Forty years ago this fall, the United States quarter-century-long postwar economic boom came to a screeching halt as a fight between age-old adversaries in the Middle East brought North America to its knees and exposed the continents vulnerability to overseas oil and gas supplies.
Today, North America has rebounded to a position of preeminence in the world of energy. New technologies developed over the past two decades have made immense new sources of gas and oil in North America available for commercial use. In the 1990s, geologists discovered how to unlock the petroleum in the tar sands of northern Alberta, opening up a vast new resource. At the same time, North American producers were expanding commercial development of proven reserves of oil lying beneath the deepest sections of the Gulf of Mexico.
An even larger technological breakthrough came when energy companies began developing the shale deposits that underlie large portions of the United States. Using hydraulic fracturing and horizontal drilling technologies to extract shale gas and associated tight oil, exploration companies have opened up vast new energy fields from North Dakota to Pennsylvania. In the space of five years, North Dakota, on the strength of its Bakken shale deposits, went from near-zero oil production to surpass Alaska as the nations second-leading producer. Since 2008, U.S. production of tight oil has increased more than 50 percent, with some analysts predicting that the United States will be the worlds largest oil and gas producer by 2020.
The upshot of this 21st-Century energy revolution has broad implications for U.S. society in general, and the steel industrys tube and pipe sector in particular. For the U.S., the resurgence of energy production has dramatically lessened the nations reliability on oil imports, which have dropped to 35 percent of domestic consumption from 60 percent in 2005.
For the steel tube and pipe industry, the dramatic increase in oil and gas production during the past decade has created a surge in demand unprecedented since the 1960s. That has led to a spate of new mill openings and expansions that have seen several million tons of additional capacity come online in the past three years, with several million tons more slated to come online by 2015.
But the scenario is not completely rosy. The energy industry has been hampered by the Obama administration, which has dragged its feet on permitting new pipelines, including the much-publicized Keystone XL proposed by TransCanada Corp. As a result, growing volumes of shale oil and gas move east and south to refineries by rail. The increased capacity also has created cut-throat competition that has resulted in lower prices and profit margins slashed to the bone.
New pipeline capacity totaling an estimated 7.7 million barrels per day is on the drawing boards in the United States, some of which is composed of pipeline reversals, expansions, twining, repurposing and retrofitting. Meeting that estimated demand will create strong markets for tube and pipe producers, but politics and environmental concerns continue to plague the pipeline industry.
But pipeline companies--and those who make tube and pipe--worry that the Obama administration will block new pipelines as a matter of course. Lucian Pugliaresi, president of the Energy Policy Research Foundation in Washington, recently testified to the House Commerce, Manufacturing and Trade Subcommittee that together the U.S. and Canada are producing nearly 11 million barrels of oil each day and these trends are likely to continue if we can efficiently move these new supplies to coastal refining centers. The recent surge in crude oil production from Canada and North Dakota combined with rapidly rising output from the Eagle Ford and Permian Basin plays in Texas (and now southeast New Mexico) are placing considerable stress on the North American crude oil transportation network.
Pugliaresi said that the endless delays in getting the $5.3-billion northern leg of the Keystone XL pipeline approved are creating regulatory and economic hardship for pipeline producers, and by extension the tube and pipe manufacturers. No sane company will ever again preorder steel pipe with the expectation that the U.S. regulatory approval process will be both timely and reasonable. Even if other cross-border pipelines are proposed, future projects will await full regulatory approval before any pipeline company will order pipe or equipment, adding at least two years to construction time.
Other potential roadblocks include pipeline accidents that turn public perception against energy extractionÑin October, a major spill in a North Dakota wheat field focused attention on the states strong encouragement of energy developmentÑas well as depressed oil and gas prices caused by the flood of shale gas and oil coming on the market. That glut of gas could be offset by energy producers plans to export liquefied natural gas from the United States, which would have the added benefit of creating more demand for drilling pipe, pipelines and refinery tubing.
Still, even with pipeline delays, accidents and tough competition, the market for energy tube and pipe continues to grow. As eastern deposits such as the Marcellus shale ramp up production, demand for pipeline and refinery infrastructure will inevitable increase.