At the start of the new century, there were few signs that
the oil country tubular goods (OCTG) market was about to do
something historic. But a remarkable growth cycle started about
a decade ago, fueled by technological innovation and increased
energy demand. Although the Great Recession slowed that growth,
the OCTG market rebounded more quickly than other sectors. Some
believe the market may be approaching a threshold moment as
gas, oil and steel prices and supply-and-demand issues present
new challenges. Several factors, shown here in a series of
graphics, play a major role in the direction of the market.
Some states, such as Alaska, Pennsylvania and Texas,
have long experienced high demand for energy and drilling
operations. But for others, energy booms have come somewhat
more recently. A good case in point is North Dakota, which has
reaped the benefits of sitting on top of the Bakken shale, a
huge reserve of oil and gas. OCTG suppliers have been selling
drilling products to companies at work near the Canadian border
for several years.
Natural gas drill rigs were responsible for much of
the growth in the OCTG market during the first few years of the
new century. But the growth line has flattened out lately, and
the rig count has been falling for about two years. However,
natural gas remains a popular form of energy, and analysts
believe that the development of new extractive technologies
will help propel the sector back into growth.
The oil sector has actually been able to return to its
pre-recession levels of production, thanks in part to a boom in
deepwater production as well as the use of
horizontal drilling techniques, and demand for tube and
pipe products has risen in tandem. Political pressures for U.S.
energy independence also have pushed up demand.
Oil vs. gas
Steelmakers watch the relationship between oil and gas
drill rigs with interest. Generally speaking, increased demand
for oil rig products tends to offset a drop in gas rig demand.
Perhaps this back-and-forth movement reflects the supply-
and-demand price curve in the energy market. However, some
in the tube and pipe sector are worried that the OCTG boom may
be leveling out and that the increase of the proportion of oil
vs. gas rigs is a sign of the booms end.
The price of natural gas affects how much investment
is made in drilling. High gas prices a few years ago helped
fuel the OCTG boom of the mid- and late decade. As gas prices
have fallen, so too has the drill rig count. Oftentimes,
pricing trends are more important to investors than specific
Import trends can have a major effect on steel prices.
A number of imported steel products, particularly energy
tubulars from South Korea, have been priced below domestic
material for some time, pushing down domestic prices and making
OCTG production potentially less profitable.