A study from the Freedonia Group by industry analyst Matt Zielenski projects steel oil and gas pipe demand to increase 7.6% annually through 2018, reaching $26.8 billion.
The 366-page study also provides a comparison of pipe demand from 2003 to 2008 and 2013,
As noted in the report, the demand for oil and gas pipe rose nearly fivefold between 2003 and 2008, driven by sharp increases in U.S. oil and gas drilling activity and higher energy prices. Moreover, increasing use of horizontal drilling and hydraulic fracturing technologies revolutionized the oil and gas industry.
Rather than drilling multiple vertical wells in a formation, an operator could drill fewer horizontal wells to reach once inaccessible reserves. By use of fracturing, it was possible to recover more hydrocarbons (particularly tight oil and shale gas).
These innovations spurred demand for pipe in oil and gas applications, as increasing drilling activity drove demand for large-sized pipe and tube used as casing, while rising horizontal drilling activity boosted demand for pipes of all sizes due to the generally greater measured depth of these wells.
While still much higher in 2013 than the level seen in 2003, demand for oil and gas pipe demand declined in 2008. Depressed natural gas prices are credited with limiting drilling activity and negatively impacting demand for drill pipe and pipe used in gas exploration activities during this period.
Also noted is that steel pipe prices fell significantly during this period due to the impact of low cost imports and falling steel costs. Likewise, imports grew significantly, as foreign manufacturers sought to take advantage of favorable labor costs by selling cheaper oil and gas pipe to U.S. consumers looking to maximize profitability.
At first, Chinese, and later South Korean, firms dramatically expanded their exports to the U. S. While the imposition of tariffs was able to check this, many international suppliers have continued to market low-cost pipe in the U.S.
Through 2018, demand for oil and gas pipe is forecast to advance 7.6% annually to $26.8 billion. The report indicates this growth will be driven by an anticipated rebound in drilling activity. High oil prices and recovering gas prices, strong domestic demand, and concerns about energy independence are seen as drivers to spur oilfield service companies and other operators to expand their search for reserves.
Gains are also forecast to come from efforts to expand the size of pipeline networks to link up with existing transmission and distribution systems. This is especially true of shale gas and tight oil plays, as many newer wells are located in areas where there traditionally has been minimal drilling activity. Consequently, industry participants will need new pipelines to move recovered oil and gas to existing distribution networks.
Looking at volume trends, the report cites demand for oil and natural gas pipe to increase to 27.3 billion pounds, reaching a total of 2 billion feet in 2018. Pipe demand in terms of weight is projected to outpace that of length as driller require thicker, more durable pipe to accommodate deeper wells to access hard-to-reach reserves and more large-diameter pipe is installed to transfer natural gas from drilling sites to end users, such as electric power plants.
In terms of material, steel accounted for the largest share of oil and gas pipe demand in 2013 with 95% of the total. According to the report, steel continues to dominate this market because of its low cost, durability and use in a wide range of operating conditions and environments.
The report also points out crude oil applications have traditionally accounted for the larger share of oil and gas pipe demand. Going forward, the report shows this is still the case, as the oil segment is projected to remain the larger end user for oil and gas pipe in 2018, with 69% of the total.
This demand is expected to be boosted by continuing high oil prices, which will spur U.S. drillers to seek out new sources of supply, such as offshore oil reserves or fields where reserves are located deep underground.
Natural gas pipe demand is anticipated to also increase through 2018, spurred by rising prices that will encourage drilling activity and boost demand for pipe. The increasing use of natural gas – instead of coal – to power utility plants is the driving force for line pipe to carry gas to both power plants and those sites that use natural gas to directly generate electricity.
Rebounding residential building construction activity is expected to encourage demand for distribution pipe as well, since the majority of houses in the U.S. use natural gas as an energy source.
The report also warns of several potential restraints to growth in oil and gas pipe, including lower than expected energy prices, restrictions on drilling or fracturing activities and greater than expected acceptance of alternative energy technologies. Should these factors come into play demand would be considerably lower than forecast.
Editor’s Note: Figures in the report are from the August 2014 #3181 study, Plastic & Competitive Pipe, by Industry Analyst Matt Zielenski. The 366-page study can be purchased for $5,400 from the Freedonia Group, Inc., www.freedoniagroup.com.