An invigorated energy market helped pull the U.S. economy out of the dark. The industry’s newest technologies are now lighting up demand for and development of metal products.
May 2014 - Post-recession, the North American energy market took off and hasn’t looked back, consistently breaking production records. American onshore drilling productivity surpassed a U.S. Energy Information Administration forecast, and because exploration and production companies are still discovering new ways to hydraulically fracture tight formations, productivity could continue to perform above expectations.
What the metals community has found as this renaissance unfolds is the need to develop materials and services that match the speed of developments and the technical requirements inherent in shale, tar sands, wind, solar and biofuel production. Metals’ role is also evolving as it supports traditional and still-fruitful onshore and offshore oil and natural gas extraction.
Renewable energy now delivers nearly 13 percent of the electricity in the United States. Wind power generates 4.1 percent of that. The American Wind Energy Association, Washington, D.C., reports U.S. wind energy capacity has grown from 25,000 megawatts to more than 61,000 megawatts during the past five years.
Solar power producers posted a record year in 2013, installing 4,751 megawatts of new photovoltaic capacity, says the Solar Energy Industries Association. Solar accounted for 29 percent of all new electricity generation capacity last year, “the second-largest source of new capacity behind natural gas,” SEIA reports.
Energy’s tech advances
Innovations are contributing to a bright future for energy. The oil and gas sector, for example, has grown in leaps and bounds due to advancements in horizontal drilling and fracking, which “have made previously unprofitable deposits profitable,” the CFO of an Americas-based company operating in the oil and gas sector shared in EY’s Global Corporate Divestment Study. “These technologies are responsible for the drilling booms happening across the U.S. and Canada as drillers are now able to access oil and gas deep under layers of rock.”
For wind energy, equipment specialization makes it possible to build turbines that are customized for specific wind conditions, says Daniel Brown, vice president of the Utilities, Power and Renewable Energy Group at KeyBanc Capital Markets, Cleveland, Ohio. “Before, you had one or two turbine manufacturers, and you bought their piece of equipment and used it whether you had spectacular wind or low wind,” he says. “Manufacturers are doing a much better job of optimizing different technologies for different wind conditions. At one point, there was a view that most of the prime real estate for wind projects was already taken up, so the improvements in technology are certainly helping people continue to find viable opportunities.”
Such improvements boost performance of wind turbines, “which has effectively driven down costs and allowed development to occur in lower wind speed regions,” an AWEA report concurs. Manufacturing advancements “include designing taller towers and turbines with longer and lighter blades, allowing rotor diameters to exceed 100 meters, (greater than) the wingspan of the largest commercial jets.”
The U.S. solar industry also is making gains. According to Lexington, Massachusetts-based global consultant IHS Technology, manufacturers within the photovoltaic supply chain are transitioning from standard technologies to next-generation mechanisms for solar-related mass production, and advanced photovoltaic technologies such as diamond wire and n-type substrates will be used more frequently in mainstream solar manufacturing.
Policy and tax incentives continue to generate anxiety about financing, however, particularly for renewable energy production. “The tax incentives for these projects have always been short cycled,” Brown says. “They’re generally always extended–or not extended–on two- to five-year rolling cycles, so the lead time needed to make these pieces of equipment doesn’t necessarily sync up with cycles on the policy front.
“We’re currently cycling between new policies and old policies but nobody is actually sure what will happen, particularly on the wind front,” he continues. Equipment manufacturers hope for “some reinstated or extended form of tax subsidies by the end of the year, but there is a robust debate on exactly what that would look like. That’s causing a little bit of immediate-term damper on productivity.”
The wind industry has seen activity but “that’s based on orders that were placed at the tail end of 2013 when those projects would still qualify for production tax credits,” Brown says. “It will be interesting to see what order books look like at the end of 2014 and early 2015.”
Metal’s tech advances
The energy sector has triggered greater demand for metal overall and increased the need to specify for high-end applications, including harsh environments where heat, pressure and corrosion are challenges.
“ArcelorMittal’s product capabilities fit the requirements of this industry quite nicely, especially in the OCTG, line pipe, rail (oil tank car) and wind power segments,” says Ronnie Masliansky, general manager, marketing, at ArcelorMittal USA Inc., Chicago.
The boom in shale exploration has been the strongest demand driver. “The use of drill pipe and casing on a per-rig basis is large, compared to more traditional methods of down-hole drilling, but that does not mean we discount the other avenues of exploration,” he says.
“In the past five years, we’ve participated directly in increased activity in the oil and gas sector,” says Matt Danis, COO and CFO for American Piping Products, South Holland, Illinois. “Hydraulic fracturing and horizontal drilling have increased upstream activity, which has increased demand for our product. We have also experienced strong growth in the solar energy space as government has provided significant economic support to the renewable energy sector.”
New liquid natural gas facilities require a variety of products, including specialty plate, according to Masliansky. On the green energy front, wind towers require steel and an indirect application for ArcelorMittal’s products is plate for oil tankers.
Further exploration by energy companies spurs the development of new, stronger metal products. JFE Steel Corp. recently developed an API grade X80 high-frequency-welded steel pipe with a thickness of 1 inch. The pipe can be used as conductor casing or as high-quality line pipe in offshore pipelines.
“As drilling operations for oil and natural gas expand around the world, oil companies are drilling into and pumping from increasingly deep seabeds. [This requires] them to use steel pipes with extra-strong, extra-thick walls capable of withstanding very high pressure,” JFE explains.
“As a distributor, we are sourcing and stocking material specific to the needs of our customers today,” says Danis at American Piping Products. “Deeper wells, more pressure and challenging environments all contribute to the need for new products in the recovery and production process. We partner with our customers to develop products that satisfy their physical and chemical specifications.”
“We are working closely with energy companies to understand their growing, more critical needs and using both our global manufacturing capabilities as well as our project-management services to answer the call,” Masliansky adds. “We have invested heavily in satisfying the growing need for heavier-wall products at higher strengths in the line pipe arena. In 2011, ArcelorMittal USA commissioned a new heavy-duty coiler at our Indiana Harbor 84-inch hot strip mill that can produce coils up to 1 inch thick in grades of X70 and potentially stronger.
“Much more recently, we, along with Nippon Steel and Sumitomo Metals Corp., completed the acquisition of the Calvert, Alabama, steel finishing facility, which offers a number of capabilities, including walking beam furnaces for better temperature control, the ability to produce heavy-gauge material at higher strength levels and key proximity to customers in the heart of pipe producing country,” he continues.
Steel suppliers like ArcelorMittal have to “stay abreast of the changing requirements presented to energy developers and transmission companies with regard to location of exploration, volume of product transmitted, changing environmental and safety concerns, along with a realization that economics will always play a role,” Masliansky says.
The steelmaker is working with individual customers to develop proprietary OCTG grades. For example, “We developed and commercialized 1.65-inch-thick ASTM A738E for CNG (compressed natural gas) vessels,” Masliansky says. “We can now offer API 2H-Grade 50 up to 3 inches thick, meeting the strain age supplement requirements. We have worked with key OCTG customers to develop new grades, including an X80 for the Alaska pipeline job. We are also developing steel grades to satisfy increasingly demanding requirements for sour service (oil and gas with high sulfur content) and enhanced low-temperature fracture toughness.”
It’s necessary to develop products in close cooperation with key players in the energy industry because “capital costs for new mills can be staggering,” says Masliansky, noting that ArcelorMittal participates in standardization efforts for steel in energy applications and joined “industry consortia formed to address common issues, such as pipe mechanical testing variability and materials joining. We are also trying to implement the early involvement approach successfully used in the automotive market by assigning R&D applications engineers to key account teams.”
Because energy producers, transmission pipe operators and refiners continue to innovate, it’s essential to become “thought leaders in our industry,” Danis says. “As such, we work closely with producers to procure and stock material that meets their needs. Our customers are constantly developing and improving their products. It is our responsibility to understand their goals and provide our expertise to help them meet those goals.” MM