Oil country tubular goods (OCTG)
consumption is expected to change as oil producers shift their
concentration to offshore drilling, which involves deeper
extraction and increased horizontal directional drilling.
Carbon steel welded OCTG had
been the industry standard in the past, but the deeper and
horizontal drillingÑwhich creates a higher-stress
environmentÑhas boosted demand for seamless pipe, in
which a tube is extruded and drawn from a billet. Welded tube,
which typically is less expensive than seamless tube, is
produced from a strip that is roll-formed then welded into the
length a customer requires.
The fastest-growing sector of
Americas steel economy is OCTG, with North America
accounting for 40 percent of all OCTG consumed globally. The
United States and Canada have become the worlds oil and
gas swing producers in the 21st Century, turning around a
dormant U.S. industry that many thought would wither and die by
immense shale gas deposits discovered in the northern Great
Plains, across Texas, and into Pennsylvania and upstate New
York are making the United States the Saudi Arabia of natural
gas, creating unprecedented demand for OCTG.
OCTG has seen a stronger
recovery since the 2009 trough than any other steel-consuming
sector, particularly in North America, analysts Bridget
Freas and Elizabeth Collins of Chicago-based Morningstar Inc.
noted in a report in early April. OCTG consumption in the
United States is already back to pre-recession levels of more
than 6 million tons per year, with the rig count in the 1,700
to 2,000 range for the past two years after bottoming below 900
The boom in natural gas and oil
production has been spurred by new technologies that have
opened up shale deposits previously thought to be too expensive
Within the past five years, the
Bakken shale, which underlies Montana, North Dakota and
Saskatchewan, has become a major producer of oil and gas, and
last year North Dakota surpassed Alaska as the United
States second-biggest oil producer. The Eagle Ford shale
in south Texas is emerging as another major producer, while the
Barnett shale in north Texas could become a major producer in
years to come. Dwarfing those deposits are the Marcellus and
Utica shales, which stretch across the Mid-Atlantic region from
West Virginia to upstate New York. Oil industry experts
estimate that at the present rate of production, the United
States could be energy-independent by 2025.
Shale oil and gas deposits are
developed by hydraulic fracturing, or fracking, a
drilling technique that uses a combination of vertical and
horizontal drilling to unlock oil and gas. Morningstar
estimated in a recent report that horizontal drilling accounted
for 60 percent of all North American oil and gas drilling last
year, up from 29 percent in 2008.
The corrosive activity
associated with fracking and horizontal drilling, however, has
many petroleum geologists pointing to seamless tube to meet
that challenge. Kevin C. Garrity, senior vice president of the
Plain City, Ohio-based Integrity Solutions division of Mears
Group Inc. and immediate past president of Houston-based
corrosion society NACE International, said the welded pipe used
in fracking and directional drilling can be subject to
corrosion or residual stresses along the seam welds.
Foreign producers have taken
notice of North Americas demand for seamless tube, with a
number of manufacturers announcing or launching greenfield
mills in the United States.
France-based Vallourec SA, which made its first delivery of
pipe from its $650-million mill in Youngstown, Ohio, late last
year, expects the mill to produce 200,000 tons of
small-diameter OCTG products this year, with capacity
eventually reaching 350,000 tonnes annually.
Meanwhile, Turkish pipe and tube
maker Borusan Mannesmann broke ground in early April on a
300,000-ton-per-year seamless tube mill in Baytown, Texas. The
$148-million plant is expected to open in 2014.
Steel/Tube GmbH announced plans last October to build a
$900-million seamless tube mill in Caddo, La., that is expected
to serve markets in Texas and the Midwest when it goes into
full production in 2015. And Luxembourgs Tenaris SA hopes
to make a splash in the U.S. seamless tube market with a
$1.3-billion tube facility in Bay City, Texas, which it
announced in February.
European producers arent
the only ones getting in the game. TPCO America Corp.Ña
subsidiary of Chinas largest pipe producer, Tianjin Pipe
(Group) Corp.Ñis currently building a $1-billion line
pipe, drill pipe and OCTG facility in Gregory, Texas, and
expects to begin operations at the 500,000-ton-per-year plant
later this year.
The proliferation of
foreign-owned seamless tube mills is an indicator of the
importance of seamless tube imports to the U.S. industry. Some
3.3 million tons of OCTG came ashore last year, just below the
record levels reported in 2008. But European and Asian
producers now recognize that a strong U.S. dollar and ample
supplies of inexpensive natural gas and electricity can make
them more competitive if they manufacture the product in the
United States rather than export it to the U.S. market.
We feel there is plenty of
utilization that can be realized. We have a very, very high
(steel pipe) import level (in the United States), Buddy
Brewer, chief executive officer of Borusan Mannesmann Pipe U.S.
Inc., told local media. We hope it will come down over
But for every optimist, there is
a steel veteran with a long memory of previous booms and busts.
One longtime observer of the pipe and tube sector said this is
the third time he has seen a massive energy buildup in North
America, and each time the boom has come to a less than
satisfactory ending for the steel industry. There is a
tendency to over-expand and put in too much capacity, he
But even old hands in the
industry admit that the current shale oil and gas play could
lead to a manufacturing resurgence, both of American industry
in general and the pipe and tube sector in particular.