Description: Is the price of steel directly impacting oil companies’ production? Eco-Rental Solutions, provider of environmental testing equipment and instrumentation shares their insights.
U.S. oil producers need steel tubes to line the inside of oil wells and get the crude out. But those pipes have become more expensive and scarce in recent times, which is the reason the production is flat. And it stands to reason that the problem won’t be going away any time soon.
Why the scarcity?
Why are steel pipes becoming more scarce? Since the pandemic, oil and gas producers have had to boost wages in order to find and retain workers. The Biden administration’s tough environmental stances as well as pressure from investors to keep costs low also play a role.
Another reason for the increase in the price of the pipes? Russia’s invasion of Ukraine. Russie and Ukraine provide about 15% of all the imported metal to the U.S. And there’s concern that the invasion will sink pipe and tube imports from the region.
How expensive are the pipes?
U.S. prices for oil-country tubular goods (OCTG), as the steel pipes are known, hit $2,400 per ton in March of 2022. That’s up 100% from the year prior. One executive told the Federal Reserve Bank of Dallas that the single largest cost increase for the oil and gas industry over the past year is for tubular steel. The availability and pricing are delaying production for most operators.
Oil-consuming nations around the world would like the U.S. to produce more oil to make up for the Russian crude that is currently being sanctioned. And President Joe Biden agreed, urging U.S. companies to pump more as the Ukraine invasion led to skyrocketing oil and gas prices.
It’s hard to say what the future looks like for tubular steel prices. But it’s safe to say that things won’t get better overnight. And with global supply chains still struggling and Russia’s activities in Ukraine not showing signs of letting up, oil and gas companies are likely to feel the pressure for some time.