas and oil prices has created attractive opportunities for Sasol's continued growth and investment in the U.S. market."

Write to Keith Johnson at