Steel Shortage Adds To U.S. Shale Drillers’ Woes

U.S. shale oil drillers are complaining of a shortage of steel tubing for wells, which is contributing to stagnation in production.

In a Friday report, Bloomberg cited data from KeyBanc Capital Markets, which showed that the price for pipes used in the oil industry-oil-country tubular goods-had shot up to $2,400 per ton in March.

This was a 100-percent increase on the year the report noted and was driven by concern that the war in Ukraine would affect steel goods exports from both Ukraine and Russia.

"I cannot think of a time prior to this that I've seen the market this tight," Susan Murphy, publisher of the OCTG Situation Report, which follows the steel sector, told Bloomberg. "Everybody is really trying, at least in the tubular goods industry, to manage practically an unmanageable situation."

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 price increases have global effects. To date, the war has tightened the market with a 20-percent drop in Russian and Ukraine finished steel exports to Europe.

For U.S. oil drillers, steel tubing prices and scarcity is one more thing to worry about on top of rising oilfield services costs, difficulty in workforce retention, which has necessitated wage boosts, and a shortage of other essential commodities such as frac sand.

Steel, however, seems to be a particularly acute problem and one that didn't start a month ago with Russia's invasion of Ukraine.

"The largest cost increase over the past 12 months for the oil and gas industry is from tubular steel," one energy industry executive told the Dallas Fed in its quarterly industry survey. "Steel availability and pricing are also delaying quick activity ramp-up among several operators. This is impairing the ability to bring production online faster."

By Irina Slav for Oilprice.com