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June 27, 2000
Statement of Brian Petty, Senior Vice President, Government Affairs, International Association of Drilling Contractors
Click Here to view his Bio

IADC represents virtually the entire US drilling industry. What isn't commonly known is that the oil and gas industry doesn't own drilling equipment. Instead, oil and gas producers contract for drilling services. IADC's members own the equipment and are nomadic, seeking market opportunities elsewhere once oil or gas is found at a specific site.

Drilling equipment is steel and fuel-intensive. Two major elements of a drilling operation continuously consumed are diesel fuel and drill pipe. Drill pipe is a specialized product composed of a steel tube with joints for coupling forged on its ends.

Over the 1980's and early 1990's, the US domestic drilling industry - vital to the discovery of new sources of energy - suffered a huge decline. That can be best expressed in terms of the working rig count, which stood at over 4200 in 1982 and was slightly over 600 in 1993.

During that same period, manufacturers of drilling equipment - including drill pipe - declined. By the mid '90's, there remained but two US makers of drill pipe, with one company accounting for nearly 80% of all production.

Following its success in insisting that US antidumping and CVD laws be walled off from any interference from the newly created WTO, the steel industry - sensing a long-deferred rebound in the domestic oil and gas industry - pounced. A petition was filled at the ITC by makers of Oil Country Tubular Goods (OTCG) to exclude foreign imports from seven countries. The consuming oil, gas and drilling industries protested, but under current law have no standing in the ITC dumping proceedings. Ultimately, and predictably, the ITC recommended antidumping duties which had the effect of foreclosing most drill pipe and other OCTG from the US market, and this at the very time the domestic drilling industry was beginning to rouse itself from a long depression.

The Commerce Department - again, predictably - followed the ITC's recommendations, and almost immediately prices of OCTG spiked. Then came larger and larger delays in delivering drillpipe from the two surviving US mills - at one point as long as two years. The burden fell most heavily on smaller, less well capitalized companies. Also, the mills favored their bigger customers in terms of delivery. Smaller companies understood they dare not complain to the mills, lest they be bumped to the back of the order queue. IADC appealed to the Commerce Department to waive dumping duties until a more reasonable supply and demand balance was found. Commerce vacillated, first insisting IADC had no standing to request such a waiver. Then, under political pressure from Capitol Hill, Commerce claimed it could entertain such a request if framed as asking for the Department to "self-initiate" a review of the order. IADC then formally submitted its request in July 1997. No response came until March 1998 - eight months later. And that response was a flat no. Commerce claimed it had gathered information from the petitioners enjoying the fruits of the order and was satisfied no waiver was necessary. Of course IADC never saw the information or had the opportunity to rebut it.

That brings us pretty much up to where we find ourselves today. But the situation grows more ominous, especially as the economy grows and demand for energy - especially clean energy like natural gas - grows. Earlier this year, the National Petroleum Council report to the Secretary of Energy forecast natural gas demand to grow by 60% in the next decade. That demand will be driven by environmental considerations and a wholesale shift of new electric generating capacity from coal to natural gas. However, the antidumping walls thwart these goals, affecting not just drill pipe, but other steel goods necessary for energy production and transportation.

Much of this nation's new supplies of natural gas are located in new fields in the deepwater Gulf of Mexico. But much of the OCTG necessary to produce that gas is excluded from the US from the US market by operation of dumping duties. Casing for well completion and tubing to bring the gas ashore are subject to rigid, market-blind dumping orders. Because of the deepwater depths, conventional undersea pipelines are generally unfeasible. New technologies involving miles-long refrigerated coils of gas brought by tankers will have to be employed, and that will require specialized steel alloys and dimensions available only on the other side of our high dumping walls.

I will close by quoting from a letter Exxon Corporation wrote in 1995 at the initiation of the OCTG investigation by the ITC. The points made then remain as valid today, but with more urgency:

"If granted, the Oil Country Tubular Goods (OCTG) anti-dumping petition currently being investigated by the United States International Trade Commission (ITC) would effectively eliminate the importation of products not currently available from US manufacturers that are essential to the domestic petroleum industry. Moreover, imposition of duties on imported OCTG would increase costs for this industry, directly impact the prices consumers ultimately pay for petroleum products, and could result in further declines in oil and gas production and employment in this country. For these reasons, we respectfully request your consideration of the following comments and the potentially negative effects these proceedings could have..

"On several occasions, we have requested bids from our domestic OCTG distributors to supply these specific items but have not received any bids for qualified products from domestic steel mills. As a result, we have had to rely on imported products to meet our essential needs..

"In summary, this petition raises serious concerns over the potential production and employment impacts of higher costs on the domestic petroleum industry and the prices consumers ultimately pay for petroleum products. Moreover, no one will benefit if duties are assessed on essential goods that are available only from imported sources.."

It's high time this nation's energy security no longer be held hostage by those in the steel industry who enjoy government protected markets and profits. The oil and gas exploration and production industry accepts the rigors of global competition so - should steel.