MEIS 2018: Middle East tube, pipe demand to remain strong for next five years

The demand for oil country tubular goods (OCTG) and linepipes in the Middle East region is expected to remain strong in the next five years supported by the development of oil and gas drilling and infrastructure, James Ley, principal consultant of Fastmarkets MB research, said at the 22nd Middle East Iron and Steel Conference in Dubai, on December 10-12.

Local producers will definitely benefit from this because leading regional energy companies are pushing for the requirement of local content in their supply chains to reduce dependence on imports.

Namely, in December 2015, Saudi Aramco launched In-Kingdom Total Value-Added (IKTVA), which aims to achieve 70% local content within the company’s supply chain by 2021.

In 2018, the United Arab Emirates’ (UAE) Abu Dhabi National Oil Company (ADNOC) followed Aramco and launched the In-Country Value (ICV) program.

“Both companies use approved independent auditors to go to their suppliers to generate a “local content” score, which is based on a number of criteria, such as percentage of local Emirate/Saudi employees, manufacturing operations in the specific country, use of local products in finished-product deliveries and training of local employees,” Ley said.

The consumption of OCTG in the Gulf Cooperation Council (GCC) region reached around 1.3 million tonnes in 2018 up from 1.15 million tonnes last year on major national oil companies’ strong performance in their long-term contracts.

Compared to previous years, when most pipe supply tenders were for a two to three year drilling program, in 2018 some oil companies moved out to five-year tenders, Ley said.

Saudi Arabia dominated the market with its consumption of OCTG products reaching 450,000 tonnes per year in 2018. This is followed by the UAE, which consumed 250,000 tonnes in 2018 and domestic demand continues to rise, according to Ley.

Around 90% of OCTG consumption in the GCC region is seamless pipes and despite the increasing construction of seamless mills in the GCC, especially in Saudi, the region still imports more than it produces domestically.

“A significant tonnage of seamless pipe is still coming from global giants such as Vallourec, Tenaris, Nippon Steel & Sumitomo Metal,” Ley said, adding that in 2018 the GCC imported around 900,000 tonnes of seamless pipes while local production was around 400,000 tonnes.

Saudi Arabia has two seamless pipe mills (Arcelor Mittal and JESCO) with a combined theoretical capacity of 1 million tonnes, and with the possibility of a third seamless tubing mill – from the Gulf Tubing Company – in planning it may be hard for local producers to expand regional market share. This is because the GCC recently rejected a dumping case against China for seamless OCTG and linepipe, Ley told delegates.

While national oil companies in the GCC, such as Saudi Aramco, Qatar’s RasGas, the UAE’s Adnoc and British Petroleum in Oman, are increasing drilling in sour gas fields, Fastmarkets MB research expects growing demand for high alloy grades of OCTG over the next five years, which may create opportunities for local, small-capacity production or finishing facilities to increase higher alloy-grade output.

In general, OCTG consumption in the GCC region is forecast to reach 1.33 million tonnes in 2019 and 1.36 million tonnes in 2020, according to Fastmarkets MB research.

Consumption of large-diameter welded linepipe in the Middle East reached 2.2 million tonnes in 2018, according to Fastmarkets MB research’s estimates.

Longitudinal submerged arc-welded linepipe produced from quarto plate (LSAW) accounted for above 60% of the total volume, followed by spiral submerged arc-welded linepipe (HSAW) standing just below 30%. Electric resistant-welded linepipe (ERW) accounted for the remaining volume. HSAW and ERW pipes are produced from hot-rolled coil (HRC).

While the HSAW and ERW markets in the Middle East are largely balanced, the LSAW market still remains reliant on imports despite the development of local capacities, Ley said.

For example, the GCC’s theoretical capacity of LSAW tripled between 2010 and 2018 reaching 1.5 million tonnes, but domestic production figures only managed to double from 400,000 tonnes in 2010 to 800,000 tonnes in 2018.

One of the reasons for the lag was the increased need for American Petroleum Institute (API) plate imports.

“The lack of local plate supply can impact local LSAW pipe mills competitiveness against integrated Asian LSAW mills,” Ley said.

“In Feb 2018, Saudi Aramco, Nippon and Sumitomo Corporation signed an MoU [Memorandum of Understanding] to conduct a feasibility study for an integrated steel mill to produce steel plates in the Ras Al-Khair area. This project is in support of IKTVA,” added.

Demand for large-diameter linepipe in the Middle East is forecast to remain at around 1.5-2.5 million tonnes per year through to 2023, with the GCC needing around 700,000 tonnes of LSAW linepipe, according to Fastmarkets MB research.

Due to it being the same in the seamless pipe segment, local steel manufacturers are likely to increase pushing to develop sour grades of HRC and plate for increasingly challenging pipeline environments, Ley concluded.