A recent conference in Pittsburgh, sponsored by Steel Business Briefing (SBB), brought to light some of the many opportunities available to our industry as a result of recent shale natural gas discoveries. It’s even possible that some of our readers don’t know much about this, particularly those in other parts of the country. That’s the reason for this editorial – discuss what’s happening and consider the opportunities.
While some of these natural gas reserves have been known for some time, many were not explored because the technology available (vertical wells) was inadequate to access the shale reserves economically. In the past few years, the development of directional and horizontal drilling technology has opened up these vast stores of natural gas. The Marcellus field is primarily in Pennsylvania, but it extends to areas of West Virginia, New York and Ohio. At full development, it is estimated that the Marcellus would be the second largest gas field in the world, containing an energy equivalent of 87 billion barrels of oil. The entire U.S. uses 7 billion barrels/year. Needless to say, this could have a major impact on our economy and our industry.
The economy is affected in a number of ways. First, the natural gas industry employed 2.8 million people in the U.S in 2008. This has no doubt grown in the past two years with the activity in these new gas plays. In the state of Pennsylvania alone, jobs from this industry will exceed 88,000 this year. Additional positive impacts on the economy involve all of the new well setups with the required tubing and other supplies. There are currently 90 rigs in the Marcellus region. Every day of drilling uses 25,000 tons of pipe-related products. That’s obviously good for the pipe manufacturers and all of the businesses supporting them.
In just the last year, there has been a significant shift in the number of horizontal rigs. This has opened up more of the shale gas areas to exploration. Horizontal rigs comprised 28% of the total in 2008 and comprise 50% (on average) in 2010. The current level, however, is now up to 64%. These new rigs challenge existing materials and designs. Gas companies are seeking high-strength material that can live in a “sour” (high H2S) environment. They need more economical corrosion-resistant alloys as well as high-strength, low-density alloys for the drill-pipe applications. They desire cleaner steel with no centerline segregation and need their steel to have consistent mechanical properties throughout. The directional and horizontal wells are challenged by four pipe strength issues: bursting, torque, compression and bending.
The stated challenges offer opportunities in new-product development and enhancement of exiting products. New alloys could be developed that would better meet the strength and corrosion requirements of these demanding applications, including pipe connections designed with high compression resistance and high torque strength.
Although the natural gas industry has historically been cyclical, it’s likely that the economy and future government policies/regulations could strengthen this industry in the future. Why? Well, today’s price of $4 per MMBtu is equivalent to a price of $24/barrel of oil. Currently, that’s about 70% cheaper than oil. With the quantities currently available, natural gas, which currently supplies 22% of our nation’s energy needs, could become a great way to wean ourselves away from our dependence on foreign oil. For this reason, natural gas usage is expected to increase through 2030. Because natural gas is cleaner than the alternatives – 50% less CO2 than coal and 30% less than gasoline – it’s likely to fare well when the government imposes CO2 restrictions.
Experts say that the U.S. needs to build 420 Gigawatts of generating capacity over the next 20 years to replace aging capacity and meet our growing need for electricity. Even if regulation doesn’t promote increased natural gas use, demand alone will, because at that rate the U.S. would need to build 840 new power plants over the next 20 years to keep up with demand. Since natural gas generation is the least expensive to build – 80% of the cost of nuclear – it’s likely that many new gas-fired power plants will be built in the coming decades. This virtually assures the economic growth potential of the natural gas industry for the foreseeable future.
As your company considers growth opportunities that might involve natural gas extraction and power generation, we hope this editorial helps you see where the industry is headed and what new developments are needed now to meet the growing demand. IH