I didn’t know that LNG was such an Sustainable energy source. As you mentioned, various technology developments are needed to use LNG better. Then, what is POSCO’s solution for the LNG industry?

First, let me introduce POSCO’s lineup of steel materials for low temperature and cryogenic applications. At POSCO, there is a trio fit for the purpose: 9% nickel steel, high manganese steel, and STS304L. Let’s see each one of them in detail.

l Presenting POSCO’s Trio for the LNG Industry

– No.1: 9% Nickel Steel

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9% nickel steel? Let me guess! It’s a steel product with 9% nickel, right?

Exactly. 9% nickel steel is the most widely used steel for cryogenic application. This is because nickel maintains outstanding strength and toughness even at extremely low temperatures. 9% nickel steel was first developed by an American company, INCO, in 1944, and its safety was proven through model testing in 1960. Since then, it has been widely used as a material for storage tanks of extremely low-temperature use. However, nickel has a downside: it is expensive, and its supply and demand are unstable.
In addition, 9% nickel steel could only be produced by few steelmakers in the past, so domestic shipbuilders had to depend on imports. Fortunately, POSCO succeeded in developing it for the first time in 1993, and after quality stabilization, production for the material has been accelerated from 2007. Recently, POSCO has been in active cooperation with the Big 3 shipbuilders in Korea — Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering (DSME), and Samsung Heavy Industries — to develop their own technology for LNG storage tanks using this material.

– No.2: High Manganese Steel

High manganese steel? Is it steel with a lot of manganese?

You’re right. POSCO started developing high manganese steel for cryogenic application in 2010, and in 2013, succeeded in creating the new material for the first time in the world. The steel contains 22.5 to 25.5% manganese and is not easily damaged even at minus196 degrees Celsius. Unlike conventional carbon steel, which breaks under very low temperatures, high manganese steel can withstand such a harsh condition.

What’s the difference from 9% nickel steel?

Both steel products are applicable to extremely low temperatures, but they have a huge difference: cost competitiveness. Compared to nickel, manganese is more economical and has a stable supply and demand system, thanks to its abundant reserves. The cost of material is about 30% more economical for high manganese steel than 9% nickel steel, and the cost of welding is also much lower as well. Both 9% nickel steel and stainless steel are excellent steel materials for constructing LNG tanks. But since they were quite costly, POSCO developed high manganese steel as an alternative solution to the problem.
According to the regulations of the International Maritime Organization (IMO), only nickel alloy steel, stainless steel, 9% nickel steel, and aluminum alloy steel were permitted to be used as cryogenic materials for LNG tanks on board an LNG carrier. However, in 2018, high manganese steel also received official approval, which shows international recognition of POSCO’s technical excellence.

– No.3: STS304L

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Stainless 304L? I can’t guess this one.

Stainless steel contains nickel as well. 304 means that the stainless steel is “austenitic” at room temperature, and L means that it has low carbon content — under 0.03%. Stainless steel is much more machinable compared to 9% nickel steel and high manganese steel, so it is widely used in thick steel pipes and machinery of LNG plants. However, there are needs from certain clients who wish to use stainless steel for LNG tanks, so POSCO continues to develop technology and provide solutions regarding this steel.

Wow. POSCO developed a new steel product for the LNG industry? That’s amazing. I wouldn’t have imagined that the city gas I use at home was related to POSCO.

Right. But the real solution story hasn’t begun yet. Of course developing a new steel product is significant, but making sure that it is adopted and utilized by clients is much more important. POSCO has been involved in the R&D of LNG tanks with clients for many years so as to make LNG more economical and safer for us. Now let’s talk about our remarkable achievements.

l POSCO’s Solution for LNG!

Among 9% nickel steel, high manganese steel, and STS304L, POSCO’s clients may choose the optimal steel product according to the specifications of the LNG tanks they build. And POSCO provides the best solutions accordingly — regardless of which product it is.

– Solution for 9% Nickel Steel: Reducing Cost for Clients with the World’s Largest Size, Sharing Technology with SMEs!

Following a long period of research, vessels with LNG fuel tanks adopting POSCO 9% nickel steel are finally being constructed. They are none other than ‘HL ECO’ and ‘HL Green’ of Hyundai Samho Heavy Industries. Both vessels are 180,000-ton LNG-powered bulk carriers where POSCO’s 9% nickel steel is applied as materials for their fuel tanks. At the end of this year, both vessels will be delivered to the shipowner, H-Line Shipping. Other than the fuel tanks, POSCO steel plates were used in the body of the ships as well. Put differently, these vessels are the achievements of full localization — from materials to fuel tank technology. And here is another special solution from POSCO. POSCO can produce 9% nickel steel of all thicknesses required for LNG tank production and also “ultra-wide & long” nickel steel as well!

Ultra-wide & long? What’s so special about that?

LNG tank producers manufacture the tanks with 9% nickel steel in flat form and weld them piece by piece to build the tank. However, welding is costly and takes a long time, which has a significant impact on the overall process. So, the issue for POSCO clients was this: ‘How do we reduce the number of weldings?’ Also, the welding material for 9% nickel steel is especially more expensive than conventional steel. That’s why POSCO developed large-sized products to reduce welding points and costs.

When making a tank of the same size, welding 30 sheets of steel would definitely be much more efficient in terms of time and cost than welding 50 sheets of steel.

POSCO currently produces the world’s largest 9% nickel steel for shipbuilding. After six months of R&D, POSCO established a system to produce a product of up to 4.3m x 20m, which previously was limited to 3.85m x 15m. POSCO’s own R&D was important, but what mattered more were the many tasks and regulations to be resolved so as to apply this product in the actual field. So POSCO proactively discussed the quality of nickel steel with the British LR (LLOYD’S REGISTER OF SHIPPING) classification and based on the result, carried out the tank design, structural feasibility review, and performance testing with Hyundai Mipo Dockyard. The COVID-19 pandemic almost precluded the joint research, but POSCO installed a conference calling system for the client and continued cooperation. As a result, the first batch of ultra-wide & long 9% nickel steel could be supplied successfully to Hyundai Mipo Dockyard in April!

So those LNG tanks must be under production now.

POSCO’s ultra-wide & long 9% nickel steel is used in producing LNG fuel tanks for Hyundai Mipo Dockyard’s 25,000-ton DWT carrier for petrochemicals. This carrier is equipped with a dual-fuel engine that can utilize both bunker fuel and LNG. It is like a hybrid car at sea. The vessel will be completed in March next year and delivered to the ship owner, Bermuda’s MERIDIAN.

I’ve heard that Korea is an LNG carrier powerhouse. I also heard that Korean shipbuilders received orders for 118 out of 124 LNG-powered vessels from shipping companies around the world in the last three years — from 2017 to 2019. Now with these LNG tank materials and technology, Korea’s competitiveness is bound to become stronger!

You’re right. POSCO is looking for ways to keep growing together with SMEs who are producing LNG tanks as well as major shipbuilding companies. To help SMEs overcome the long-term recession in the shipbuilding industry, POSCO is providing them with the application technology of 9% nickel steel and high manganese steel on LNG fuel tanks free of charge. POSCO shares processing and welding technologies of 9% nickel steel and high manganese steel and invites global shipping companies to promote the products by SMEs in Korea. Thus, a stable industrial ecosystem where the mill, SMEs, and shipbuilding companies work jointly is created.

– Solution for High Manganese Steel: Breaking New Ground in the LNG Industry with New Material!

So you said that high manganese steel is a new product developed by POSCO, right? Then its application technology must have been developed from scratch.

Since high manganese steel was not a certified material in the LNG industry, it could not be applied to commercial projects in the beginning. So, POSCO worked on getting the material approval first, starting from the Korean Industrial Standard (KS) in 2014 to the American Society for Testing and Materials (ASTM) in 2017 and the International Organization for Standardization (ISO) in 2018, respectively. The first case of high manganese steel applied successfully to LNG tanks is “Green Iris,” Korea’s first LNG-powered vessel, built in 2017. This vessel was built jointly by POSCO and Hyundai Mipo Dockyard and was spotlighted since it was the “world’s largest” LNG-powered bulk carrier that adopts POSCO-developed high manganese steel for the “first time in the world”. Currently, the vessel is in operation on the sea, transporting limestone from Gangwon Province to Gwangyang Works.

So LNG tanks made of high manganese steel are already being used? The progress has been made rapidly!

Recently, an onshore LNG storage tank made of high manganese steel has also commenced commercial operation. In its initial stage, high manganese steel was not registered on the domestic standard or LNG terminal-related design code, so it was necessary to revise the standards first. To verify the safety of these onshore LNG storage tanks adopting high manganese steel, POSCO even constructed and operated a pilot tank.
The test was conducted supposing that the life of the tank is 50 years. The process of filling the tank with LNG and draining it was repeated more than 1,000 times. After the test, the tank was disassembled, and technical evaluation confirmed that there was no problem with the performance of the high manganese steel. In 2019, the Korean Gas Technical Standards Committee listed high manganese steel on the KGS code as verified material for onshore LNG storage tanks, thus enabling commercialization. Soon after, tank No. #5 at Gwangyang LNG receiving terminal was constructed with high manganese steel, with a storage capacity of 200,000 ㎘, and it has been under operation since last April.

▲ POSCO high manganese steel was applied to the LNG fuel tank of Green Iris (left) and the tank No. #5 at Gwangyang LNG receiving terminal (right)

– Solution for STS304L: Developing Independent LNG Storage Tank Model with Stainless Steel!

Another significant achievement is an independent LNG storage tank model made with POSCO STS304L. This model is ‘SOLIDUS’ of Daewoo Shipbuilding & Marine Engineering Co., Ltd. SOLIDUS adopts double stainless steel barriers to prevent LNG leakage and maximize safety. This design technology also obtained certification — to be suitable for application in actual LNG carriers — from the top 5 major global ship classification companies, such as LR (U.K.), ABS (U.S.), and DNV-GL (Norway). POSCO conducted various performance tests of STS304L in an LNG storage environment to support the development of SOLIDUS by Daewoo Shipbuilding & Marine Engineering Co., Ltd.

The cooperation between POSCO and its clients is bearing fruit. It seems that POSCO has succeeded in capturing eco-friendliness and technical competitiveness at once! Will there be more to expect?

POSCO is participating in a study to construct the 6th LNG storage tank at Gwangyang LNG receiving terminal by upgrading its high manganese steel technology. The company also plans to utilize the technology for overseas projects once the international design code has been revised. Recently, a major European oil company that reviewed the application of high manganese steel showed a favorable response for its competitiveness at “Gastech 2020,” an international gas conference. In addition, POSCO is joining forces with its clients so that 9% nickel steel and STS304L can also be the key to the development of LNG tank technology.

When it comes to energy, the first things that come to mind would be fossil fuels, coal and oil in particular. These two most common energy sources aren’t considered Sustainable. On the contrary, the next most frequently used energy source is Liquefied Natural Gas (LNG), and this is referred to be Sustainable!

l Liquefied Natural Gas Emerging as a Major Energy Source

Do you know anything about LNG? I heard that LNG is made by liquefying natural gas and also that this LNG will become the next generation energy source. Am I right?

Yes, you are right. At present, there are many POSCO’s customers engaging in the LNG industry, ranging from LNG vessels, LNG tanks, to LNG equipment. And they strongly insist that LNG will become the next ‘major’ energy source. In fact, the International Energy Agency (IEA) announced that, in the future, LNG will overtake coal as the second dominant energy source following crude oil. In 2019, the global demand for LNG reached 359 million tons, a 12.5% increase compared to 2018, and some predict that it will increase to 700 million tons by 2040.

What is the reason for all this?

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What matters are environment and safety. These days, we are slowly getting rid of products and technology that aren’t Sustainable. Coal and crude oil — the most commonly used energy sources — are fossil fuels and emit fine dust (PM 2.5), sulfur oxides (SOx), and nitrogen oxide (NOx) when utilized. Hence, both energy sources are far from being Sustainable. In the case of nuclear power plants, safety became an issue after the Fukushima nuclear disaster. Of course, there are other renewable energies like wind and solar power, but they are still insufficient to replace fossil fuels entirely.
In the case of LNG, dust, sulfur, and nitrogen are removed during the liquefaction process, so when it is burned, pollutants can be significantly reduced compared to other fossil fuels. It is also lighter than air, so in case of a leakage, it can be blown away easily. The chances of an explosion are also low since its ignition temperature is high. Those are the reasons why LNG has been spotlighted these days.

l LNG, How Helpful Is It to the Environment?

I heard that demand for LNG-powered vessels has increased dramatically in the shipping industry because of the new regulations issued by the International Maritime Organization (IMO) 2020. I guess that is why?

You know that EV, hydrogen cars, and hybrid vehicles are popular these days, right? But did you know that the amount of SO₂ emitted by the top 15 large vessels adds up to more than all vehicles combined worldwide? No wonder why the transition from bunker fuel-powered vessels to LNG-powered vessels is in progress.

Then can you compare the environmental impact of LNG-powered vessels and bunker fuel-powered vessels? I want to check whether LNG is indeed Sustainable.

OK! Let’s take the ‘Green Iris’ vessel, propelled by LNG, as a model vessel and compare the two following cases: a) when operated on LNG with a fuel tank made of 9% nickel steel, high manganese steel, and b) when operated on conventional bunker fuel with a fuel tank made of regular steel plate.
Let’s suppose that the vessel takes a round trip from Busan Port to the Port of Singapore once a month for 25 years. The environmental impacts include not just the operation period but the manufacturing stage with 9% nickel steel, high manganese steel, and regular steel plate as well. Setting the conventional bunker fuel as 100%, let’s take a look at the level of acidification, global warming, and resource consumption of LNG.

Wow. The acidification effect of LNG-powered vessels is almost halved compared to that of bunker fuel-powered vessels. While the level of global warming and resource consumption goes down to 73% and 64%, respectively.

Can you see how beneficial it is to use LNG in the long run? The main reason why regulation was enforced on bunker fuel is because of SOx, and, in LNG, the amount of SO₂eq emission — including SOx — is slashed to 630 tons, the half of 1,220 tons emitted by the bunker fuel scenario’s.

SOx? Doesn’t it precipitate fine dust? So, utilizing an LNG-powered vessel can help reduce almost 600 tons per ship!

Also, the emission of greenhouse gases (CO₂eq), such as carbon dioxide, a major cause of global warming, amounted to 360,000 tons in the bunker fuel scenario and 264,000 tons in the LNG applied scenario. It shows that an LNG-powered vessel can reduce carbon dioxide emissions by about 90,000 tons compared to a bunker fuel-powered vessel. Imagine that this 90,000 ton is discharged into our planet. One pine tree can absorb about 6.6 kg of carbon dioxide per year, so 90,000 tons is equal to the amount that can be absorbed by 13.6 million trees for a year.

What? 13.6 million trees? That’s a LOT. Then, what is this resource consumption impact?

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Resource consumption indicates the degree of natural resources depleted due to the consumption of fossil fuels. The index is not simply based on how much natural resource is consumed quantitatively, but it also takes into account how many of these natural resources remain. Hence, it could provide us with information beforehand so that no excessive resources are consumed. The higher the number, the greater the degree of depletion. And as demonstrated here, LNG has less impact on resource consumption than bunker fuel.

l LNG, How Helpful Is It to the Environment?

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If LNG is that good, why do we keep using coal and oil until now?

That’s because we lacked the technology to apply it. A downside of LNG is that its liquefaction process, transportation, and storage are quite tricky. Since LNG required enormous investment to create a value chain such as processing and transporting, it did not receive much attention in the past. Natural gas needs to be cooled down to below -163 degrees Celsius to become LNG. And it took quite a long time to develop technologies and materials suitable for this condition.

You mean that we produce the gas in gas fields, liquefy, and use it in liquid form? I heard that the city gas we use is LNG, but isn’t this in gas form?

Well, the supply chain of LNG is quite complicated. First, the natural gas produced at gas fields is shipped to the LNG liquefaction plant via pipeline. Here, the gas is liquefied and formed into LNG. This LNG is then transported with a specialized vessel called an LNG carrier, and when the LNG arrives onshore, it is stored in the LNG storage tanks at the LNG terminal, where it is vaporized into gas once again. Finally, it is sent to power plants or city gas companies through a pipeline.

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Wow. I didn’t know that LNG goes through so much before we get to use them. So I guess it requires advanced technology as well?

Yes, it does. The core technology is about tank design. And among other things, the material would be the most crucial part. The first LNG plant to be built on a commercial scale was the Cleveland plant in the U.S. in 1941. However, the plant was shut down in 1944 due to the destruction of the LNG tank during operation. The material used in making the LNG tank was known to be vulnerable to low temperatures, and it was one of the reasons why the LNG tank was damaged.

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I guess research on LNG tank materials wasn’t active back then. So we need a material that is strong enough to be used at very low temperatures.

When you apply force to an object, it withstands to a limit, deforms, and eventually breaks. Most materials become weaker at low temperatures. You must have seen that when an object quickly freezes, it tends to break easily. When LNG is unloaded and stored, its temperature changes rapidly — ranging from room temperature to below -163 degrees Celsius. And of course, the LNG tank should be able to withstand such dramatic temperature changes. Also, the material should have excellent machinability and be cost-efficient so that it can be fabricated into the desired structure.

Then we cannot use normal steel to make LNG tanks, right? What should we use then?

This is where POSCO’s steel solution steps in! Let me introduce you to the details from now on.

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☞ See [GPS] #2 POSCO’s Solution for the LNG Industry! (ep.2)

More drivers are making the switch from gas to electricity to fuel their cars. (Source: The Korea Bizwire)

SEE ALSO: Ask an Expert: Electric Vehicles and the Future of the Automotive Market

Why don’t more people drive EVs?

Electric vehicles (EVs) have a variety of benefits for drivers, the most obvious being cheaper electricity prices compared to gas. Not only that, EVs only have about a third of the parts of ICE vehicles, which results in maintenance-cost reductions by about 60 percent. There are also government subsidies that support EV manufacturers and consumers in numerous countries, and environmental regulations only look to strengthen. Despite all this, drivers have been slow to make the switch to EVs, and there are 3 critical reasons why.

1. Range

Today, EVs can travel about 200 to 400 miles on a single charge, and while this may be sufficient for most urban drivers, it’s still not enough coverage to relieve drivers of range anxiety. Low-capacity batteries are not the only problem – the weight of the car and the efficiency of the motor and converter also affect range. Put simply, even if a battery could hold more energy, it won’t result in increased range if the car is too heavy or the motor is inefficient and uses up too much energy. Automakers have to come up with comprehensive solutions to improve the battery capacity and motor efficiency as well as lightweight their vehicles.

Drivers are often wary of their EVs running out of juice where there are no charging stations. (Source: Sandman YouTube Channel)

2. Charging Time

EVs currently take up to several hours to fully charge, depending on the battery. Although there have been advancements in charging systems that allow for shorter charging times, the average charging duration cannot compete with the 3 to 5 minutes people spend at gas stations.

3. Charging Stations

Despite the technological leaps made in the development of EVs, charging infrastructure has not maintained the same pace. Gas stations outnumber charging stations in every country, and it will take time to figure out a model to commercialize charging stations and make the business more profitable.

Charging stations have not yet been commercialized as gas stations have. (Source: Coinfeeds)

Why EVs are still driving toward a bright future

Although there are still challenges to overcome, one of the greatest drivers of widespread EV adoption is national policy. A growing number of countries have declared they will limit or even ban ICE cars altogether by 2020. Policies are already in place to support a more environmentally sustainable auto industry, and companies are working hard to navigate and capitalize on the changing market environment.

This will bring about a wealth of new opportunities for related industries. That’s why automotive, materials, electronics and chemical companies around the world are investing heavily in technology to preempt this market, and first movers will gain a tremendous advantage.

POSCO is one of the companies looking to lead the global EV materials market and has been investing in and developing innovative solutions for EV manufacturers. POSCO has designed an ultra-lightweight yet strong chassis and developed the necessary parts to bring it to life. POSCO is also currently working with auto manufacturers, giving them access to POSCO’s EV chassis design expertise as well as its newly-developed materials.

POSCO has designed an ideal chassis for electric vehicles. (Source: News Tomato)

In addition, POSCO works closely with each of its affiliates including POSCO Daewoo, ICT, ESM and ComTech that are highly specialized in their respective fields. In cooperation with its affiliates, customers and academia, POSCO is in the process of developing innovative technologies for batteries, electric motors and charging infrastructure. As such, the EV sector has become a core business area for POSCO.  

Everything from the EV chassis and battery to the motor and charging infrastructure is codependent. Therefore, in order to develop an advanced EV that meets the needs of consumers, an integrated approach is vital. POSCO is in prime position to work with all of its affiliates under One POSCO and gear toward a future of cars running on electric motors.

Cover photo courtesy of The Wellingtonian.

Consider some of the bigger shifts in the US energy industry:

The Shale Revolution

The “shale revolution” has impacted the entire energy system in the US and worldwide. Although the elements of horizontal drilling and fracking had been known for decades, it was the entrepreneurial genius of men like George Mitchell of Houston who found the way to link these technologies and apply them commercially. It resulted in the US going from a natural gas importer to an exporter of pipeline gas and LNG, an exporter of oil (but not a net exporter), and the collapse of prices for gas, LNG, oil and oil products. It reverberated throughout OPEC countries and other major producers like Russia, as well as in major importing countries. It also enabled oil and gas producers to reduce their footprint overseas and focus on domestic production opportunities.

The “shale revolution” has impacted the entire energy system in the US and worldwide. (Source: Bloomberg Business)

Coal Industry

Coal, which had been king in the middle of the last century, has been declining rapidly, losing market share to often cheaper natural gas. The improbable opportunity to ship coal to Germany provided some relief. The Trump Administration may have won the election by making promises to US coal-producing states, but having an impact on this declining industry will take more than rhetoric. While much attention has been given to anti-coal regulation it has been market forces that caused electricity producers to shift from coal to natural gas.

Nuclear Energy

Nuclear energy faces the twin threats of obsolescence, as well as competitiveness with natural gas. The regulatory system also contributes to its decline. Many of the roughly 100 nuclear facilities operating in the US were built about 40 years ago, which means that they were due for major upgrades or retirement now. Only a few new plants are under construction, and they are massively over budget and have been built only in states with regulatory systems in which consumers must bear the cost of such overruns. Conventional wisdom had been that these plants would be upgraded and run for decades more. Instead several have announced shutdowns, and more are expected to follow. Nuclear had been considered a low-cost base fuel, but has trouble with competing with natural gas at current prices.

U.S. President Donald Trump and Secretary of Energy Rick Perry (Source: Fortune)

Energy policy in the Trump Administration, led by Secretary of Energy Rick Perry, is trying to protect both coal and nuclear because of their important role as baseload producers, in contrast to wind and solar that cannot provide consistent power to the system. But it seems doubtful that regulatory mechanisms will overcome market forces.

Falling Prices

The collapse of oil and natural gas prices led to the elimination of hundreds of thousands of jobs worldwide and slashing capital budgets, especially for higher-cost production such as deepwater, the Arctic, and other frontier environments. The shale play was led by small independent companies, but many of them took on too much debt, spent too much money to buy leases from mineral-rights owners, and drilled but often didn’t complete wells because of a focus on future growth. A number of them have failed financially or sold off properties. Even giants like BHP Billiton, which entered the US shale market with a USD 20 billion investment, wrote off USD 13 billion within six years. Although there continues to be substantial financing available from Wall Street, the focus has shifted from growth to cash flow. This has important implications.

But cheaper natural gas has had a positive impact in four areas:

Natural Gas and Oil Pipeline Projects

Natural gas and oil pipelines (midstream) have had a resurgence of activity, both proposed and built. To be sure there have been and continue to be strong challenges by environmental organizations. However, many pipelines have gone forward and others have been suspended because of economics rather than protest.

The U.S. went from an importer to an exporter of liquified natural gas. (Source: The Globe and Mail)

New LNG Facilities

LNG exports are a new phenomenon for the US. For years the US faced a deficit in natural gas, leading to proposals for nearly 40 LNG import facilities. Fortunately, most of them were not built, and those that were have largely become LNG export terminals. These required massive capital investment across the value chain. Greenfield facilities are now planned or under construction in multiple locations.

Expansion of Pipelines to Mexico

Pipeline gas to Mexico is little noticed by the public but the expansion has been dramatic. Despite the liberalization of the energy system in Mexico the demand for natural gas for industry and consumers, especially in Northern Mexico, is likely to continue. There is even talk about an LNG export terminal in Mexico’s Baja peninsula, to be supplied from US sources. The shadow over this is anti-immigrant policies of the Trump Administration and uncertainties related to the renegotiation of the NAFTA trade agreement. There is concern that the upcoming Presidential election in Mexico will result in an anti-US tide that might impact progress on the energy value chain.

Resurgence of the Petrochemical Industry

The petrochemical industry in the US has had a resurgence with low-cost natural gas. Approximately USD 100 billion of investment is currently underway or recently completed in the Texas and Louisiana Gulf Coast.

What we see here are currents moving in very different directions in the extended and complex energy supply chain in the US and internationally.

What does this mean for the steel industry?

Pipelines

Steel is literally the backbone of the US oil and gas system. Hundreds of thousands of miles of pipelines form a complex web across the continental US, in Alaska, to Canada and Mexico, and out to the Gulf of Mexico. Though mostly unseen, these pipelines enable the production and consumption of resources reliably and at affordable prices. New activity will be limited in the Gulf of Mexico for some time, with most of it focused on completing projects that were already underway. There may be some new activity in Mexican waters in the Gulf as the political opening there results in development, much of it in proximity to known fields on the US side of the border.

For example the Keystone XL pipeline, planned to bring more heavy oil from Canada, has been contentious for years for a variety of reasons including the higher carbon content of the crude and the route of the pipeline. Opponents have recently adopted a new strategy suggesting that the project is no longer economic – this is a way to undermine political support. TransCanada, the developer, insists that it is viable and on track. However, in Canada itself, plans have been abandoned for a massive oil pipeline to connect the producing area of Alberta in Western Canada to the east coast.

The Keystone XL pipeline was planned to bring heavy oil from Canada to the U.S. (Source: Horizon Supply Company)

Platforms

The offshore industry has been a major user of steel, both for platforms often built in Korea, and also for the related supply chain. Capital investment has been hardest hit in this area, and may not resume for 3-5 years until global demand increases and production growth slows.

LNG Facilities

LNG is a relative bright spot. The value chain includes the production of gas, transportation to newly-built liquefaction facilities, LNG ships, and import/regasification facilities. Lithuania recently built an LNG import facility to promote its independence from Russia. In other cases, majors like Shell, are now discussing building infrastructure in countries as diverse as South Africa and Vietnam so that they can become gas users. Japan shut its nuclear facilities after Fukushima and has been slow to reopen them. It lacks a domestic pipeline system because of the mountainous terrain and has relied on two dozen LNG import terminals. Will that create demand for new facilities?

An interesting twist is that Kinder Morgan, a leading pipeline company, has defined itself more broadly as an energy transfer organization. It had been frustrated in trying to build a natural gas pipeline from the Marcellus field in Pennsylvania to Boston, where natural gas prices are often the highest in the US. So they have decided to build LNG vessels to transport gas from terminals in Louisiana and Texas to Boston, despite restrictions imposed by the protective Jones Act that requires US vessels and crews for transport between US destinations.

LNG vessels transport LNG between terminals. (Source: World Maritime News)

Shale Gas Wells

The US shale play has been compared to a manufacturing process. Traditional development wells were expected to produce gas for years and oil sometimes for decades. But the fracking operations have a rapid decline curve which means that companies are constantly drilling new horizontal wells and are doing so for greater lengths. More than a dozen horizontal wells may stretch from a single pad. Budgets are now focused on cash flow, which means spending less on acquiring leases and more to produce oil – this results in more spending on steel.

Crude Oil Vessels

The US is now exporting about 2 million barrels of oil per day. US producers had been largely banned from exporting oil until two years ago when outdated legislation was changed. Increased domestic production and the ability to export dramatically changed shipping patterns. Nigeria had been a major exporter to the US but has forfeited the market. Saudi Aramco bought out Shell’s interest in the Motiva joint venture and took complete control of the Port Arthur refinery, the largest in the US. Many observers believe this was to assure a market for Saudi crude. Thus increased trade in oil and shifting markets may create demand for new vessels.

Petrochemical Facilities

Finally, low-cost natural gas has been a constant in the US. In addition to the new construction of petrochemical facilities along the US Gulf Coast mentioned previously, it adds the potential for a reindustrialization of the US economy that was unimaginable just a few years ago. This can cut across many industries for which power costs are a major factor. This may seem inconsistent with e-commerce, but the two may go together as mega distribution centers are built so that a growing fleet of trucks can provide same-day delivery to consumers.

There are many paradoxes in the American energy system and supply chain. For the steel industry, the key is to determine where those opportunities are located.

Bill Arnold is a professor in the practice of energy management at Rice University’s Jones Graduate School of Business. Previously, Arnold was Royal Dutch Shell’s Washington director of international government relations and senior counsel for the Middle East, Latin America and North Africa for 16 years.

Cover photo courtesy of Petroleum Economist.