Ohio Looks to 'Do It Right' as Shale Boom Revives Steel




Originally published on Environment & Energy Publishing - http://www.eenews.net/

Peter Behr, E&E reporter
March, 13, 2012

CANTON, Ohio -- In an eruption of flame and smoke, 90 tons of scrap steel drops into a furnace at Timken Co.'s Faircrest steel plant here, the start of its transformation into rows of seamless steel tubing that will be thrust below ground to deliver natural gas from Appalachia's shale deposits.

The Timken plant and other steel mills in Youngstown and Lorain are running hard these days, feeding the exploration and production of buried hydrocarbon treasure in the Marcellus and Utica shale formations spanning Ohio, Pennsylvania, New York and West Virginia.

Scrap steel is melted in Timken Co.'s electric arc furnace in Canton, Ohio, starting a process that will produce steel tubes for gas drilling and other markets.

Ohio is next in line for the arrival of shale gas as a game-changing source of wealth and jobs. Gas leases in Stark County around Canton leapt fourfold last year over the year before. While only four wells got into production last year, by 2014 nearly 2,000 wells will have been drilled, according to a new study headed by Cleveland State University researchers.

The entire state seems fixated on the shale gas boom. Across a broad supply chain -- steel making, trucking, industrial controls, drilling supplies and wastewater treatment -- gas development is stimulating growth after decades of plant closings that made Ohio a tattered landmark of the Rust Belt.

In January, Ohio's unemployment rate dropped to 7.7 percent -- below the 8.3 percent average for the United States and down markedly from a 9 percent statewide rate in January last year. The state added 62,500 net new jobs in that year, 18,000 of them in durable goods manufacturing.

"We are talking about economic growth in an area of the state that has struggled for decades and we've tried to find an answer for," said Linda Woggon, director of the Ohio Shale Coalition, formed by the state Chamber of Commerce. "The potential for jobs and other investment is so huge that everyone is going to want to work together to do it right and fully capitalize on the potential."

The challenge of "doing it right" has arrived on Ohio's doorstep, along with its newfound economic hopes.

On Wednesday, Gov. John Kasich (R) plans to issue a new energy proposal to the Legislature that includes new tax levies on shale gas and oil production -- with corresponding cuts in state income taxes, to defend his tax-fighter political credentials. The plan could raise $666 million to $1 billion over its first five years, according to Kasich's office, and would earmark $17 million annually from new tax revenues to regulate oil and gas operations.

Kasich has vowed to exploit Ohio's natural gas wealth without harming the state's air and water or its residents' health. "You cannot degrade the environment the same time you're producing this industry. It is not acceptable," he told state lawmakers last month.

"The governor has said a lot of the right things in recognizing that any natural gas development in Ohio needs to incorporate the most stringent practices to ensure environmental protection and public safety," said Thom Cmar, an attorney for the Natural Resources Defense Council.

Ohioans are concerned about water contamination issues surrounding shale gas development in Pennsylvania, where the Marcellus play began, and about the risk of earthquakes triggered by injection of drilling wastewater in deep disposal wells, such as the tremor that jarred the Youngstown area on New Year's Day, Cmar said (Greenwire, March 9).

"State officials are checking the right boxes, but they haven't completed the work, and the regulations they have completed need to be significantly strengthened before we can have confidence the state is taking the necessary steps. In the meantime, the fracking boom is going forward," he said. "It's something that needs to be brought under control as quickly a possible. I don't see any momentum in Ohio to stop it completely."

"The horse is out of the barn," said Thomas Humphries, president and chief executive of the Youngstown Regional Chamber of Commerce. "Our job is to grab the tail. There is gas there that is going to be produced, and we have to protect the environment while we work things out for the state."

Ohio's steel industry is riding that horse.

Old industry, new safeguards
With a new contract from its United Steelworkers local in hand, Timken will build a $225 million continuous caster at its Canton plant to accelerate and improve production quality.

V&M Star, a joint venture between France's Vallourec Group and Japan's Sumitomo steel maker, is completing a new $650 million steel tube plant alongside its current mill west of Youngstown. The 1-million-square-foot building is Youngstown's biggest capital investment in a half-century.

V&M's sister company, VAM USA, will build a $57 million plant adjoining the V&M mill to thread pipe for shale gas operations. Republican Steel says it will spend $85 million to expand production in Lorain, west of Cleveland, and its neighbor, U.S. Steel, has announced a $100 million investment in its steel tube production.

Refiner operator Clif Dougherty, left, and Shawn Seanor, head of oil and gas products for Timken Co., at the Faircrest steel plant in Canton, Ohio, oversee the addition of chemicals to molten steel.

"Ninety percent of what goes through this facility would end up in oil and gas operations somewhere," said Shawn Seanor, head of Timken's oil and gas products business, as he took a visitor through the Canton plant’s Gambrinus thermal tempering facility, where steel tubes are heated, bathed, straightened and trimmed.

Timken's worldwide steel production rebounded from $800 million in sales in 2009, "a very tough year," to $2 billion last year, Seanor said. The company registered a general pickup in orders across its markets. But within the steel group, oil and gas products have had the highest growth rate over the past three years, he said.

He led the way to an enclosed pulpit lined with gauges and a computer screen where the precise recipe for a new batch of molten steel is being created, to match the customer's requirements.

Doses of carbon or nickel or other additives go into the red-hot mix, directed by Clif Dougherty, the refiner operator, who double-checks the computer's chart with his own desk calculator. Timken makes 400 possible chemical compositions of the steel, so the ingredients must be exact, says Dougherty, a veteran steelworker (who says he doesn't cook much at home).

The steel is rolled into bar form, and while red-hot, the bar may be spun rapidly, creating a void in the center of the bar -- a serendipitous discovery early in the history of steel making. A bullet-shape mandrel is forced to create a seamless tube with uniform dimensions. Heating and quenching follow to give a tube a particular mix of strength, flexibility and toughness required for the stresses of horizontal drilling into the shale deposits.

Ohio has produced oil and gas through conventional drilling methods since the industry's birth in the United States. In the 1890s, the state was the largest producer of oil and gas in the world, Woggon says. "We have an infrastructure that has existed for many, many decades, and a regulatory structure that provides the right balance" between protecting public health and the environment and rewarding the industry, she said. "This isn't a new industry."

The particular safeguards required for horizontal drilling and fracking are new, however. "We have to make sure that we have regulations that protect health and safety of citizens but aren't so onerous and so unpredictable that the investment isn't made," Woggon said. "I think that is the fine line the governor will attempt to find."

One place where that line must be drawn governs the amount of cement that is forced down and out of a newly drilled well to surround the pipe casing and create a leak-proof barrier between the low point of a water aquifers and the shale deposits farther below ground, says NRDC geologist Briana Mordick.

Ohio's current standard requires 50 feet of concrete to create that barrier. The American Petroleum Institute's recommended standard is 100 feet, she says. "From what we have heard so far, they [Kasich's administration] intend to hang onto the 50-foot depth. It's their contention that that has worked for their program and they don't see any need to change it," she said.

'There are flash points'
The Legislature has given the Ohio Department of Natural Resources authority to set new regulations, and the standard-setting process will proceed, NRDC's Cmar noted. "If Ohio wants to be a leader in developing stringent regulations, they ought to be incorporating the best industry practices," he added.

John Green, a University of Akron political science professor who follows state politics closely, says the shale gas phenomenon may disrupt and scramble prevailing policy divisions between Republicans and Democrats in the state.

"If you took the recent headlines [about the shale gas boom] here in Ohio and used them to frame this issue, I think the conclusion you would draw is that it will be swept up into the broader polarization of Ohio politics. But if you set those headlines aside and look at the details of the policy, it's not at all clear it has to be polarized. There will certainly be pitched battles, but they don't have to be comprehensive."

Political and business leaders recognize that the shale gas boom is just that -- a boom -- he said, and with it will come new requirements for building infrastructure, protecting communities and regulating drilling and production processes. Ohio will have to find new tax revenues to fund these requirements, he said, and that is taking Kasich outside the no-new-taxes boundaries that pressure Republicans.

What pulls all sides together is the promise of better economic times that the state has so yearned for. "What the Republicans under John Kasich really want is sustained economic development. On that issue they agree with their Democratic opponents. The argument really devolves into how you obtain that. People on both sides recognize it's complicated," Green said.

"There is a real potential for these groups to work together," Green said, speaking of industry and environmentalists. "But there are flash points.

"It will be important for the governor and others to convene the right meetings and get the right people in the room -- to get leadership who are respected by their constituents. It's a really big challenge."