March 28, 2012

Steel Finds Sweet Spot in the Shale

 

 
 
John W. Miller
Wall Street Journal 
March 26, 2012
 
WEST MIFFLIN, PA.—The rising fortunes of a massive U.S. Steel Corp. X +1.73% plant here has much to do with what sits below: massive deposits of cheap natural gas.
 
Shiny coils roll off the line destined for energy companies drilling in the Marcellus Shale natural-gas formations that rest below much of southwestern Pennsylvania. Production for so-called tubular goods used for pipes, tubes and joints in gas drilling has doubled in two years, says Scott Bucksio, the general manager of the plant in the sprawling Mon Valley Works, as drillers have raced to extract ever-larger amounts of gas from the shale deposits.
 
As significant, or more so for energy-intensive steelmakers, is that newly plentiful natural gas "is also keeping costs down" said Mr. Bucksio of U.S. Steel.
 
With prices of natural gas down more than 35% to $2.21 per million British thermal units from a year ago due to abundant supply, the company has begun replacing coal with natural gas to power its blast furnaces.
Industrywide, a ton of steel costs around $600 to produce. Using natural gas instead of coal to run the furnaces cuts the costs by $8 to $10 per ton. Based on those figures, U.S. Steel could save $133 million this year alone, according to a recent report by UBS AG, which also said the Pittsburgh-based company could save another $80 million in 2012 energy costs for nonblast furnace operations.
 
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