COLUMN-Nucor hedges gas prices through Encana deal: Kemp

Tue Nov 6, 2012 12:05pm EST
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By John Kemp

LONDON Nov 6 (Reuters) - Steelmaker Nucor will help protect expansion of U.S. iron and steel making capacity against an expected future rise in U.S. natural gas prices by taking a 50 percent working interest in onshore gas wells to be drilled and operated by Encana.

The agreement builds on an earlier, smaller agreement between the two companies struck in 2010. But the increased number of wells covered offers Nucor much more protection against future variations in the price of natural gas, which is one of the biggest input costs for its iron and steel operations.

"The drilling of gas wells resulting from the two agreements is expected to provide enough natural gas to equal Nucor's usage at all of our steel mills in the United States" plus a new direct reduce iron facility under construction in Louisiana as well as another plant the company is thinking of building in the state, according to a company statement. Alternatively it covers enough gas to fuel three direct reduced iron plants.

Nucor said it expects to invest about $542 million over the next three fiscal years and approximately $3.64 billion over the estimated 13 to 22 year term of the agreement.

"Either party may suspend drilling operations if the average price of natural gas falls below a pre-determined threshold for thirty consecutive business days," it said.

FUTURE GAS PRICES   Continued...