Natural Gas:

Nucor Steel's Diggins discusses shale boom's impact on industry growth

How are local hydraulic fracturing bans affecting natural-gas-intensive industries? During today's OnPoint, Jennifer Diggins, director of public affairs at Nucor Steel, explains how growth in infrastructure and manufacturing tied to shale development is helping the steel industry stay globally competitive. She also addresses how the natural gas industry can effectively engage consumers on the local level.

Transcript

Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Jennifer Diggins, chairwoman of the Consumer Energy Alliance and the director of public affairs at Nucor Steel. Jennifer, thanks for joining me.

Jennifer Diggins: Thanks for having me.

Monica Trauzzi: Jennifer, the Consumer Energy Alliance recently sent a letter to Pennsylvania state legislators asking them to abandon a proposed statewide ban on Marcellus Shale development. We've seen a lot of action in Pennsylvania, in other states like Colorado. On the local level where municipalities are really stepping in and weighing in on shale gas development, what's the most effective way to engage and protect consumers as we have these shale development discussions?

Jennifer Diggins: Well, I think the most important thing is to get a counter-message out there. Right now these issues affect people's everyday lives, and what they're hearing scares them. So it's incumbent upon us as energy consumers to get the voice out there about what that energy source and development actually means to their everyday life, and the impact that has on everything from their groceries, to their energy bills, to every product that's in their home. And that's just simply not happening. And it's a real concern seeing this movement through all of the states because most of the success is based on inducing fear rather than educating the voter. And that's what we all need to do a better job of is getting the counter-message out there and start a real educational effort to help voters understand what this means to their everyday life.

Monica Trauzzi: But there's a reason for some of those fears. Is there enough disclosure happening from the companies that are actually doing the shale development?

Jennifer Diggins: It's been a long debate, and it's an evolving debate. And I think that everybody's coming to terms with this really is a state-by-state issue, and each state needs to determine what's right for their state. And you've seen a lot of companies come to the table willing to disclose that exact information. Unfortunately it came after a lot of pressure, so they haven't quite gotten the credit they deserve for being willing to come to the table and have that discussion.

Monica Trauzzi: How has Nucor specifically benefited from U.S. shale resources?

Jennifer Diggins: We have benefited incredibly. The last few years, this 5½-year recession has been incredibly hard on materials like steel, because we are not only affected by what happens in our domestic market, but we're a globally traded commodity. So when we can't compete in the global market because of high energy costs, that directly impacts how we do here and abroad. And the price of natural gas has helped us continue to build and expand throughout this very difficult economic time. The biggest example I can give you is we just opened a $750 million mill in St. James Parish, Louisiana, that now makes direct reduced iron. We will employ 150 people, average salary will be about $80,000 a year, in a hard-hit community. We would not have ever been able to make an investment like that if the price of natural gas had stayed where it was six or seven years ago.

Monica Trauzzi: So it sounds like growth and success in the infrastructure and manufacturing sectors are really critical to the future of the steel industry.

Jennifer Diggins: Absolutely. We are affected. When you don't build things, when you don't create demand for building materials, we're impacted. When you don't create demand for automobiles, we're impacted. We're impacted when our suppliers and our downstream customers don't do well. We're all in this together. It's a true supply chain issue, and the entire supply chain, from the start of the product to the end use of the product, has benefited because of the price of natural gas.

Monica Trauzzi: The Commerce Department recently made a decision in the trade case against South Korea for dumping. What do you anticipate the impact of that decision will be on the steel industry in 2014 and moving forward?

Jennifer Diggins: Well, first, that was a preliminary decision. There's still the opportunity for the final decision, and once we see how they arrived at their decision we'll have a better sense of where we stand for the final determination. But that is an example of what it means to be a globally traded commodity. That is a high-end product in a niche market that has been gutted by unfair foreign competition that has brought that product into our market at less than the cost in some cases that it takes to actually make the raw materials to make it. It's an unfair trade practice that has taken what was a domestic advantage for the steel industry in that niche market and eroded it. And we feel very strongly that we have a very solid case, and we will continue to work it all the way through the final determination. But that's an example of a market that at one point was a real growth market for the steel market because of the growth in the natural gas industry.

Monica Trauzzi: So going back to shale development and its impacts on your company. As a company that has seen benefits, would you be willing to pay a higher cost for shale resources if it meant having shale producers comply with stricter standards?

Jennifer Diggins: I don't know that we think that they're not already complying with some pretty strict standards. You look at what recently happened in Colorado and the new set of regulations that came down there. I don't think that's at issue. This is a practice that's been in practice for 40 years, and it's been done safely historically for 40 years, and it has been regulated very well for 40 years. And now that we have this revolution there's this rush and desire to suddenly over-regulate what is now a growing market, whereas before it was fine to be left alone. So I think that's what we have to look at. It's not that we need more regulation; it's that we need to understand the safety of this practice and the role that it's played in our energy. It's part of our energy backbone and has been for a long time.

Monica Trauzzi: As the debate over LNG exports evolves, what do you believe the economic impacts would be on the steel industry if resources were exported?

Jennifer Diggins: Well, Nucor has been very public in saying we are concerned that this would raise energy prices. Let's be real, it's supply and demand. Anytime you do something that will impact the supply side or the demand side, and supply gets constructed, prices go up. And we understand that a certain level of exports is needed because the price has been artificially low. What we don't want to see is a rush to export when we feel that DOE has not been using the most current data. We are concerned that they have not taken properly into account all of the new investment coming online. When you look at all of the projects such as the Nucor project, $750 million investment that will essentially double our use of natural gas, and you combine that with all of the chemical plants and the reshoring that is happening, there's $120 billion of plant investment on the books. Couple that with the retirement of coal-fired power plants. Then you take on all of the fuel switching that's going to occur, and you have to say to yourself, at what point is enough enough? And at what point will we do too much that we will make natural gas no longer in the ballpark for an affordable fuel?

Monica Trauzzi: But the natural gas industry says that if they aren't given that option to export LNG, then we could ultimately see growth stymied in the industry.

Jennifer Diggins: Absolutely, and that's why we are not against exports, but we would like to see DOE revise its methodology and its data. And for Nucor it comes back to a trade issue as well. For a globally traded sensitive commodity, what does it mean for us to give our competitive advantage to countries where we don't have a free-trade agreement? Where the flow of goods is not open? Where our market is completely open to them but their market is completely closed to us? And now we might take our competitive advantage from here and sell it to them. And that's a debate that really hasn't happened, and that's an important point for Nucor.

Monica Trauzzi: All right, interesting to get the steel industry's perspective. Thank you for coming on the show.

Jennifer Diggins: Thank you very much.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]

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