Thursday, January 29, 2009

About the Pipe

Steel prices have dropped due to the global financial worries. Delays and cancellations of large energy projects are starting to effect pipe mills (LINK) .

In particular, there is a growing demand from energy firms for X-100 and X-120 grade steel pipe that is 48 inches or larger in diameter. X-100 and X-120 are specialty steel alloys consisting of nickel, chromium, molybdenum, niobium, titanium, and copper.

Currently, X-100 and X-120 grade steel pipes are manufactured solely by Nippon Steel and Mitsui.

North American pipe-makers currently offer large diameter pipe with X-70 and X-90 steel grades.
Here's the math: Less steel is needed to build a high pressure gas line if you use high strength steel (X-100 & X-120) vs. lower strength steel (X-70 or X-90). Less steel equals less cost, reduces the customer cost paid for the natural gas.

The Japanese have long term needs for natural gas in the form of LNG, the technological ability to supply high strength pipe, and open capacity to produce the pipe. Why haven't they stepped forward for an equity position in an LNG project?

For Alaskans and the Alaska gas producers there are several advantages over the proposed Canadian pipelines:
  1. Reduced cost (shorter pipeline)
  2. 100% In State All-Alaska All-USA pipeline.
  3. Equity partner / Long term customer, reduces project cost and nails down future income model.
  4. Market Flexibilities - LNG can be sold to multiple markets (West Coast / Asia) vs. a single market via pipeline.

3 comments:

another engineer said...

There are serious downsides to LNG. For one there are no LNG terminals on the West Coast of the US. The nearest one is in Mexico. Shipping LNG to other nations of the Pacific rim would work if an export license could be obtained. That's a big IF. Perhaps the biggest problems with LNG are the energy losses necessary to convert gas to LNG. Those losses alone are enough to make the project uneconomic.

AK Engineer said...
This comment has been removed by the author.
AK Engineer said...

Correct on both issues - Sooner or later the West Coast will get an LNG terminal.

The energy cost of LNG is reflected in the price. Here's a link to a good $/BTU comparison: http://iis-db.stanford.edu/evnts/3917/jensen_slides_rev.pdf.

The point is that LNG competes in different markets so a one to one cost comparison is not entirely valid.

I have trouble putting a dollar value on the All-Alaska All-USA aspect of a LNG project. With the pipeline only option the Canadians control the gas - Look at Europe to see what happens when you have valve at a national border.

A viable "Plan B" can be short branch to Valdez if revenues from Canada don't meet expectations.