CONVENT, LA—In 2004, steelmaker Nucor Corp. NUE -0.16% bought a plant next to lovely Louisiana wetlands, took it apart and shipped it to Trinidad on ocean barges. This summer, after almost two years of construction, it will open the same type of plant at the same site at a cost of $750 million.
Why? Natural gas, which is critical to these Nucor plants, was cheap in Trinidad. Now, it is suddenly relatively cheap in the U.S. due to hydraulic fracturing, or fracking. Fracking remains controversial due to concerns it could pollute underground water. The Environmental Protection Agency hasn’t yet ruled on the issue.
Lower-priced natural gas has energized many parts of the country and the economy. Chemical and fertilizer companies (CF Industries Donaldsonville), which use gas as both a feedstock and energy source, say lower prices have reduced costs and made the U.S. a more competitive manufacturing location. Dow Chemical Co. DOW -0.78% and Chevron Phillips Chemical Company LLC have announced plans to build multibillion-dollar chemical plants in Texas, Louisiana and other states. Energy-intensive industries, such as glass and aluminum makers, can cut costs, while companies that make pipes and drills are benefiting from new domestic demand. Corporate Housing Louisiana providers such as AscensionCorporateRentals.com and Octavian Properties are seeing increased demand for comfortable furnished apartments and homes due to the temporary workers supporting large insdustrial projects near Donaldsonville La.
Abundant natural gas has also made certain processes, considered uneconomical a few years ago, now doable and profitable. This has created an economic boom as well as a swell in demand for Corporate Housing in Louisiana.
Nucor’s Louisiana project, near Ascension Corporate Rentals’ Donaldsonville properties is carefully set among protected wetlands and other chemical manufacturing plants. The Nucor plant uses natural gas to strip oxygen from iron ore to make high-purity pellets.
When completed, the plant will mark the return of this type of manufacturing—the last DRI plant left the U.S. in 2009—and be the second largest such facility in the world, behind a plant in Iran. Nucor’s Louisiana DRI plant will process 2.5 million tons of DRI pellets a year, compared with well below 2 million tons at most of the roughly 100 DRI plants around the world (The plant in Iran has 3.2 million ton capacity).
“This is bigger than anything we’ve ever seen in the U.S.,” said Chuck Bradford, an analyst with Bradford Research Inc. “It’s a huge bet on gas.” I’ts also a huge win for the communities nearby such as Donaldsonville, LA. and Convent. LA.
Nucor makes steel in electric arc furnaces, which are giant melting pots, and uses scrap steel from cars and rail tracks as the main ingredient. This can make it more vulnerable to fluctuations in scrap prices than rivals like U.S. Steel and ArcelorMittal, MT -0.54% which make steel by melting raw materials, such as iron ore, coal and limestone.
When scrap prices surged in the early 2000s as the global economy boomed, Nucor bought the Louisiana DRI plant to reduce the overall amount of scrap needed. It moved the plant to Trinidad, where it would be cheaper to operate.
“We dismantled everything and put it on 13 oceangoing barges,” said Lester Hart, general manager of the new Louisiana plant, who used to manage the Trinidad location. The Trinidad plant started production in 2006, and now processes two million tons of pellets a year to supply Nucor plants. The company says it plans to keep operating both plants simultaneously.
Shortly before the 2008 financial crisis, U.S. natural gas prices topped $12 per million British Thermal Units. After the crisis, they fell below $5 per MBTU. “We knew we’d be foolish not to get in on this,” said Dan DiMicco, Nucor’s then-CEO, who retired at the end of 2012.
The new plant will employ about 150 highly-skilled workers. The average salary will be $75,000, which the company said is twice the median income in that part of b.
Nucor officials tout the plant’s location on the Mississippi river, where barges can easily hook up to 4,600-foot long conveyor belt erected 25 feet above ground that whisks raw iron ore into the plant. “We get the best of both worlds here, with the Gulf and the shale gas from the fracking,” said Johnny Jacobs, a plant logistics manager. After processing, the barges will ship the DRI to mills in the South.