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Natural Gas to Lose Out with Green Steel

While power markets get the most press when it comes to decarbonization, the push for lowering emissions extends well beyond electrons. Industrial facilities like steel and iron manufacturing, cement kilns, refineries, chemical manufacturing, and paper mills contribute meaningfully to the United States’ emissions. In response, many industries have outlaid paths towards decarbonization. Today’s energy market insight will focus on the steel industry and how its decarbonization will impact natural gas demand.

Industrial emissions make up between 20 – 25% of total US CO2 emissions, however that covers a wide range of activities. Zooming in on manufacturing emissions, which steel manufacturing falls into, shows petroleum and coal products (mostly refining) and chemical production make up just under half of all manufacturing emissions.

Steel, alloy, and ferroalloy comes in third for manufacturing emissions, so in the big picture of all US emissions, it may only make up a small slice. However, when looking at US facilities, they are heavily concentrated in the Midwest along the Great Lakes and Mississippi River, as shown in the map below. This would mean any changes in the industry will have an acute impact on a relatively small geographic area.

The push for green steel, or carbon neutral steel production, has a few pathways that will likely be utilized in tandem to reduce the industry’s carbon impact. The two clearest pathways today are the use of carbon capture and sequestration (CCS) to capture emissions and the substitution of green hydrogen for fossil fuels used in the manufacturing process. Both have their practical and economic hurdles; however, investments are currently being made in Europe and Asia that will lessen those obstacles for late adopters.

Since one of the pathways to decarbonization is a shift from natural gas to green hydrogen, let us look at the current state of industrial natural gas consumption. The graphic below is from BTU’s Henry Hub Outlook and shows industrial natural gas consumption across the Lower 48.

Texas and Louisiana account for more than a third of industrial natural gas consumption; much of this coming from use at refineries and chemical manufacturing plants. The Midwest makes up about 20% of Lower 48 industrial demand, with steel and iron making up an important slice of Midwest industrial demand.

While changes to the steel industry will only marginally affect natural gas demand in aggregate, the Midwest will disproportionately feel any of those changes. We will be covering this topic in more detail in upcoming July edition of BTU’s Upstream Outlook publishing on July 15, 2021. The report will contain emissions and natural gas usage at the US’s largest steel facilities, the quantifiable impact of decarbonization on different areas of the Midwest, and a discussion about which pipelines are most at risk. If you would like a sample of the report email with the subject line “Steel Emissions”.

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Matthew Hoza is a Manager of Energy Analysis for BTU Analytics. Currently he is leading the power team in the development of BTU Analytics’ Power View platform, which provides capacity, generation, and power price outlooks for ISOs and utility areas across the US. Previously, Matthew led the natural gas team that develops and maintains outlooks for natural gas production, demand, pricing, and infrastructure, as well as provided bespoke natural gas market analysis. He holds a M.S. in Finance from the Simon Graduate School of Business at the University of Rochester and B.S. in Physics from Florida State University.

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