Think of the hundreds of thousands, possibly millions of miles of pipes and pipelines around the world, compliantly delivering enormous magnitudes of black gold and natural gas. This endless network is the lifeline to much of the world’s energy needs – if the reservoir is the heart, then the pipelines are the arteries.
It would seem simple enough: just weld a lot of steel pipes together from the production site to the refinery or petrochemical complex. However there are many considerations to consider, from pumps, valves and flanges, to cathodic protection and pigging, to specialist materials and coatings. Just like any other forms of transportation, there are many logistical issues to consider.
One such factor has been sparked by the sudden drop in raw material prices that has happened in conjunction with the huge oil price falls, in particular the price of steel. Although high grade API (American Petroleum Institute) has been less affected, the fall has led to problems in the market place.
Speaking exclusively to Oil and Gas Middle East, managing director of Dubai-based Armana Pipeline, Nabil Helou, highlighted the recent trend of raw material prices falling in the market place, leading to cheaper piping.
“We are a contractor, so we procure, purchase, insulate, coat, line and install the pipelines. Definitely prices have dropped – you are finding that pipe prices have fallen by 20-30% over the last six months,” says Helou.
“Coupled with that is another problem; because demand for piping has reduced there are a lot of steel mills closing down. As this happens you end up with minimal supply and also minimal availability of demand. Now demand has dropped, supply has dropped.”
Recently, Japanese steel manufacturers, Sumitomi Metal Industries, announced that it expected demand for steel pipe used in the energy sector to remain steady in 2009 while demand from other sectors does begin to fall. Fumio Hombe, vice president of Sumitomo Metal, added that demand for seamless steel pipe used in the oil and gas and petrochemical sectors has changed very little amid falling oil prices.
“The energy majors continue to be interested in pursuing resource development and the trend for seamless pipe demand stays firm. This market is different from other steel markets,” says Hombe. “Due to volatile oil prices, some national oil companies partnering with the energy majors have implemented cost cutbacks, but I expect in the second half of 2009, demand will come back.”
Sumitomo Metal is currently running its two seamless pipe plants in Japan at almost full capacity. The plants have a combined capacity of 1.22 million tonnes per year of steel pipes. It also produces welded pipe at the Kashima steelworks near Tokyo, which is currently undergoing expansion.
As a result of demand slumps in the construction, machinery and automotive sectors, Sumitomo Metal itself cut crude steel output to 2.66 million tonnes in the first quarter of 2009 from 3.36 million tonnes in the fourth quarter of 2008.
“Last year it was all exaggerated prices and the steel manufacturers made money out of these – the figures were high because 2008 was a boom year and the producers took advantage of this situation,” says Pram Kishnan, chief accountant of Sharjah Steel Pipe Manufacturing (SSPM).
Established in 1982, SSPM specialises in providing steel-welded pipes to the Middle Eastern market. The company was established by two prominent business groups in the UAE, the Al Hasawi Group of Sharjah and the Al Daheri Group of Abu Dhabi, and currently has what the company describes as a “modern and sophisticated” facility located in the Emirate of Sharjah, in the UAE.
“This year it will go back to 2006/07 prices. Steel is very much in demand, but the market is almost stagnant and has been for the past month or so. We expect it to bounce back next month (February),” comments Krishnan.
The grade of steel used makes a huge difference to the final quality of a pipe product and therefore SSPM deals only with premium milled steel products in order to meet market demand, reports Krishnan.
“If I give a client commercial steel they will throw me out,” he states. “For all government projects API (American Petroleum Institute) standard grade steel is used for line pipe… as this meets the requirements and is used for projects such as district cooling. The demand will remain stable this year because we have to finish projects underway,” states Krishnan.
Proclad
A company which specialises in the coating of pipes in order to protect against corrosion, especially when the oil and gas is highly sour – as it is in Abu Dhabi – Proclad Group’s CEO, Yaseen Jaffer was on hand to provide some more insight into the market, and to tell us about the imminent opening of their TechnoPark facility in Dubai.
“We have been working for two years on our TechnoPark site which will become the global headquarters for the company. It is a 2 million ft2 plot that will contain our cladding manufacturing process, oil tool equipment, valves and wellheads, and for the first time in the Middle East induction bending of pipes,” says Jaffer.
“It will also house the Proclad R&D Centre, with a number of global oil companies who are interested in using the centre, as well as the Proclad Academy, which will focus on training engineers and technicians in the oil and gas field.”
He adds that the advantage of having the R&D and training facility adjoined to the manufacturing plant enables immediate access to the workplace. The New Proclad TechnoPark facility is due to open at the end of this year, although he states that it is near to completion already.
“After the economic crisis we were wondering whether projects may be stalled or delayed, but we have since seen large projects both in Saudi Arabia and Abu Dhabi. Oil projects will continue, contracts may be negotiated with savings of up to 20-30%, and I think now is the time for refurbishment and maintenance of existing facilities,” says Jaffer.
Demand is also still high for Proclad, according to Yasser, and with Chinese and Indian populations still growing, with energy demand, business should remain strong for the foreseeable future.
“We are supplying to Petroleum Development Oman (PDO) in Oman, and are bidding for new jobs to Saudi Aramco and ADNOC, as well as in Algeria, Libya and Brazil. Our philosophy has always been to target the niche market, with our niche being cladding,” explains Yasser.
“The oil and gas industry is still one in which we want to expand our business, and the new TechnoPark facility should go along way to helping us achieve this.”
Pipeworks
Regional distributors of mainly valves and flange fittings to the utilities, construction and oil and gas industries, Pipeworks was formed in 2007 in Dubai to act for some of the “poorly represented” manufacturers in the region.
According to their managing director, Gary Brodie, the time has come for the industry to stand up and take note of the Chinese manufacturers who have been scoffed at and spurned for too long.
Many of the world’s manufacturers of valves and fittings are either relocating their manufacturing to China or they are sourcing material from China, yet there is still a resistance from companies to use anything of Chinese origin,” he states.
“I have been to hundreds of valve factories in the country, and what people fail to understand is just how state-of-the-art they are, with brand new machines, brand new technology, fully audited and first class. The quality of the products produced there can be equal or better than the quality from traditional manufacturers.”
He iterates that this trend is mainly for the lower-grade steel products, but that API standard steel products should follow suit. Whether the oil and gas companies will be ready to buy the new and improved Chinese products is still debatable, however.
Speaking of the current trends in the oil and gas market, Brodie expresses his belief that the adoption of more exotic materials will continue, and that the Chinese manufacturers will eventually rule the roost.
“The move to more exotic materials due to corrosion and offshore weight factors will continue. There is also a resistance to approve new manufacturers, especially in the GCC where they will inspect a product very thoroughly and make sure the specifications are clear,” he says.
“But just like in other industries the Chinese will get their act together and they will rule the valve business and control it around the world. They already have many API certified manufacturers, who are in the middle of a learning curve but will get there soon.”
Enbridge
Canada’s Enbridge operates, in both Canada and the US, the world’s longest crude oil and liquids pipeline system. These pipeline systems have operated for over 55 years and now comprise approximately 13 500km of pipeline, delivering more than 2 million bpd of crude oil and liquids.
Enbridge is also involved in liquids marketing and international energy projects, and has a growing involvement in the natural gas transmission and midstream businesses, through the Alliance and Vector pipelines and various US assets that transport, gather, process and market natural gas and other petroleum products.
SMX International
The freshly re-branded pipe connection and flow control Canadian firm, SMX International, recently launched its next generation of non-slam nozzle check valve, which it says provides faster dynamic performance than previously thought possible and the lowest pressure loss of any valve currently on the market.
“The development of this next-generation non-slam nozzle check valve combines our knowledge and experience of nozzle check valve fundamentals with innovative engineering to produce an optimised design, using the very latest advanced engineering design tools,” SMX International CEO Rob Muddiman states.
“Its exceptional performance provides improved protection of mechanical equipment, and significantly reduces operating costs. We have already seen massive interest in this valve from process plant and pipeline operators we’ve shown it to globally, and now that it is available, we are anticipating strong demand.”
