US Shale Gas Production All the Rage, But Will It Save US Manufacturing?

by Taras Berezowsky on October 12, 2011

Style:    Category: Commodities, Ferrous Metals, Product Developments, Supply & Demand

MetalMiner recently interviewed Andrew Browning, executive vice president of Consumer Energy Alliance, on the importance of the Marcellus shale for natural gas production in the eastern half of the United States. (The segment can be viewed here.) Among other things, Browning mentioned the potential of the Marcellus shale to boost jobs in the US steel sector.

Now, another shale in the US is getting some major press the Utica shale. The Financial Times recently published an article on how the US shale gas industry is giving multiple industries business, among other things. To be clear, the Marcellus shale boundary sits inside the greater boundary of the Utica:

Source: Ohio’s EPA, geology.com

In an interesting set of graphics, one can see that employment in oil and gas production has been on a big upswing since the beginning of 2010 up to today, adding 17,000 jobs in that period. Coincidentally perhaps causally employment in the metals industry has experienced a nearly identical upswing:

Source: Financial Times

The takeaways from the FT’s coverage:

  • The boon for farmers and other landowners leasing their private acreage to the likes of Chesapeake, Exxon and Hess the revenue from these drilling rights leases spurs them to by new equipment, good for OEMs like John Deere, for example.
  • More production capacity for steel tube products, among others, are coming online Vallourec is building a $650 million tube plant in Youngstown, Ohio, expressly for the oil and gas boom in the region.
  • Steel producers like US Steel (and Nucor, among others) are replacing their coal-based energy needs with natural gas in a number of plants easier to do in the US because of price (about $3.60 per million BTUs, compared to $8 in the UK and $16 in Japan, as per the above graph) and the isolated nature of the commodity (the export infrastructure for US gas literally doesn’t exist yet).

However, we must keep in mind that the learning and implementation curves for refining shale gas technology and creating effective storage and distribution systems may be steep ones; several sources say that although investment is rapidly taking place, an economic recovery may not necessarily be on the immediate horizon. This could take years especially if the industry continues to take flack for fracking from environmental groups and municipalities and doesn’t come up with better alternatives fast or at the very least, plausible PR platforms.

If anything, the biggest short- to medium-term effect could be a reduction of steelmakers’ raw material price for energy. One would think that could effectively lower steel prices, but based on how easy it is for plants to re-tool or integrate gas-based energy generation for their furnaces, as well as a host of other factors, that remains to be seen.

My colleague Stuart Burns has also published several excellent pieces on shale gas and oil, including Chesapeake Energy’s stake in this shale play and the commoditization and export of the technology involved. Do check them out.

–Taras Berezowsky

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