The theme of this Q&A is “Why pipes matter.” Can you address this question in a
nutshell?
A. Definitely. As you know, the era of cheap, easy oil is over. The International Energy Agency estimates that 70 percent of the world’s remaining oil reserves consist of crude oil with either high sulfur or CO2 content that requires high quality, corrosion-resistant materials. In order to keep up with demand, oil companies must identify new technologies to develop these heavy oil reserves. The same is true of gas – gas from more than 50 percent of the world’s gas fields is highly corrosive. In these challenging environments, oil and gas developers need to leverage every available technical solution to maintain optimal production. A key element is the integrity of risers and flowlines, which is where corrosion-resistant clad pipe comes into play.
Q. Why is clad pipe important, as opposed to other types of pipe?
A. According to the World Corrosion Organization, corrosion costs $2.2 trillion to the global economy, or roughly 3 percent of the world’s GDP. Almost 45 percent of the cost of corrosion – about $1 trillion annually – is attributable to the oil, gas and petrochemical industries. As operating environments in these industries become increasingly challenging as a result of higher temperatures, higher pressures, higher corrosion and higher wear, the demand is increasing for materials that can better withstand these environments. Internal research shows that of the 225 oil and gas fields now being planned and developed across the globe, 158 are highly corrosive.
It is imperative for oil and gas producers to use corrosion-resistant clad pipes in such environments to enable more efficient and — most importantly — safer operations.
Q. What is Abakan doing to help to meet this need?
A. Oil majors have cited the low productivity of current processes as the top reason limiting the adoption of metallurgically clad pipes on a much larger scale. MesoCoat, an Abakan subsidiary, is a surface engineering company specializing in metal protection and life extension materials. The technologies that we are introducing in the market offer 40 times higher productivity compared to current metallurgical cladding technologies. In particular, our CermaClad high-speed technology uses a high intensity light source — an “artificial sun” — to rapidly fuse anti-corrosion and anti-wear materials to large areas of steel, including pipes. We like to use the analogy of a pencil versus a large paint roller: current pipe-cladding technologies are like painting a large wall with a pencil, while our technology is like painting it with a large roller.
These technologies provide twice the value proposition in almost every application, meaning twice the life at current costs or the same life at half the cost when compared to competing technologies.
We recently completed construction of an 11,000-square-foot, full-scale pipe cladding facility in Euclid, Ohio, for cladding the interior diameter of 8- to 36-inch pipe. The facility, with a production capability of 20 kilometers of 10-inch clad pipe, will be one of the largest clad pipe manufacturing facilities in the United States when it is fully operational, as well as one of the largest in the world. We plan to follow the manufacturing demonstration with qualification and certification to industry standards, leading to market introduction and rollout by midyear.
Q. What is the market for pipe-cladding technology?
In a word – huge. The market for metal cladding with corrosion-resistant alloys is more than $3.8 billion, which includes the $2 billion clad pipe market. This market is expected to double in size as the global oil and gas capital expenditure is expected to increase from $1,036 billion in 2012 to $1,201 billion in 2013, registering a growth of 15.9 percent. The trend of increasing capital expenditure is expected to continue for the foreseeable future, especially driven by reserves that are deeper and farther away from the shore. Infield Systems Deepwater and Ultra-deepwater Market Report states that the largest proportion of deepwater investment to be directed towards pipeline installations; comprising 39% of total global deepwater expenditure – and clad pipes would constitute a healthy share of this offshore pipeline investment.
For example, according to our estimates, each of the 158 highly corrosive oil and gas fields now being developed around the globe will require an average of 10 kilometers of clad pipe, a demand that equates to $6 billion worth of clad pipe over the next two years. Equally important, the need is urgent: many projects are being held up by the lack of availability of clad pipes.
Q. That segues nicely into the next question. What can be done to overcome these
bottlenecks in clad pipe availability?
A. The current state-of-the-art technologies — weld overlay and laser cladding — were introduced more than six decades ago, and have seen only marginal improvement in performance over the years. The main challenge is producing clad pipe that takes less time to manufacture and that lasts significantly longer.
Our CermaClad technology enables a three to six times longer life for metal assets and improved metallurgical and mechanical properties at the lowest lifecycle cost – – results validated by Det Norske Veritas (DNV), one of the world’s largest global risk management and testing labs. Also, as mentioned, our technology is much faster than conventional weld and laser technologies, which means a dramatic reduction in lead times, and it’s more environmentally friendly.
Q. You mentioned an environmental need for newer cladding technologies. Can you
explain that?
Sure. The production of steel is very energy intensive. Every metric ton of steel that is produced (world production was estimated at a record 1,527 million metric tons in 2011) creates 2.4 metric tons of CO2 emissions. This is an under-discussed issue, but one that can have a huge impact on sustainability.
By allowing steel to last up to six times longer, technologies like ours help to dramatically reduce emissions. Then there’s the issue of pipeline integrity: improved cladding techniques also extend the life of pipelines, minimizing the risk of leaks as well as eliminating costly maintenance and downtime. The elimination of downtime is also important in markets where downtime can lead to hundreds of thousands of dollars per hour in lost profits. An example is slurry line applications in the Canadian oil sands market, in which the abrasive, acidic bitumen exacts a heavy toll on pipes and equipment.
Q. Where are the most attractive opportunities for clad pipe outside of the United States?
Brazil. Petrobras, which is our development partner, requires clad pipe in massive quantities for producing oil from corrosive deepwater and pre-salt fields. In addition to Petrobras, some of Brazil’s largest energy and mining companies, including EBX, Vale, Samarco and BHP Billiton Ltd., all have great demand for clad pipe.
For us, this is a huge opportunity. In parallel with the ramp-up at the Euclid facility, we have secured a site for our first 4-line pipe manufacturing facility in Brazil, which will have a manufacturing capability of 90 kilometers of 10-inch clad pipe. We also see a huge opportunity to expand global operations in Indonesia, South America, the Middle East, and Australia – geographies where the oil and gas industry operates in corrosive environments. We plan to expand to those markets in the near future.
Robert Miller has been working with early-stage companies for almost three decades
and has been the principle investor in over 50 business ventures. In this capacity he has
founded companies, listed numerous companies on the NASDAQ and Toronto Stock
Exchanges and worked fulltime and consulted to numerous startups. Prior to working
directly with these companies, Mr. Miller worked as a stockbroker, investing on behalf of
a large base of individual and institutional clients. He is an experienced private investor,
having raised over $400 million in early-stage investment capital. For more information
on Abakan, please visit www.abakan.com.
