The broader effect
The economic growth from natural gas abundance extends to companies providing supplies to the drilling boom.
On Oct. 1, Honeywell announced that it paid $525 million for a 70 percent stake in Thomas Russell, a privately held provider of technology and equipment for natural gas processing and treatment. With the acquisition, Honeywell will offer technologies and products that allow producers of shale and conventional natural gas to remove contaminants from natural gas and recover high-value natural gas liquids used for petrochemicals and fuel.
Another example: U.S. Steel. The company is churning out new pipe for natural gas drilling rigs, wells and pipelines. And as a big consumer of power, it is paying less for fuel.
Surma, U.S. Steel’s chief executive, said in a speech recently that the company used 100 billion cubic feet of natural gas in 2011, “so just a few dollars’ difference in the price . . . allows us to realize important and significant cost savings.” For every dollar change in the price of a thousand cubic feet, the company saves $100 million.
Surma said the company is also improving its North American blast furnaces to allow for increased injection of natural gas to reduce its consumption of coke, a fuel derived from coal. The reduction could cut blast furnace fuel costs by $15 per ton of hot metal produced — and U.S. Steel can produce more than 20 million tons of steel a year.
“In addition to these kinds of cost savings opportunities, natural gas should provide North American steelmakers with another operating advantage over our foreign competitors,” Surma said.
Once some of these basic industries come home, companies further down the value chain could return, too.
“If you make plastics in the United States, there are a bunch of things produced in China that might tip back to being produced in the U.S.,” said Harold L. Sirkin, a senior partner at the Boston Consulting Group.
“You could think about toys,” he said. “We talked to a few companies thinking, ‘Does this mean I can re-shore some toy production to the U.S.?’ The energy cost in plastic toys is reasonably high. And the labor content is relatively low because we’re talking about automated injection molding facilities.”
Chinese exporting factories could be vulnerable, especially given the risks of intellectual property theft, transportation costs and long supply chains.
“All of a sudden, the equations start changing about where you produce things,” Sirkin said. “Even in industries where the cost structure includes only 1 or 2 percent electricity, that could make the difference.”
Loading...
Comments