Experts say that Trump's tariffs against steel and aluminum will increase costs for US energy companies
The proposed U.S. steel and aluminum tariffs will increase costs for U.S. Oilfield Services companies that rely on this metal for their operations.
Oilfield service firms like ChampionX and Patterson UTI are the backbone for the North American oil and natural gas industry. They provide essential equipment and services to drill, produce and maintain. Steel is the lifeblood of these industries - drilling platforms, pipelines and refineries, compressors and storage tanks, offshore platforms, and offshore platforms. On Tuesday, Donald Trump doubled tariffs on Canadian aluminum and steel imports from 50% to 100%.
Half a dozen experts in the industry said that any tariff increase could have a negative impact on their production and operational costs.
Andy Hendricks, CEO of Patterson-UTI, said that 14% (or about $14 million) of the products they buy come from countries that are subject to tariffs. Peer ChampionX also warned that tariffs could increase equipment costs by as much as 10%.
Oil Country Tubular Goods (OCTG) are made from a special type of steel called hot-rolled coil (HRC). These tubes and pipes can withstand high temperatures, pressures and corrosion.
According to Wood Mackenzie's Nathan Nemeth, in 2024 the U.S. will import nearly 40% of its OCTG. In January 2025 Canada and Mexico accounted 16% of OCTG exports, indicating that buyers were stockpiling in anticipation of possible tariffs.
Census Bureau data show that U.S. steel imports from Canada and Mexico increased by more than 32 percent in January compared to the previous month. They reached 1,017.644 metric tonnes.
Rystad Energy predicts that tariffs will increase OCTG costs 15% per year. According to Ali Oktay, an analyst at S&P Global Commodity Insights, the U.S. price of HRC is expected to rise to $890 per ton by 2025. This represents a 15% hike from last year's average.
Mark Chapman is the principal analyst at Enverus for OFS Intelligence. He said that it will be more difficult for service companies to maintain activity levels and pricing in 2025. Since February 11, when Trump announced his plans to increase duties on metal and steel imports, shares of Patterson-UTI fell by 16.5%. Shares in ChampionX have dropped by 3.3%.
Chapman believes that costs will rise for Halliburton, as well as other firms such as NOV and Tenaris - key suppliers of steel pipes in the petroleum industry. Requests for comment from the three companies were not answered.
The price increase will be passed onto customers in the exploration and production sector, especially smaller producers that are more vulnerable to spot market prices.
"OCTGs account for about 8.5% drilling and completion costs of onshore wells within the Lower 48 States." Wood Mackenzie’s Nemeth explained that if oil prices increased by 25%, the cost of a well would increase by 2.1%.
The average cost of a well in the United States is typically between $8 and $9 million.
Chapman stated that "They (small-cap companies) are at the mercy" of service providers. With their strong balance sheets and diverse supply chains, large-scale producers like Exxon Mobil and ConocoPhillips are better able to absorb the costs. Oil prices are at their lowest level since the Russian invasion of Ukraine, which disrupted supply chain. Trump's desire to lower oil prices and increase production may not be in line with the profitability for producers.
In their regulatory filings, Venture Global Energy Transfer and Williams Companies warned that tariffs would increase project costs. This is particularly true for materials imported from abroad, such as steel and aluminium. (Reporting and writing by Vallari Srivastava, Bengaluru; editing by Stephanie Kelly, Matthew Lewis and Mrinalika Roy)
(source: Reuters)
