Shale gas makes world's largest steel plant profitable in Louisiana

LOGA:

In 2004, steelmaker Nucor Corp. NUE -0.63% bought a plant next to alligator-infested Louisiana wetlands, took it apart and shipped it to Trinidad on ocean barges. This summer, after almost two years of construction, it will open the same type of plant at the same site at a cost of $750 million.

Why? Natural gas, which is critical to these Nucor plants, was cheap in Trinidad. Now, it is suddenly plentiful and relatively cheap in the U.S. due to hydraulic fracturing technology, or fracking, a process that has unlocked natural gas from massive shale formations, driving prices down. Fracking remains controversial due to concerns it could pollute underground water. The Environmental Protection Agency hasn’t yet ruled on the issue.

Lower-priced natural gas has energized many parts of the country and the economy. Chemical and fertilizer companies, which use gas as both a feedstock and energy source, say lower prices have reduced costs and made the U.S. a more competitive manufacturing location. Dow Chemical Co. DOW -6.96% and Chevron Phillips Chemical Company LLC have announced plans to build multibillion-dollar chemical plants in Texas, Louisiana and other states. Energy-intensive industries, such as glass and aluminum makers, can cut costs, while companies that make pipes and drills are benefiting from new domestic demand.

Abundant natural gas has also made certain processes, considered uneconomical a few years ago, now doable and profitable.

Nucor’s Louisiana project, next to a bayou town of 700 set among protected wetlands and chemical plants, is one example. The plant uses natural gas to strip oxygen from iron ore to make high-purity pellets. Those pellets, called direct-reduced iron or DRI, can be combined with scrap and melted to make steel—at lower cost than using scrap alone. At current gas prices, DRI can generate iron pellets at a cost of $260 to $280 a ton. Scrap steel is currently trading at around $390 a ton.

When completed, the plant will mark the return of this type of manufacturing—the last DRI plant left the U.S. in 2009—and be the second largest such facility in the world, behind a plant in Iran. Nucor’s Louisiana DRI plant will process 2.5 million tons of DRI pellets a year, compared with well below 2 million tons at most of the roughly 100 DRI plants around the world (The plant in Iran has 3.2 million ton capacity).

“This is bigger than anything we’ve ever seen in the U.S.,” said Chuck Bradford, an analyst with Bradford Research Inc. “It’s a huge bet on gas.”

Others are making similar bets. Midrex Technologies Inc., which makes DRI furnaces, said two to three more plants are being planned in the U.S. U.S. Steel Corp. X +0.13% CEO John Surma said Tuesday the company was studying its options for building a DRI plant. “It’s possible we might have something to talk about this year,” he said.

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There is much more.

This is just another example of how shale gas is bringing manufacturing back to the US.  It is going to allow for more competitive manufacturing of other products that use this steel too.  This kind of growth is happening despite the objections of liberals and the anti energy left.