Since the beginnings of the Industrial Revolution, the oil, gas and steel industries have been intertwined. These industries depend heavily on one another, as they each possess materials that the others need. This shared reliance has frequently been put to the test over the decades, the most recent being the drop in oil prices. Let’s discuss how the industries are connected today.

Oil and Gas’ Dependence on Steel

According to Zach’s Investment Research, the energy sector accounts for 10% of United States steel consumption. Steel mills make components called oil country tubular goods (OCTGs), which are steel tubes and fittings used in oil and gas rigs. The International Molybdenum Association(IMOA) divides these goods into three categories:

Due to the oil and gas boom in the United States, the OCTG business has been one of the most profitable in the steel industry.

Other metals are added to steel alloys, adding functionality to components used throughout the oil and gas industries. The Houston Chronicleexplains that nickel alloys are used in the valves and pipes that go over a wellhead. Chromium increases adds heat resistance to pipe used in deep oil wells. Molybdenum serves as a catalyst in oil refining to help derive environmentally friendly fuel sources. Titanium alloys are used in tubing and compressor parts, and are resistant to seawater and low temperatures.

Steel’s Dependence on Oil and Natural Gas

  1. Casing pipe lines boreholes
  2. Drill pipe rotates drill bits and distributes drilling fluids
  3. Tubing captures oil and gas from the wellbore

While steel is vital to oilfield drilling equipment, steel isn’t dependent on oil as a vital energy source.

According to the United States Energy Information Administration (EIA), steel’s top four energy consumption sources as fuel are coke and breeze, electricity, natural gas and “other.” The “other” category consists primarily of blast furnace and coke oven gases. In particular, natural gas contributes 33% of steel energy fuel consumption, the highest of all energy sources.

While these numbers are from 2006, steel’s dependence on natural gas has continued into more recent years. In a Platts article, U.S. Steel explained it’s continued shift away from coal. The company invested in direct-reduced iron (DRI) plants that rely on natural gas. Lower prices resulting from shale gas resources only benefited their bottom line.

This trend doesn’t show signs of slowing down. In a more recent EIA report, coal use in the industrial sector is expected to drop off by 2040, driven by steel’s shift toward more energy-efficient sources.

Oil Price Decline: the Downside of Interdependence

Until recently, all three industries have enjoyed growth, partly due to the US oil and gas boom. However, the drop in oil prices over the past year has led to a slowdown in the oilfield industry. This follows an industry-wide trend of heavy capital investments in the construction of new steel plants, exploration equipment and rig parts. This ripple effect has hit Midwest steel towns hard. The Wall Street Journal explains how companies like U.S. Steel Corp have had to layoff workers and potentially shut down plants temporarily.

The gas, oil and steel industries will always be connected. Rigs and piping are made from steel alloys. Steel production uses natural gas as a major fuel source. The recent turn in oil prices shows how these industries share both economic triumphs and defeats.

Nevertheless, they continue to serve as a core segments in American industry. The nation’s energy future is uncertain yet filled with potential. When the time is right, these industries will be more important than ever.

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