Virtuous Cycle of Steel and Gas Lifting Pennsylvania Industry

Here’s a neat story out of Pennsylvania by John Miller about how the gas boom in the Marcellus Shale is boosting US Steel on both the supply and demand sides:

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.

In other words, U.S. Steel is building the material needed to drill the gas but it’s also winning more broadly because the existence of the gas is making it cheaper to make steel. Apparently shifting out of coal and into newly cheap gas as the fuel of choice to run the furnaces reduces the cost of producing a ton of steel by about five percent. Natural gas is much less shippable than oil, so the price of gas is much less of a global one. Right now futures markets are pricing North American gas as wildly cheaper than European or Asian gas, so firms interested in taking advantage of the cheap energy need to locate their facilities over here.