How Does the Price of Energy Affect Those of Us Working with Steel?

The price of energy including gas is a hot topic these days.  Not only does it cost almost $100 to fill up your SUV, but the price of everything processed, manufactured and/or transported (which is about everything) will cost more because of an increase in energy costs. Furthermore, economists have calculated that a 25 cents increase in the price of gas knocks off 0.2% of our GDP, which already has seen only anemic growth.

Those of us working with metal are familiar with fuel surcharges tacked on to the hundred-weight prices. But the cost of energy—whether it’s generated by coal, natural gas, oil, hydro, nuclear or alternative source—also affects the cost of producing the material we all work with: steel.  From the mining of raw materials through the shipping of the final product to its ultimate customer.

As early as 2006, Nucor Chairman Matt DiMiccio sought relief from the federal government that would stabilize and lower the cost of natural gas used in the production of steel. DiMiccio said “In 2005 there were times when Nucor was paying three to five times as much for natural gas as some of our foreign competitors.”  He said that higher natural gas prices cost American iron and steel producers an extra billion dollars that year.

Since then, as we all know, there have been great fluctuations in the price of energy.

President George W. Bush tapped into the nation’s strategic oil reserve and reduced the cost of gasoline during his term.

The process called “fracking” which extracts oil, coal gas and natural gas from shale buried deep in the earth has dramatically reduced the cost of natural gas.

On the other hand, political instability in the Middle East and world-wide demand are causing a spike in gas prices. Iran is threatening to block the Strait of Hormuz through which some 20% of the world’s oil is shipped.  At least one expert has speculated that attacks on oil freighters could drive their cost of insurance to prohibitive levels again decreasing the supply and increasing the cost of oil.

And while the world-wide demand for energy is ever increasing, domestically political battles threaten stalemate on whether to increase or decrease the exploration, development and production of any and all sources of energy in the United States.

Given this parlous situation that affects the cost of everything from the gas in our fuel tanks, to the furnaces in our plants, to the cost of steel, and to the energy to run our machines, what opportunities might present themselves?

Is there a silver (er . . . metallic) lining in this energy cloud?

Yes. Market-based demands and government-based regulations will require innovative metal fabrication.

The energy industry requires a very significant contribution from metal fabricators for its tanks, towers, pumps, process piping, etc. New technologies like clean coal require air cleaning components like scrubbers with steel tanks.  Exploration of shale rock to release natural gas, coal gas and oil previously inaccessible requires steel for its drilling operations, storage and transport. Even in the last two years, there have been innovations to minimize or eliminate many of the environmental issues regarding energy production.  For example, portable, fluid treatment plants set up to process the water, sand and chemicals that result from hydraulic fracturing can filter the liquid clean enough to create potable water.

And despite the tragedy in Japan, nuclear plants are being built again and often require steel fabrication including stainless.

Needless to say, everyone wants sources of energy that are safe, abundant, and inexpensive and that lessen our dependence on foreign sources. And we want to use our energy efficiently. Those of us who work with steel can contribute to achieving those national goals which in turn will make our companies themselves more competitive in the world market.


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