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Positive economics for OCTG: sustained higher crude oil and natural gas prices lead energy companies to increase drilling activity, creating a strong outlook for oil country tubular goods.

Article Excerpt
DEMAND FORECASTS ARE GLOWING for all energy-related steel pipe and tube products--not just oil country tubular goods, but also line pipe. Even large-diameter line pipe, which has lagged the rest of the energy tubulars market, has shown signs of life as the North American drill rig count has soared to a 20-year high along with natural gas and crude oil prices.

"The economics are very positive for oil and natural gas exploration," says Ken Hayes, director of standard and line pipe for Red Man Pipe and Supply Co., Tulsa, Okla. Oil and natural gas prices are simultaneously high, which doesn't often happen. "Everyone with a drillable prospect is drilling it"

The surge in crude oil prices has been widely publicized, with prices closing Aug. 31 at $68.94 a barrel for October delivery on the New York Mercantile Exchange. For comparison, crude oil sold for about $26 a barrel as recently as 2002.

In the United States, natural gas is more important, says John Mocker, vice president of Lally Pipe & Tube, Covington, Ky. He notes that 85 percent of all drilling in the United States, and 60 percent of all drilling in North America, is performed to extract natural gas. The need to continue drilling for natural gas is likely to remain strong here, he adds.

Several studies, including a recent one published by the Interstate Natural Gas Association of America's INGAA Foundation, reveal a growing need for clean-burning natural gas, says Larry R. Lawrence, vice president of sales for Oregon Steel Mills Tubular Products, Portland, Ore. This has contributed to the continued strength in natural gas prices, which have been firm for the past two to three years, agrees Scott Lauschle, marketing manager for industrial and energy alloy steel at The Timken Co.

Nymex natural gas futures prices at the close of Aug. 31 hit $11.472 per MMBtu for September delivery. For comparison, natural gas sold at between $2 and $4 per MMBtu in 2002.

Recent strong commodity prices have had a direct effect on drilling rates in North America and throughout the world. "As prices go up,...

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