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February 2012
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Weak demand and overcapacity have hurt producers of spiral welded pipe, who are pinning their hopes on new pipeline projects like the controversial Keystone XL.

By Myra Pinkham, Contributing Editor

North American spiral welded pipe producers saw a challenging year in 2011, and expect another one in 2012, unless the U.S. economy—and therefore industrial natural gas consumption—snaps back faster than anticipated.

Contributing to the challenging business conditions is a large oversupply of API-grade large-diameter double submerged arc welded (DSAW) line pipe used for the transmission of oil, natural gas and natural gas liquids from the drilling sites to consumers. Production capacity nearly doubled in 2009 when five new spiral weld DSAW pipe mills came on line, adding over 1.25 million tons of capacity to the market, just as new pipeline projects began to dry up.

“The companies decided to build these mills based on the fact that from 2006 to 2008, the existing DSAW mills were going like gangbusters,” says Paul Vivian, a partner with Preston Pipe Report, Ballwin, Mo. Prior to 2009, the entire North American large-diameter API-grade pipe capacity was only about 2 million tons, largely using longitudinal or straight seam welding, at a time when many new energy transmission projects were in the works.

During the peak of this demand, a large percentage of DSAW pipe was imported because of the long lead times at the domestic mills. “At that time, it made sense to expand the market’s production capacity and to do so by building spiral welded pipe mills,” says Kimberley Leppold, senior steel analyst for London-based Metal Bulletin Research. “That way the mills could come on line quicker than with a traditional longitudinal DSAW pipe mill, and the companies could produce large-diameter pipe at a cheaper price.”

Spiral welded pipe starts with a coil that is formed into a helically shaped tube, similar to the cardboard tube found inside rolls of paper. Using a cage rolling process, the mill places a weld on the inside seam, followed by one on the outside seam. This continuous process creates pipe with a barber pole effect, as opposed to the straight seam of electric resistance welded (ERW) or longitudinal welded DSAW pipe.
 
Spiral welded pipe-making technology dates back to 1927, says Rob Simon, executive vice president of Evraz North America’s Tubular Products Group. The Evraz mill in Regina, Saskatchewan, (then run by Ipsco Inc.) was the first mill in North America to produce API-grade large-diameter spiral pipe for the transmission of oil and natural gas in 1969. Today, Evraz operates four spiral weld mills in Regina and two in Portland, Ore.

API-grade spiral welded pipe is also produced by Berg Steel Pipe Co. in Mobile, Ala.; Stupp Corp. in Baton Rouge, La.; PSL North America LLC in Bay St. Louis, Miss.; United Spiral Pipe (a joint venture of U.S. Steel Corp. and South Korea’s Posco) in Pittsburg, Calif.; and Welspun Tubular LLC, Little Rock, Ark. All of these companies entered the market in the 2008-09 timeframe, contributing to the oversupply situation that is weighing on the market today, says Christopher Plummer, managing director of Metal Strategies Inc., West Chester, Pa.

Other North American mills produce spiral welded pipe for structural and water transmission applications, but these are relatively small niches. Scott Montross, chief operating officer for Vancouver, Wash.-based Northwest Pipe Co., estimates that spiral welded water transmission line pipe is only a $400 million to $500 million per year market.

As opposed to the energy sector, demand for water transmission pipe was relatively healthy in 2011, as a number of municipalities let orders for pipelines, Montross says. He expects fewer quotes this year as government agencies struggle to fund such projects, despite the huge need to replace aging municipal infrastructure.

Nevertheless, Northwest Pipe plans to expand the production capabilities at its Saginaw, Texas, manufacturing facility, including two new buildings, upgraded hydrostatic testing equipment, extended cement mortar lining capabilities and new paint equipment. The project will increase the diameter and thickness ranges of the spiral welded pipe produced there to a maximum of 126 inches by 1 inch.

Montross says this expansion will position the company to land certain water transmission contracts expected in the next three to five years. They include the Tarrant Region Water District’s planned 147-mile Integrated Pipeline project in north Texas, which will bring additional water supplies to the Dallas/Fort Worth area by 2018.

While structural applications for spiral welded pipe are slowly improving, including some new activity in offshore loading, port activities and other infrastructure improvements, demand for structural tubing is highly dependent on the nation’s jobs recovery. “There isn’t much of a need to build new buildings, roads and bridges when unemployment is so high,” says Vivian at Preston Pipe Report. “Any pickup relies on economic recovery, and that won’t happen overnight.”

When it comes to energy-related applications, electric resistance welded pipe can be manufactured more cheaply than DSAW, notes Simon at Evraz. However, the outer diameter of ERW pipe is limited by the maximum width of the coil available, generally to 24 inches. Longitudinal or straight seam DSAW pipe is limited by the plate width, keeping it to a maximum of a 42-inch OD. In contrast, spiral welding can produce pipe up to 60 inches in diameter and in 80-foot lengths, as opposed to the 40-foot sections of most longitudinal DSAW mills.

Ty Serrill, product manager for PSL North America, says the 80-foot lengths offer major advantages. They maximize the space on each railcar, keeping transportation costs down. They minimize the number of welds that must be done in the field, saving time and expense, and allowing contractors to lay the pipe more quickly. Plus they require fewer welds that must be inspected.

Few pipeline companies make much of a distinction between spiral welded and long seam DSAW, however, says David Delie, president of Welspun Tubular. “They just look to use large-diameter line pipe.” With many pipeline projects winding down or completed, demand for large-diameter pipe has been fairly weak for the last year, says Delie, who expects that weakness to persist this year.

Not that there isn’t a lot of drilling activity. Booming exploration in the shale plays in the United States and Canada has boosted demand for oil country tubular goods, and for small-diameter line pipe as well. But not many new large-diameter pipeline projects have been announced, and those that are going forward tend to be shorter in distance, say suppliers.

“This is why everyone is chomping at the bit to get the Keystone XL pipeline going,” says Leppold, referring to the $7 billion, 1,700-mile pipeline proposed by TransCanada Corp. to transport crude oil from the Alberta, Canada, oil sands to refineries on the Texas Gulf Coast. Those hopes were dashed last month, at least for the time being, when President Obama opted to deny a permit TransCanada needed to proceed with the pipeline, which was to pass over environmentally sensitive aquifers in Nebraska.

Had the project been approved, it would have consumed an estimated 1 million tons of line pipe, much of which was already produced in anticipation of the project, which was to have commenced in September 2010. Canada has said that if the U.S. blocks the pipeline, it will transport the oil from its tar sands via its West Coast ports to China.

The Obama administration’s decision not only creates problems between the United States and Canada, but it could taint the whole pipeline permitting process, says Delie. “Everyone will now take a second look before building pipelines.” He believes it isn’t so much a threat to Nebraska’s Ogallala Aquifer that is behind environmentalists’ protests, but the fact that this project would expand America’s use of carbon-based energy, at least for a time. “There are already a number of pipelines running through that aquifer. I would think there would be more concern about the older pipelines already located there than a new one,” he adds.

About 100 manufacturing, oil and metals industry groups had asked the Obama administration to approve the pipeline, given its potential to create new jobs and reduce the country’s dependence on foreign oil. TransCanada estimates the pipeline would create 13,000 construction and 7,000 manufacturing jobs.

“I’m eventually expecting to see a push from the shale plays, especially the Marcellus,” says Leppold at Metal Bulletin Research. While some of the shale plays, especially the oil plays, are close to existing pipelines, others will eventually need more transmission lines.

Shifts in U.S. population centers will someday require new pipelines to transport natural gas and oil to new places, but that won’t occur until the housing market recovers, adds Vivian.

Serrill at PSL says there is also hope the recently enacted Pipeline Safety, Regulatory Certainty and Job Creation Act will help the large-diameter line pipe market stay afloat despite the current overcapacity. “As more inspections are done, more pipelines could be replaced,” he says.

Some of the nation’s existing pipelines are 40 to 50 years old, says Vivian, even though they were only designed to last for 20 years. Yet without a healthier economy and more financially solvent municipal governments, they are unlikely to be replaced any time soon.

Currently the spiral welded pipe sector is operating at only about 50 percent capacity utilization, he adds. “That should improve as the economy gets back on track, probably by 2013 to 2015.”

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