Wednesday, June 19, 2013

Energy and Synergy

A French steel firm, Vallourec, has just invested $1 billion in a new tube plant in eastern Ohio. Why invest in the US rather than France? Because the US shale gas industry is the customer for the steel tubes manufactured by the Ohio plant, and there is no shale gas industry in France because the Hollande government has banned even experimental drilling of shale, to say nothing of actual productive development of shale fields.

To be sure, there are environmental concerns associated with the extraction of shale gas, but the technology has been improved and the point of experimental drilling was to demonstrate that the concerns of environmentalists could be met. But instead of authorizing the experiments, Hollande, in a misguided attempt to avoid riling his Green allies, simply banned the effort. Meanwhile, under Sarkozy, the government wasted money trying to keep open aging steel plants whose customers were disappearing: new statistics show a sharp drop in automobile purchases across Europe over the past year. But the Vallourec story shows that there is no shortage of French capital willing to invest in steel production, but only where growing demand for steel can be predicted--as is the case in the burgeoning shale beds in the United States. As one Vallourec executive says, "shale is revolutionary." Unfortunately, the Hollande government seems determined to block the revolution.