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Booming US energy sector feeds manufacturing, may overtake it

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Could the booming U.S. energy sector assume the mantle that Detroit's big automakers once held in the economy?

Although it's still too early to tell, recent trends suggest soaring energy production may replace automobile manufacturing as an economic powerhouse. Even as the U.S. recovery falters, manufacturing and energy are in the midst of a broad expansion that is helping to generate growth.

Analysts say both sectors are increasingly intertwined. Yet as Detroit's economic influence has waned, soaring shale production—and the cheap energy it provides—is making its presence felt in multiple ways. On Thursday, the Energy Information Administration reported oil production in 2013 surged by nearly a million barrels per day (bpd), its fastest growth rate ever.


(Read more: US energy boom helps grease manufacturing's spinning wheels)

That same boom, which harnesses drilling transportation and other labor-intensive factors, provides an ancillary boost to manufacturing that some say could eventually displace it.

In a study released in early February, The Boston Consulting Group said shale gas "will have a greater impact on U.S. manufacturing over the next several years than is commonly assumed," as cheap gas makes manufacturing more competitive—and becomes a major source of jobs and growth in its own right.

"The U.S. is without a doubt a massive leader in fracking," said Hal Sirkin, a senior partner in the Chicago office of BCG, in an interview. "It creates a boom in prices, but at same time allows exporting technology, and people who make that technology, to other countries."

One way the energy resurgence is helping is by providing industries as well as consumers, with inexpensive fuel that acts as a tax cut. According to BCG's research, wholesale nat gas prices have fallen by around 50 percent since 2005. By 2015, natural gas will account for a slim 2 percent of U.S. manufacturing costs, the study added.

"This is why our economy is starting to wake up," Sirkin said. "We are looking like a growth country compared to developed countries and emerging markets."

(Read more: For economy, best of energy surge is yet to come: IHS)

Oil and gas employment has been one of the few sources of job growth in a fallow labor market, with direct employment soaring 40 percent since 2007. According to a study by consulting firm PriceWaterhouseCoopers, the shale revolution may add as much as one million manufacturing workers by 2025, due "to benefits from affordable energy and demand for products used to extract the gas."

(Read more: Shale boom may create jobs in nonfracking states: Report)

America's Energy Advantage, a natural gas advocacy group, recently commissioned research that examined the energy boom's impact on U.S. gross domestic product. The study showed that oil and gas production boosted growth by a factor of two, a combination of a ramping up of domestic capacity and the need for fewer energy imports.

"Absolutely, the energy sector can be a basis for the U.S. becoming an industrial powerhouse," said Ken Ditzel, a principal at Charles River Associates who performed the data analysis for the America's Energy. "It's clear that the developments in the energy sector are feeding the manufacturing renaissance."

Meanwhile, the Obama administration has quietly embraced natural gas production as a linchpin of its energy policy, while encouraging the manufacturing revival. Simultaneously, the federal government is planning to create two industrial hubs geared toward boosting high-tech manufacturing and replace jobs that were shipped overseas.

Auto maker Tesla is an illustration of how the centers of gravity in energy and manufacturing are converging, and how both sectors can benefit from policy support.

The company itself is one of the few success stories to emerge from the Department of Energy's controversial loan guarantee program. Tesla repaid its $452 million loan nine years early, helped by the embrace of its electric-powered cars by the marketplace.

Last week, Tesla announced plans to create nearly 7,000 manufacturing jobs and invest more than $4 billion in a massive "Gigafactory" that will churn out lithium-ion batteries and electric storage applications.

—By CNBC's Javier E. David. Follow him on Twitter @TeflonGeek.

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