Steel and the Oil & Gas Industry: A Symbiotic Relationship

The Interconnected Nature of Steel and the Oil & Gas Sector

Steel as a Fundamental Material in Oil & Gas Infrastructure

The Steel is one of the main materials used for developing the infrastructures in the oil and gas industry is heavily dependent on steel.From. All the upstream facilities like the drilling rigs and offshore platforms, midstream pipelines, and downstream refineries and storage facilities. The strength, durability and resistance of steel to extreme conditions makes it an indispensable material. From exploration and extraction to transportation and processing of oil and natural gas, steel is used in all these aspects. These two industries share a close relationship due to this interdependence. Therefore, when one fluctuates, the other is also influenced.
make steel one

Steel’s Role in Oil & Gas Exploration and Transportation

In oil and gas exploration, only materials that can withstand harsh environments and high pressure can be used. The best option under these conditions would be steel. Offshore platforms and drilling rigs operating in deepwater need steel that can withstand the harsh conditions, while pipelines carrying oil and gas must be able to handle very high pressure. The properties of steel makes it ideal for manufacturing the offshore platforms, pipelines, and processing and storage facilities.

The Volume of Steel Used in the Oil & Gas Industry

With thousands of kilometres of pipes lines being laid all over the whole, millions of tonnes of steel used to construct rigs, refineries and storage facilities, the oil and gas industry is a significant consumer of steel. Processing and mid-stream pipelines require high volume of speciality steel that can endure the corrosive medium that they are working with. The global demand for steel in the oil and gas sector means that the fluctuations in steel prices can significantly impact oil and gas infrastructure projects. Thus, there is a need for both sectors to collaborate.

The Impact of Oil Price Fluctuations on the Steel Market

The Ripple Effect of Oil Price Changes

Oil price fluctuations will have a profound effect on the steel market. In a simplistic manner, when oil prices rise, energy companies ramp up exploration and drilling activities, increasing the demand for steel to build new rigs, exams pipelines and upgrade existing infrastructure. When oil prices fall, projects may be delayed or cancelled. Reducing the demand for steel in the sector. This creates a relationship whereby oil prices influence the production levels and pricing of steel.

High Oil Prices and Increased Steel Demand

When oil prices increase and oil majors expect these prices to sustain, it generally leads to increased investment in oil and gas infrastructure. They are incentivised to explore now reserves, build new offshore platforms and upgrade existing facilities and all these require a significant amount of steel. There would be an increase in demand for speciality products like API grade steel. So, the increase in oil and gas related infrastructure development drive steel demand and pushes up steel production and prices.

Low Oil Prices and Decreased Steel Demand

Conversely, when oil prices drop, the demand for steel from this sector would naturally decline. Energy companies would typically scale back on E&P activities when there is a significant drop in oil prices, putting projects on hold or cancelling them entirely. This would lead to a slowdown in steel orders, particularly for specialized products used in rigs, pipelines and refineries. The cyclical nature of the oil market means that steel manufacturers are often vulnerable to downturns in the energy sector.

The Correlation between Oil Prices and Steel Prices in Reality

What we have explored above was based on theory. However, the relationship between oil prices and steel prices is much more complicated. Steel demands from the energy sector accounts for approximately 5-10% of the demands on the steel industry. Comparatively, the construction and infrastructure sector accounts for approximately 50% of the demand, while the automotive represents 10-15%, and machinery and equipment accounts for another 15-20%. Therefore, a reduction or surge in demand from the oil and gas sector would not directly affect the price of steel. Indirectly there could be an impact, however as much as it could be a direct relationship, it could also be an inverse relationship. The relation is so dynamic, it would be a whole separate topic by itself, which I will reserve for future discussion.

Steel Products for the Oil & Gas Industry

Pipeline Steel (API-Grade Steel)

Pipelines are the veins and arteries of the oil and gas industry. The steel used to construct them must meet stringent standards to ensure that they are safe and durable. The American Petroleum Industry (API) is one such organisation that developed standards to ensure materials, including steel, used in the oil and gas sector complies to stringent requirements. The steel used must be resistant to high pressure to ensure that transportation of oil and gas over long distances are done in a safe manner.

Steel for Offshore Platforms and Rigs

Offshore platforms require steel that can withstand harsh and challenging conditions of the marine environment. Specialised steel grades are used for the fabrication of these structures to ensure that they can last for up to 30 years. The constant wave motion and changing weather conditions means that the materials used for these structures must have a certain level of fatigue resistance. The steel used must have high tensile strength and durability to support the platform’s weight and stresses imposed by the high wind and wave forces. As exploration extends to deeper waters, the demands for steel designed for these conditions will continue to grow.

Specialised Steel for Refineries and Petrochemical Plants

Specialised steel is also required in refineries and petrochemical plants. Equipment used to refine crude oil must withstand high temperature and corrosiveness of crude oil when the crude oil goes through the distillation and cracking process. Specialised steel alloyed with chromium, nickel or molybdenum is used to improve oxidation resistance, corrosion resistance and high temperature resistance without compromising the strength or hardness of the material. Only with these materials will the oil refining and petrochemical production operate in a safe and efficient manner.

Specialised steel is required in the entire network of the oil and gas industry. The durability of the material is a key factor that cannot be undermined. The damage that a small component can have on the entire supply chain can be very devastating. Down time to facility in this industry can cost the company millions of dollars a day. Therefore, selection the most suitable materials is very important.

How Innovations in the Steel Industry Benefit Oil & Gas

Development of Lightweight, High-Strength Steels

The steel industry is constantly innovating, researching steel to make it stronger yet lighter. This has significant advantage for the oil and gas sector because it would mean that structures and facilities can be built lighter, improving efficiency. Offshore platforms can be built with lesser steel which would translate to lesser weight and ultimately lead to more cost saving from transportation and installation.

Corrosion-Resistant Steels

Corrosion resistance is another major factor for consideration in the oil and gas industry. The offshore structures are exposed to sea water perpetually and there is equipment in direct contact with unrefined fossil fuels that will degrade the materials and shorten the lifespan of the assets. Advance in corrosion resistant steel helps to extend the lifespan of pipelines, offshore platforms and refineries, reducing the maintenance costs and improve safety and durability of the infrastructures.

Steel’s Role in Renewable Energy Projects for Oil & Gas Companies

Long term sustainability, market demand and regulation, reputation and corporate responsibility are some of the reasons why traditional oil and gas companies are diversifying into the renewable energy sector. Regardless of which type of renewable energy projects they venture into, steel’s durability and flexibility makes it essential for construction of infrastructures for renewable energy projects. As more and more oil companies invest in green energy projects, it will only strengthen the relationship between steel and the energy sector. Therefore, the general shift in sustainability will not diminish the relationship between steel and the energy sector.

Challenges Facing Both Industries

Volatility in Oil Prices

The fluctuations in oil prices is one of the major challenges that both the oil and gas industry and steel industry face. When the prices of oil and gas fluctuate, energy companies usually adjust their capital spending accordingly to ensure that return of investment is kept at an optimal level. This would directly impact the steel demands from the oil and gas industry. Steel companies may then face an issue with capacity planning because of the possibility of sudden drop or spike in demand for steel, since long term infrastructural projects, such as pipeline expansion or construction of new refineries may be delayed or sped up depending on the oil prices. Therefore, oil prices create a volatile environment for both industries.

Supply Chain Disruptions

Supply chain for both steel and oil and gas industry are highly intertwined. Disruption to one will influence the other . Trade wars, natural disasters and political instability can cause major disruptions to the supply of raw materials, delay in shipments and may impact production schedules. For instance, a shortage of steel in the supply chain can cause oil and gas projects to be delayed, while a disruption in oil supply can slow down or speed up the demand for steel. Its interdependence emphasizes the importance of a robust supply chain and contingency plan for both industries.

Environmental Pressures and the Shift to Sustainable Energy

The oil and gas industry and the steel industry are two of the key industries in the spotlight when discussing the environmental impact of industrialisation. As regulations worldwide tighten around carbon emission and environmental sustainability, both sectors are investing in technology to transform their respective industries greener. In the steel industry, producers are developing processes to reduce their CO2 emissions, such as hydrogen-based steelmaking. In the oil and gas industry, stakeholders are adopting greener energy sources and technology. Transiting into a low-carbon economy presents numerous hurdles for both industries, however, it also offers meaningful opportunities for collaboration in sustainable solution development.

The Future of Steel in the Oil and Gas Industry

The Continued Demand for Steel in Energy Infrastructure

Even with the increased interest in renewable energy, oil and gas remains an essential component of the global energy mix for the time being. Therefore, steel will still be in demand for building, maintaining and upgrading pipelines, refineries, and offshore platforms. We should also expect greater demand for specialized steel with the exploration into deeper waters and regions with extreme environmental conditions for oil and gas.

The Role of Steel in the Transition to Low-Carbon Energy

The role of steel will play an important role in transition as investments in renewable energy projects increase. Regardless of wind energy projects or hydrogen storage facilities, steel provides the structural backbone for many renewable energy solutions. As oil and gas companies take steps to decrease their carbon footprint, we can expect them to increase the usage of carbon capture, utilisation, and storage (CCUS) systems. These systems are used to capture CO2 emissions from oil and gas operations and require durable and corrosion-resistant steel for long term viability.

Conclusion: The Symbiotic Future of Steel and Oil & Gas

There is a deep symbiotic relationship between the oil and gas industry and the steel industry. Each relies on the other to drive growth and innovation to a certain extent. Fluctuation in oil prices affects steel demands directly and indirectly, while advances in steel technology support the energy sectors drive for durable and efficient infrastructures. The common issues faced by both industries are the growing environmental pressure and push for decarbonisation, pushing both to evolve in the same direction. Regardless of the type of energy demands, oil and gas or renewable, steel will remain essential and therefore the relationship between these two industries will remain strong.