The US market for both energy and standard pipe has certainly improved in recent years, but continues to face headwinds, according to the tube and pipe panelists at SteelOrbis' Steel Scene conference in Houston, Texas on May 8, as well as John Foster, President and CEO of Coutinho and Ferrostahl Gruenstahl, who moderated the panel.
Jef Fry, Senior Manager of Energy Tubulars for Welded Tube of Canada, said that in 2012, there is projected to be 1.2 million tons of OCTG demand, but he would "be surprised if the market exceeded 1 million tons" this year; OCTG demand isn't likely to be as robust as some forecasts, he added.
Fry said the market faces vulnerabilities because of oncoming capacity, and imports controlling about 40 percent of the domestic energy market. Low natural gas prices have resulted in a switch to more oil drilling, but the shift won't happen quickly enough to be able to keep up with mill production.
During the question-and-answer portion, Jef also commented that in his view, the Keystone XL pipeline expansion will definitely get built, but not this year. Another pipeline stretching from Canada's oil sands to the West Coast for export to Asia is also expected, he added.
Don Baysal, President and CEO of SEBA International Ltd., said that the most import influence on steel pipe prices is the local and world economies. He said that natural gas prices are the lowest in nearly a decade in the US, but the world, in general, is "gas hungry." There's a "light at the end of the tunnel" for natural gas, and serious plans remain in place to convert natural gas to diesel and then sell it around the world. Meanwhile, worldwide OCTG demand will be supported by drilling globally, and the future of energy demand is pointing upward, despite its fluctuations.
Following Baysal, Gerald Merfish, Executive Manager of Merfish Pipe & Supply and a partner at Pipe Exchange, examined worldwide drilling and US production trends, explaining that the global rig count was about 3,751 in January, and 80 percent of those rigs are drilling in the Western hemisphere. While the gas rig count has been decreasing since late last year, and gas prices have dropped substantially recently, natural gas storage space is actually running out.
Pipe mills have a preference for producing the most profitable products, and first choose to produce OCTG, then line pipe, and finally standard pipe. The rig count today is about in its trading range, he said, and consequently there will be an excess of energy pipe available.
The panelists also addressed the Chinese transplant mills in Vietnam, Indonesia, etc., explaining that it is difficult to stop such activity, but the US can improve its standards and not let material that doesn't meet industry standards come into the US.