The tight oil and natural gas story here in the U.S. is often framed as a struggle between environmentalists who want to keep it — and other fossil fuels such as tight oil — in the ground, and drilling and exploration companies who want to sell it as a home heating and transportation fuel that at least burns cleaner than coal.
What’s often left out of the discussion is the advantages gas can provide for plants, factories and other major industrial users that have nothing to do with the light switches in your house or apartment.
Austria in Texas
Last week, I toured Austrian specialty steelmaker Voestalpine AG‘s new $1.4 billion, direct-reduction hot-briquetted iron (HBI) production facility near Corpus Christi, Texas. It’s estimated that company’s investment will generate an estimated $600 million over the next decade and the new facility has already added 190 jobs to the local economy.
HBI, or sponge iron is a pre-material used in steel production. The new Texas facility takes iron ore pellets that are roughly 60% iron and reduces them down to HBI that is 91% iron. They use a high-temperature, natural-gas fueled furnace tower, now the tallest building in South Texas at 450 feet, to “reduce” oxygen and other impurities out.
Liquified natural gas to fuel the furnace is pipelined in from fields of the Eagle Ford Shale. Peter Felsbach, head of group communications at Voestalpine, said that the gas infrastructure was crucial in its selection of South Texas for the plant. Using natural gas rather than coal to reduce the iron ore will cut the emissions from steel created from their HBI by roughly 5%. With a projected consumption rate of 23 million BTUs of compressed natural gas (CNG) per year, the plant will use the equivalent of what the entire nation of Austria consumes in one year.
“The facility is not a warehouse,” he said. “You need more than highway access. You need the LNG infrastructure, you need port access and the deeper, the better. I was on the selection committee for this facility and we had considered Africa (in the early stages), but there was no real comparison to the (gas) access that this site gave us.”
The infrastructure in the area includes pipelines that already serve Voestalpine’s neighbor, Cheniere Energy, whose LNG reservoirs are visible from Voestalpine’s dock. Cheniere’s facility liquifies, freezes and ships LNG to overseas markets.
Bullish on NAFTA
The new Corpus Christi DRI plant is Voestalpine’s largest NAFTA region facility and gives it access to customers in Mexico, the U.S. and shipping across the Pacific. That was also another factor that that made the South Texas choice advantageous. Voestalpine’s leadership said it hopes to increase revenue generated in the NAFTA region from its current level of about $1.4 billion to $3.4 billion by business year 2020/21. They were also critical of recent protectionist measures worldwide.
“It’s not only a new tendency or a new trend in the NAFTA region to begin more protectionist measures, but it’s happening globally. Brexit is one example,” said Dr. Wolfgang Eder, chairman and CEO of Voestalpine and the outgoing chairman of the World Steel Association. “My personal view it can’t be, that when you have access to information everywhere in the world, that we build up new protections and new walls. This will not help. We need more transparency. More and more countries are feeling that it will help them to subsidize industries. Subsidies are poison because they are the opposite of transparency. A fair trading environment must be the goal, not barriers and walls.”
With its own port big enough to accommodate 110,000-ton freighters, Voestalpine plans to send 2 million tons of HBI per year to its customers for use in specialty steelmaking and also to its own facilities in Europe that produce high-strength aerospace, railway and automotive parts.
Rather than the woeful state of the infrastructure in the U.S. that’s been presented by both presidential candidates, Voestalpine is bullish on the U.S. and NAFTA. Eder touted “a politically stable and predictable environment, professional cooperation with the authorities, cost-efficient energy supply and logistical advantages” of the site.
The Fracking Factor
It needs to be said, though, that those logistical advantages were not created by government, but rather companies such as Cheniere, and its former CEO Charif Souki, investing millions in natural gas infrastructure and wildcatters investing even more in exploration technologies such as hydraulic fracturing when U.S. gas was still viewed as a poor investment. Cheniere became the first company to export LNG from the U.S. via its Sabine Pass facility in Louisiana in February and will export more from the Corpus Christi facility when it’s completed. Ingenuity and the free market have once again provided what politicians’ promises could not.
Eder said the new DRI facility “over the long term offers us new technological options for decarbonizing steel production.”
That’s fitting, since it was new technological options for finding, drilling and transporting natural gas that allowed it to happen in the first place.