The National Association of Steel Pipe Distributors (NASPD) 2011 Annual Convention in Houston, Texas was met with a sell-out crowd of over 540 attendees from nearly 200 companies. The resounding theme throughout the event was that although 2011 is already shaping up to be stronger and more profitable than 2010, this year remains a hurdle for steelmakers, manufacturers, distributors, and traders alike to overcome. A slowly recovering economic environment was among the major concerns of attendees, a topic touched on by speakers during the General Session.
Jeff Tillery, Managing Director of Tudor, Pickering, Holt, & Co., focused on the various oil and natural gas shales in the US and the oversupply of natural gas during his "Energy Update." Tillery explained that the US needs approximately 150 fewer gas shale rigs (out of the 900 or so currently in operation) in order to "bring the gas market into balance," as demand for the commodity remains mediocre.
On the oil side, performance in the industry is still slow and oil prices continue to be "all about the economy" but that the "oil story is good over the next 5-10 years because the supply side is challenged." The oil rig count in the US is expected to grow over the next 12 months said Tillery, however US oil production has little impact on the global gas industry, constituting only a small portion of total world production. Still, oil rigs also continue to increase-rising from about 20 percent of all rigs (oil and gas) in 2008, to nearly half of overall activity today.
In his forecast for 2011, Tillery maintained that despite growth in some isolated areas, oil rig count will stay relatively flat through the balance of the year in the US, and horizontal drilling, which has grown exponentially over the past years, will continue to be the new norm-horizontal wells are approximately half the cost of vertical wells, although the latter provide a greater return ratio.
Following Jeff Tillery, Pipe Exchange Ltd. President Dolty Cheramie spoke on the status of the US oil and natural gas industry. Cheramie emphasized that in the US "we are drilling more for oil than we have in a long time," but we are still producing more natural gas domestically then needed.
Cheramie agreed with Tillery that there is simply too much production of natural gas in the US today, and we are in a "natural gas bubble." Currently, in terms of storage of natural gas, levels are 6.7 percent below where they were a year ago, and 6 percent below the five-year average, yet natural gas prices are not rising. Chemarie explained that usually when the trend is negative, it would mean prices should increase, but that is not the case. "We have all the gas we need and we can produce it very quickly" he said.
The "next big kick" for the natural gas industry will come from demand from the automotive sector, but that won't be really take effect for the next few years. And for now, there is no "bright, short-term, plus on the natural gas side."
On the oil rig side, Chemarie detailed that US drilling permits are declining, although we have been increasingly drilling for oil. Oil rigs stand about 1,750 today, but we are using less line pipe when drilling for oil. And while the OCTG producers remain busy, line pipe is still a rather slow market. He praised mills, however, saying that mills are "doing a good job at controlling production" and are now "making more by producing less."