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Linepipe pricing at the mercy of material costs

May 17, 2022 | 08:03 AM |

Linepipe pricing and demand is being impacted by surging raw material costs while the nascent market for carbon capture and storage and hydrogen is beginning to grow, reports Una Yin.

Through the start of 2022, pricing movements in the welded pipe markets have been largely determined by the relative ability of producers to secure raw materials and at what price. In the large-diameter linepipe market, global supply-demand fundamentals show that demand is still running short of historical consumption levels as well as suffering from low expectations following the two-year slowdown resulting from the global Covid-19 pandemic.

Elevated oil and gas prices support potential energy-transmission project development, which was showing signs of recovery before the invasion of Ukraine. Demand in Europe and North America remains limited, with some isolated projects tendering globally – mainly in the Middle East and Asia. Large export-oriented LSAW (longitudinal submerged arc welding) mills in Europe, however, face steep competition due to their high steel costs. European X65 linepipe now costs (on a fob basis) the equivalent of around €805/tonne more than Japanese pipes, €875/tonne more than Indian pipes, and €1,080/tonne more than Chinese pipes.
European LSAW producers continue to face a tight plate market, which resulted in steep cost-driven pipe price hikes in March and April 2022. European LSAW prices jumped by as much as €300 per tonne in April on the month, following a €600 per tonne surge in March.
Tightness in the API-quality (made to the specifications for energy transmission) plate market was exacerbated by the European standard commodity plate market’s scramble to secure alternative slab supplies. Re-rollers in southern Europe were left with short supplies of slab following Russia’s invasion of Ukraine. They are now securing slab shipments from China, although not in the tonnages needed to fully replace supplies from Russia yet. Prices for non-sour API plate to grade X65 rose by €250 per tonne, and for equivalent sour plate prices rose by an even larger €295 per tonne in April.

US LSAW linepipe prices increased by $260 per tonne month-on-month, but pipe producers continue to face reduced demand prospects domestically as there is little project work in the offing and what is there is holding out for a price retreat.
Again, pricing is based on steel substrate cost movements rather than pipe market fundamentals. US plate pricing remained steady at high levels through the first quarter of 2022, even as HR coil prices faltered. There have since been further increases as a result of the resurgence in steel pricing following the start of the war in Ukraine and the shortage of pig iron and steel slab in the global market. Plate order books are stretching into June as of late April, which will support pricing in the second quarter.
Fastmarkets is hearing of very limited activity in the US market – mainly from repairs and replacements. Distributor stocks of pipe have been held low due to high prices. Overall, buyers are holding off on orders or tenders until the prices decline. Capacity utilization at US LSAW, as well as HSAW, facilities is modest at best, with Fastmarkets estimating that output rates are in the 10-20% range. HSAW mills are running at the lowest rates of all the pipe mills, with only one site in the region understood to be running at present.
Asian export linepipe prices also increased due to production cost rises in early 2022, but not to the same extent as European and US advances. Japanese X65 LSAW and X65 ERW both gained $50 per tonne month-on-month in April, although order entry was slowed due to uncertainty over raw materials, energy and transportation costs. Japanese exports face competition from mills in India and South Korea, while China has not fully returned to the export market. Indian producers are using Chinese plate to reduce costs and therefore offer lower prices. Chinese fob prices rose $30 per tonne at the start of the second quarter, but a lack of domestic demand could prompt further competitive offers from China.

New avenues for demand
Fastmarkets expects that linepipe producers will be compelled to the sidelines of the market again in 2022 as high costs have delayed a significant amount of project work and have thus delayed a return of demand for their products. Longer-term, the market is holding out for new project activity in 2023-24, when pricing is expected to be favorable. By this time, oil and gas transmission capacity bottlenecks will be brought to the fore yet again in the US shale basins, as previously cancelled projects are reconsidered and liquefied natural gas (LNG) export facilities are approved, demanding gas supply-line construction.
In Europe, with natural gas supplies from Russia either cut off or threatened by European countries looking to reduce demand for Russian energy products, new supply lines will likely need to be developed over the longer term. The picture should become clearer through 2022, but the war in Ukraine has put energy security – along with climate change concerns – into the spotlight.
Climate change initiatives will shape future energy usage and alter demand for pipelines. In the US, pipeline approvals now include climate considerations, while existing pipelines have come under deeper scrutiny regarding methane emissions. Pipelines will also serve an important role in the development of carbon capture and underground storage (CCUS or CCS) as well as hydrogen power.
Industries in North America and Europe are leading the charge in carbon reduction via new technologies or sequestration. So far, the grade or regulatory requirements for pipe to transport hydrogen or carbon dioxide are often the same as is required for natural gas or oil, but the type and quality of the pipe used for future transmission of hydrogen or carbon dioxide is under study. The expansion of CCS and hydrogen systems is expected to spark further regulation and oversight of these lines in addition to the current oil and gas coverage. 

CCS and hydrogen pipe
For CCS pipe, carbon steel pipe, either welded or seamless, is used, with grades usually ranging from X60 to X120. Wall thickness tends to be higher than that of a natural gas pipeline. Polyethylene is a common coating for CCS pipelines, with cement coating common for offshore lines. Vallourec and Nippon have supplied seamless linepipe for offshore projects.
High-quality pipe is very important because pipeline leaks of any kind are of course to be avoided, and the odorless properties of carbon dioxide would make it more difficult to detect them. The high concentration of carbon dioxide, as well as potentially hydrogen sulphide and water, in CCS pipe increases the likelihood of corrosion, so anti-corrosion measures will likely be higher than for conventional oil&gas pipe. The temperature and pressure of CCS pipe can be controlled to maximize its capacity, but that could result in much lower operational temperatures than usually experienced for natural gas, so a pipe capable of withstanding very cold temperatures may be needed, especially for offshore applications.

CCS pipes typically operate at a pressure of around 1,250-2,200 psi, while natural gas is usually piped at or below 1,200 psi. The depressurization process could result in a pipe cracking, so a higher wall thickness than is used for natural gas is needed.
For hydrogen pipelines, pipe embrittlement is a higher risk, as is the flammability and the ignition properties of hydrogen, but pressures and temperatures are lower. Hydrogen can be combined and transported with natural gas. Embrittlement is reported to be avoided through transmission in this manner provided the concentration of hydrogen is 5-10%. Hydrogen can also be more corrosive than natural gas, depending on any impurities included in the mix.
X42, X52 or A106b carbon steel pipe can be used, as generally a lower strength is needed, but with a potentially higher wall thickness. ERW, SAW or seamless pipe can be used, depending on the exact application, but Fastmarkets understands that seamless is used when pure hydrogen is transported, while welded pipe is used for a mixture of hydrogen and natural gas. When an alloy steel is recommended, molybdenum, chrome, copper or cobalt are among the metals used as alloying ingredients.
Increased CCS pipe demand

At present, the number and length of CCS lines is small compared with potential future demand. For the US, market participants suggest that 30,000 to 65,000 miles of CCS pipe could be put in place under current carbon-capture guidelines, with just over 5,000 miles currently in service.
The US and Europe are leading the development of carbon reduction so far and they are expected to continue to do so as those regions will make up most of the new carbon capture capacity that is expected to reach over 550 million tonnes of carbon dioxide per year globally by 2030. Europe has set goals for net zero carbon emissions by 2050 from a current production of 3-billion tonnes of carbon dioxide released per year. The interim goal is for a 55% of 1990 carbon emissions reduction by 2030.

In the US, a December 2021 Executive Order by President Joe Biden calls for the federal government to reach net zero carbon emissions by 2050 and a 65% reduction of 2005 levels by 2030. For the US as a whole, the goal has been set for 50-52% reduction of 2005 emissions by 2030. In 2020, US carbon emissions reached 5.3 billion tonnes.
European carbon capture is currently at 7-million tonnes per year and expected to increase to 222-million tonnes per year in 2030. A similar level of capacity is expected to be implemented in both Canada and the US. Canada’s budget this year includes a 37.5% tax credit for CCS transportation systems. The US maintains a $50 per tonne tax credit for carbon dioxide reduction, but that could be increased to $85 per tonne of carbon dioxide if the US Build Back Better bill is passed. The viability of CCS projects depends on the available tax credits. While the high prices of pipe as of now may put the viability of projects into question, higher incentives or multiple incentives for their implementation would support positive final decisions.

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