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Energy revolution continues to transform steel industry

Apr 24, 2014 | 07:00 PM | Bill Beck

Tags  natural gas, Ukraine, Crimea, Russia, North America, Gazprom, Charles Krauthammer, liquefied natural gas LNG


North America’s capacity to produce shale gas in the second decade of the 21st Century came to the fore during policy debates arising from the Ukrainian crisis. Russia’s move to annex Crimea revealed that OAO Gazprom, the big Russian natural gas utility, was supplying all of the natural gas consumed in Eastern Europe and nearly 50 percent of the natural gas delivered to Germany and the Nordic countries.

Charles Krauthammer, an influential Washington Post columnist, urged the Obama administration to use the sea of natural gas locked up in U.S. shale deposits to wean Europeans from their dependency on Russian gas, suggesting a crash program to build 15 to 20 liquefied natural gas (LNG) terminals in the United States to supply Europe with gas to heat homes, generate clean electricity and power manufacturing processes.

The implications of increased natural gas production are far ranging for the nation’s iron and steel industry. The construction of LNG terminals and new gas refineries would require thousands of tons of alloy steel; oil country tubular goods (OCTG) producers would ramp up new lines to produce the tube and pipe needed to explore and drill for gas and move that gas to market; and abundant natural gas would be used increasingly to transform iron ore into high-grade alternative metallics for the nation’s electric-arc mini-mills.

Colin Parfitt, president of supply and trading at San Ramon, Calif.-based Chevron Corp., called shale gas the “fastest-growing source of natural gas in the United States. It’s supporting power generation, steel production and a resurgent petrochemical industry.”

As recently as a dozen years ago, shale gas was a commodity little known or understood by anyone but the nation’s tight-knit community of petroleum geologists. Oil and associated gas, locked in shale deposits thousands of feet underground, were liberated by new drilling technologies, which included horizontal drilling and hydraulic fracturing, injecting a mix of chemicals and waters into the shale formation to release the oil and gas.

The first beneficiary of the shale oil and gas revolution was North Dakota, where the Bakken shale deposit across much of the western third of the state came into its own. Since then, energy companies have identified, explored and begun drilling in many other shale deposits across the United States. The Eagle Ford shale and Barnett shale in Texas, the Utica shale in upstate New York and the Marcellus shale across Pennsylvania and West Virginia have become household names in the world of natural gas production.

Englewood, Colo.-based consultant IHS Energy reported in March that shale gas now represents nearly half of total U.S. natural gas production, and that the United States in 2012 surpassed Russia as the world’s biggest natural gas producer. IHS Energy expects natural gas demand in the United States to increase dramatically through 2021 as electric utilities switch from coal to gas-fired generation.

Piotr Galitzine, chairman of Houston-based TMK Ipsco, told the National Association of Steel Pipe Distributors annual convention this past winter that coal-fired electric power had dropped to less than 38 percent of the market from 52 percent in 2000.

That surge in gas-fired electric power could work down a growing glut of shale gas and will mean substantial investments in natural gas pipelines to get product to market. William Lawson, vice president of corporate development at Tulsa, Okla.-based Williams Cos., told IHS Energy’s CERAWeek that his company had invested $6 billion in pipeline gathering infrastructure in the Northeast to help gas get to demand markets, such as Connecticut and New Jersey, and is working to give its pipeline system north-south capability so it can deliver gas from the Marcellus shale to the Southeast.

Gregory Ebel, president and chief executive officer of Houston-based Spectra Energy Corp., estimated that the United States will need to invest nearly $1 trillion in infrastructure in the next 12 years to ensure that the new natural gas supply gets to market.

That’s music to the ears of OCTG producers and distributors, although some in the industry expressed concern that increased demand for pipe and tube will lead to construction of new capacity in North America, more competition and increased pressure on margins. But the pipe and tube end sector isn’t the only segment of the steel industry that could be affected by sharply increased production of shale gas.

One development that has many in the steel industry watching intently is commercial production at Nucor Corp.’s direct-reduced iron (DRI) facility in St. James Parish, La. Fueled by the abundant natural gas of Louisiana and Texas, the 2.5-million-ton-per-year facility began shipping enriched iron pellets at the start of this year. Under construction for more than two years, the Louisiana DRI facility was slated to go into commercial production early in the fourth quarter of 2013, but the collapse of an iron storage dome at the plant delayed start-up until Christmas week.

Since then, Nucor has increased the flow of DRI pellets as far north as its mill in Crawfordsville, Ind. Nucor chairman and chief executive officer John J. Ferriola described the Louisiana plant as “the largest DRI plant currently operating in the world.” The Charlotte, N.C.-based steelmaker has told analysts that if the new facility lives up to expectations, it could be the first part of a multi-phase project in St. James Parish representing an investment of $3.5 billion.




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