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Planned projects push OCTG sector forward

Keywords: Tags  OCTG market, steel tube and pipe market, Keystone XL pipeline, shale plays, TransCanada,

Headlines in the oil country tubular goods (OCTG) sector of the steel tube and pipe industry in recent weeks have centered around the delay until 2013 of a federal decision on whether to approve TransCanada Corp.’s proposed Keystone XL pipeline project

The setback has drawn much ire from the steel and energy industries, and some individuals have expressed fears that pipe earmarked for the proposed project will potentially spill into the market.

The situation also has led to questions about the pipeline permitting and approval process in the United States and could lead to future projects being put off or canceled, said David Delie, president of Little Rock, Ark.-based Welspun Tubular LLC, one of the suppliers of OCTG products for the Keystone XL project. “If you’re sitting on a board of directors and you’re being asked to push forward with a project, would this (XL delay) not cross your mind? It would have to. . . . And we’ll never know the real impact—how many pipelines that are on the edge, whether they get built or not,” he said.

Delie also expressed concern about what might happen to line pipe already produced for the proposed project and “sitting in different yards waiting to go somewhere,” noting that TransCanada could sell the pipe back into the market.

The general consensus, however, is that the delay won’t lead to excess pipe flooding the market. And a TransCanada spokesman told AMM that the energy firm intends to keep pipe for the Keystone XL project in storage because the Calgary, Alberta-based company thinks the project will go forward. “This project is too important to the U.S. economy, the Canadian economy and the national interest of the United States for it not to proceed,” he said.

Beyond the controversy surrounding the Keystone XL project, demand and prices have continued an upward march in the past year, driven by strength in oil and natural gas from shale plays.

A number of other North American projects requiring OCTG are either on the drawing board or have been started in recent months, including major projects in Texas, California and Canada and even some international projects playing a role, propelling demand further.

“An economist would tell you that high energy prices have a depressive effect on economic activity,” a recent issue of Preston Pipe & Tube Report said, but high energy prices are “sure helping steel, pipe and tube, oilfield services, etc., put people to work.” Preston Publishing Co., Ballwin, Mo., noted that the rig count surged 22.6 percent in 2011, while the overall U.S. economy expanded only at a low-single-digit rate.

The demand for oil and natural gas liquids from shale plays increasingly displaced the need for energy imports. At the same time, shale plays also boosted demand for energy tubulars, one trader said, chalking up the caution to fears dating back to the OCTG market crash of late 2008 and early 2009 in the wake of the financial crisis and ensuing recession.

But market turmoil and energy price volatility haven’t been enough to stop North American steel pipe and tube mills from plowing ahead with increases in OCTG and line pipe capacity. While production increases and facility upgrades generally have been in the works for years, the new capacity is coming online at a time when markets are jittery.

Enbridge Inc. received approval late last year to build a Canadian $180.1-million ($176.6-million) oil pipeline system to serve the Bakken shale, according to Canadian regulators. The Calgary, Alberta-based energy transmission firm plans to build the 76.7-mile pipeline and a new pump station to move crude oil from the Bakken and Three Forks formations in Montana and North Dakota to refinery markets, according to Canada’s National Energy Board (NEB).

The Bakken Pipeline, which will run from Steelman, Saskatchewan, to an existing Enbridge pipeline in Cromer, Manitoba, is expected to be in service in early 2013, the independent federal regulator said, helping to provide a continuous, long-term supply of oil to markets in eastern Canada and the U.S. Midwest and bolstering the competitiveness of refineries in both regions.

The Bakken shale, in particular, has seen robust activity due to its reserves of oil, unlike many other shale plays, such as the Marcellus, which contain primarily natural gas. The Bakken covers portions of North Dakota and Montana, as well as the Canadian provinces of Manitoba and Saskatchewan.

Several other companies also have projects on tap, including Vancouver, Wash.-based Northwest Pipe Co.’s production
ramp-up at its Bossier City, La., plant, which has been retooled to make welded OCTG and line pipe. Bossier City “is not where we want it to be” but it is starting to run better, Northwest Pipe president and chief executive officer Richard Roman said during a conference call with analysts. “We have made improvements every month since we started it up but we still have some improvements to make.” Roman pegged Bossier City’s capacity at 125,000 tons per year.

Northwest Pipe also is boosting capacity at its two other tubular plants in Atchison, Kan., and Houston. Atchison’s capacity is “proceeding as expected” toward 250,000 tons per year, up from 100,000 tons, Roman said, and the project should be completed during the first quarter, while the Houston facility, which can produce up to 50,000 tons annually, by the fourth quarter will see equipment upgrades to make tubing suitable for heat treating.

Northwest Pipe has two divisions, water transmission and tubular products, with the latter focusing increasingly on OCTG and line pipe due to the downturn in non-residential and infrastructure construction.

Tianjin Pipe (Group) Corp. (TPCO) has broken ground on its more-than-$1-billion seamless steel pipe mill in Gregory, Texas. The mill represents the single-largest investment by a Chinese company in a U.S. manufacturing facility, according to the China-based steelmaker, parent company of TPCO America.

The Gregory plant, which has an electric furnace, is expected to have an annual capacity of 500,000 tonnes of seamless steel pipe—including line pipe, drill pipe and OCTG—in the 4- to 10¾-inch-diameter range, depending on the product, according to TPCO America’s Web site. OCTG grades include K55, N80, L80, P110, HCP110 and Q125, and line pipe grades up to X70. Site preparation work and construction are under way, a TPCO spokeswoman told AMM, and the project is expected to be completed within three years.

TPCO’s project is just one of several large North American seamless tubular expansions that will cost hundreds of millions of dollars and add hundreds of thousands of tons in new capacity.

Luxembourg’s Tenaris SA continues to ramp up its new seamless energy tubulars mill in Veracruz, Mexico, chairman and chief executive officer Paolo Rocca said during a company conference call. The mill, which rolled its first pipe in November 2010, is operating at 60 percent of capacity, Rocca said, but he conceded that the focus on ramping up the new mill had “left some inefficiencies or some delay” at other company facilities. The $850-million mill is expected to have a seamless pipe capacity of 450,000 tons in 23⁄8- to 7-inch diameters, according to Tenaris’ Web site.

Meanwhile, Vallourec SA’s new $650-million seamless rolling mill in Youngstown, Ohio, expects to start delivering its first commercial, heat-treated premium pipe in July or August, with the mill reaching full capacity in 2013 (AMM, July 29, 2011). Once ramped up to full capacity, the new Youngstown plant will produce up to 500,000 tonnes of seamless pipe per year in 23⁄8- to 7-inch diameters, according to Vallourec’s Web site.

Evraz Inc. North America also announced a “multimillion-dollar investment” in energy tubulars at its Portland, Ore., pipe mill (AMM, Aug. 5, 2011). The mill’s foray into OCTG will bring total capacity there to 250,000 tons per year when the expansion is completed in August.

And Wheatland Tube Co., the Sharon, Pa.-based subsidiary of JMC Steel Group Inc., plans to invest $11.4 million at its facility in Warren, Ohio, to improve end-finishing capabilities and make the plant more efficient, a move that should mean a boost in OCTG production (AMM, July 27, 2011).

Part of what is fueling the slew of expansions is a number of ongoing or upcoming projects that are expected to affect OCTG demand: 

• Three Texas energy firms have joined forces to build a 580-mile natural gas liquids (NGLs) pipeline in the state. The Texas Express Pipeline—a joint venture of Enterprise Products Partners LP and Enbridge Energy Partners LP, both of Houston, and Anadarko Petroleum Corp., The Woodlands—is expected to begin in Skellytown and extend to storage facilities in Mont Belvieu. The three firms expect the pipeline and gathering systems to start service in the second quarter of 2013 with an initial capacity of 280,000 barrels per day but could expand to 400,000 barrels per day. Enterprise Products will build and operate the pipeline, and Enbridge Energy will build and operate the gathering systems. The project should provide natural gas producers in west and central Texas, the Rocky Mountains, southern Oklahoma and the mid-Continent region increased access to the Gulf Coast’s NGLs market, the three companies said.

• Venoco Inc. plans to build an 8.5-mile, 6-inch-diameter pipeline to transport crude oil in southern California, a company executive told AMM. The Denver-based energy company said it had received final approvals to install the pipeline to move crude oil from its South Ellwood field. “After almost three years in the permitting process, we are very pleased to announce we are ready to begin construction of this pipeline,” Venoco chairman and chief executive officer Timothy Marquez said in a statement. The pipeline, which is expected to be built by Venoco subsidiary Ellwood Pipeline Inc., will replace a barge that the company uses to move crude oil, reducing transportation costs and allowing the company to market the oil to more refineries, Marquez said.

• Enbridge plans to spend $1.2 billion to build a “twin” pipeline to the southern section of its existing Athabasca pipeline. The energy firm said the new 36-inch-diameter line, which will run approximately 210 miles from Kirby Lake, Alberta, to a crude oil hub in Hardisty, Alberta, is expected to enter service in early 2015 and be at full capacity by 2016. The new pipeline, needed to meet growth in Canada’s oil sands markets, will complement, or “twin” with, an existing 30-inch pipeline, the company said. “This project is a significant part of our overall plan to provide capacity for rapidly growing production from the Kirby area, as well as growth in projects further north in the Athabasca region,” Stephen J. Wuori, Enbridge’s president of liquid pipelines, said in a statement. Enbridge has earmarked $3.6 billion for expansions related to oil sands systems slated to go into service between now and 2015.

• Southern Union Co. plans to build a 60-mile pipeline as part of its $235-million Red Bluff project to serve the Avalon shale. The Houston-based natural gas storage, processing and transmission company said the expansion will include a natural gas processing plant as well as compression and treatment facilities. The Avalon shale covers parts of west Texas and southeastern New Mexico, and the Red Bluff project is designed to serve current and future production from the shale, Southern Union said. The pipeline, which is expected to be completed in mid-2013, will be able to move up to 20,000 barrels of NGLs per day to Lone Star NGL LLC’s Permian-to-Mont Belvieu pipeline expansion.

• Oklahoma City-based natural gas producer Chesapeake Energy Corp. has invested $150 million in Clean Energy Fuels Corp. in a move to develop 150 liquefied natural gas truck-filling stations. Chesapeake and natural gas fuel provider Clean Energy Fuels said that the stations along major trucking corridors will help form the backbone of “America’s Natural Gas Highway.” 

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