Nucor Corporation has teamed up with the US division of Encana Corporation on a project that will provide natural gas for steelmaking facilities.
Nucor announced the agreement on Tuesday, saying that Encana will drill and operate onshore natural gas wells, reports The San Francisco Chronicle.
Nucor will partner to pay its share of the costs for natural gas drilling as well as an additional amount of carried interest for each well that is drilled, though the interest is subject to caps.
Either company will be allowed to suspend drilling if the price of natural gas falls below a predetermined threshold. Like many other manufacturing companies, Nucor is looking to take advantage of the cheap cost of natural gas to fuel its operations.
According to Reuters, the natural gas agreement between Nucor and Encana builds on a similar agreement the two companies shared in 2010. The increased number of wells in the latest agreement will offer Nucor more protection against the future variations in the price of natural gas.
A company statement read, “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” in addition to a direct reduce iron facility under construction in Louisiana.
The natural gas agreement between the two companies is a good solution to the strategic problem facing gas producers and consumers in North America. A surge of domestic gas production from shale, along with low natural gas prices, are expected to give energy-intensive industries a long-term competitive advantages.