Fracking Puts Some Cracks in the Steel Industry

$fracking well$ Hydraulic fracturing (fracking) operations use casing, a series of steel pipes that are run into a drilled oil well to stabilize the well, keep contaminants and water out of the oil stream, and prevent oil from leaching into the groundwater. Casing is typically made from carbon steel which must meet strict American Petroleum Institute (API) requirements designed to ensure the material can withstand hydraulic fracturing pressure, production pressures, and corrosive conditions. Once the casing is in place, tubing is run into the casing to transport the oil or gas. API specifies seamless or electric-weld processes for tubing manufacture. Seamless pipe is defined as a wrought steel tubular product made without a welded seam. It is manufactured by hot-working steel or, if necessary, by subsequently cold-finishing the hot-worked product to produce the desired shape, dimensions, and properties. Read Oil Well Construction: Casing and Tubing to learn more about the tubing manufacturing process.

Fracking operations have been in high gear over the past several years. But now the abundance of shale oil and gas is contributing to lower prices and related industries, including frac sand and steel, are feeling the effects. Forbes.com reports that a major steel company shut down two tubular steel plants that produce seamless and electric resistance welded steel casing and tubing and other pipe and tubing products used in the North American oil, gas, and petrochemical sectors. The article explains that in addition to increased output from the U.S., a slowdown in GDP growth in China, the world’s second largest importer of oil, and a status quo in OPEC production have resulted in a sharp decline in oil prices.

The Organisation for Economic Co-operation and Development’s Steel Market Developments paper examines the impact of falling oil prices on the economy and the steel industry:

Lower oil prices are having important effects on demand and prices for specific steel products used in the oil and gas industry, with seamless and welded pipe prices having declined since the second half of 2014. For example, the North American imported welded pipe price (oil country tubular goods, or “OCTG”) decreased to USD 909.5 per tonne in April 2015, a level 29.8% lower than the post-crisis peak reached in August 2011…The sensitivity of metal prices to global economic activity is usually greater than that of oil prices, but the recent oil price trend shows a faster decline than metal prices. Falling oil prices have caused some pipe destocking, decreases in pipe production, mill closures, layoffs and a deterioration of business earnings across several major steelmakers, as several large energy companies plan to delay or cancel projects and cut their capital spending…

Learn more about the steel industry in other Analyzing Metals articles, including: