Steel shortage adds to woes for US shale drillers

US shale oil drillers are complaining of a shortage of steel tubing for wells, contributing to stagnant production.

In a Friday report, Bloomberg cited data from KeyBanc Capital Markets, which showed the price of pipe used in the oil industry – tubular goods for oil countries – soared to $2,400 a ton in March.

This is a 100% increase from the year stated in the report, driven by fears that the war in Ukraine will affect exports of steel products from Ukraine and Russia.

“I can’t think of a time before this when I’ve seen the market this tight,” Susan Murphy, editor of the OCTG Status Report, which tracks the steel sector, told Bloomberg. “Everyone is really trying, at least in the tubular goods industry, to deal with a situation that is practically unmanageable.”

Russia is the world’s fifth-largest steel producer and Ukraine is in the top 20. Together the two supply a fifth of Europe’s steel, but as with oil, the steel market is global and increases prices have global effects. To date, the war has tightened the market with a 20% drop in Russian and Ukrainian finished steel exports to Europe.

For U.S. oil drillers, steel tubing prices and scarcity are an additional concern, in addition to rising oil service costs, labor retention challenges, which have necessitated increases wages, and a shortage of other essentials such as frac sand.

Steel, however, appears to be a particularly acute problem, and one that did not begin a month ago with Russia’s invasion of Ukraine.

“The largest cost increase over the past 12 months for the oil and gas industry has come from tubular steel,” an energy executive at the Dallas Fed said in its quarterly survey of the industry. industry. “Steel availability and prices are also delaying the rapid ramp-up of business at several operators. This hurts the ability to bring production online faster.

By Irina Slav for Oilprice.com

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