The Cornerstone Chemical Co. plant in Waggaman, La. Wednesday, Feb. 13, 2019. High natural gas prices are taking a toll on Cornerstone, which uses the fuel as an energy source and a raw material in manufacturing.
The Cornerstone Chemical Co. plant in Waggaman, La. Wednesday, Feb. 13, 2019. High natural gas prices are taking a toll on Cornerstone, which uses the fuel as an energy source and a raw material in manufacturing.
When natural gas prices go up, Tom Yura notices.
When they double? Then he’s on full alert.
Yura is chief operating officer at Cornerstone Chemical Co., a manufacturing facility in Waggaman that produces specialty materials. His company makes acrylonitrile, a product used in water treatment chemicals and in plastics for cars and airplanes; melamine, which is used in coatings for wood products; and sulfuric acid, a compound put into pulp and paper.
Natural gas is used as an energy source to produce acrylonitrile, Yura said. It’s also a raw material that can make ammonia, which is a key ingredient for acrylonitrile and melamine.
Needless to say, when the price of natural gas goes up — like it has the last six months — the price of Cornerstone’s chemicals goes up.
“Us having natural gas both as a raw material input as well as used for energy in the plant site, you can see pretty quickly that basically doubling pricing has a really significant impact on our manufacturing costs,” Yura said.
Amid a global supply crunch worsened by Russia’s war in Ukraine, the cost of natural gas has more than doubled since the start of the year. Prices at the Henry Hub, the U.S. benchmark for natural gas, have skyrocketed from $3.73 per million British thermal units in January to as high as $9.44 per MMBtu in May.
The U.S. Energy Information Administration said natural gas prices haven’t stayed this consistently high since 2008.
The state’s industrial sector, particularly its chemical manufacturing corridor, is on alert, Yura and others said. In Louisiana, natural gas is widely used as either a feedstock for chemical production or a fuel to produce energy — or, in Cornerstone’s case, both.
Should those prices stay high for a while — and the U.S. Energy Information Administration predicted this month they will for the rest of the year — the impact of those costs could ripple into facility investments, manufacturing output and even workforce decisions.
“We’re at the mercy of the market,” said Greg Bowser, president and CEO of the Louisiana Chemical Association, which represents more than 60 chemical companies. “There’s not a lot you can do other than try to reduce your cost in other places.”
Outside of oil, the most closely watched commodity price in Louisiana’s industrial sector might be natural gas.
Loren Scott, a Baton Rouge-based economist, has said the price is inflated because of both supply and demand.
Amid pressure from the Biden administration, exploration for oil and natural gas hasn’t returned to prepandemic levels, so supply is limited. But demand for both commodities is still high, especially as European countries turn their backs on Russian oil and natural gas.
Like rising oil prices, the higher natural gas prices have already led to higher electricity costs for many Louisiana residents. Now that effect is trickling its way into the state’s chemical corridor.
Back in May, Bowser expressed concern about natural gas prices, which were hovering around the $7 to $8 MMBtu range.
In an interview last week, Bowser reiterated those worries, particularly in terms of how higher costs can hamstring workforce decisions.
“It’ll impact the ability to be able to operate your facility because the cost is going to be so high,” he said.
If the price stays between about $9 to $11 per MMBtu over a longer period of time, “it creates a problem,” Bowser said.
“We’ve seen it goes up sometimes for three months, and it’ll come back down and level off,” he said. “But if it continues to go up over a steady period — I’m going to say six to nine months — it creates some issues.”
Bowser has said some companies have long-term contracts for natural gas supplies while others have short-term deals, so pricing flexibility can vary.
Yura said his facility has both short-term and long-term deals. He noted, however, that even some of its long-term deals offer variation based on the market price of natural gas.
As prices have gone up, some production levels have gone down, Yura said.
“It’s a mix depending upon what product, what customer base, but it definitely has caused us to look carefully at our manufacturing practices, and we have curtailed manufacturing in some cases due to value disruption,” he said.
Cornerstone is also reevaluating which capital-intensive facility improvements it should or should not handle at this time. Energy-saving projects are more attractive now. Expansion projects are facing greater scrutiny.
“Projects that also were focused on efficiency that were maybe marginally interesting now become more important,” he said.
The outlook isn’t all doom and gloom.
Though Henry Hub prices are high, some company officials said natural gas is still cheaper in Louisiana than in other parts of the globe, so the U.S. still has an advantage. U.S. manufacturers tend to use natural gas as their primary input, while European manufacturers favor crude oil as a feedstock.
Crude oil has traded as high as $130 per barrel since the war in Ukraine began in February, according to the Energy Information Administration.
Jim Fitterling, Dow’s chair and CEO, said at an investor conference earlier in June that the spread between natural gas and oil is still “very, very healthy.”
“Right now, we're kind of the $6 to $10 a million BTU range. I think it will probably be $5 to $7 a million BTU,” Fitterling said at Bernstein’s 38th annual Strategic Decisions Conference on June 2. “There's plenty of ethane available for feedstocks.”
Officials from Nutrien, a fertilizer manufacturer that has a facility in Geismar, said North American natural gas is still a “solid basis for production.” The company is still evaluating its Geismar location for a “clean ammonia” facility, in part because of the cheaper natural gas here.
“In Europe, prices reached $36/MMBTU last month and continue to hover around the $30 mark,” Nutrien spokesperson Richard Reavey said in a statement.
CF Industries, which operates an ammonia plant in Donaldsonville, said it plans to continue operating “at our planned high utilization rates.”
“Despite higher natural gas prices, our facilities in North America, including at Donaldsonville, remain among the most cost-advantaged in our industry,” CF Industries spokesperson Chris Close said in a statement.
Email Robert Stewart at robert.stewart@theadvocate.com or follow him on Twitter, @ByRobertStewart.
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